Common biases in decision making

Individuals rely on rules of thumb (heuristics) to lessen the information processing demands of making decisions. Heuristics reduce the effort people must put into making decisions by allowing them to examine fewer pieces of information, simplify the weights of information, process less information and consider fewer alternatives in making decisions.

Heuristics may assist us in making producing effective decisions, but it can also lead to systematically biased judgements. When individuals inappropriately apply heuristics, they result in biases. Even most intelligent people are suspect able to biases that result from inappropriate use of heuristics.

Inappropriate application of heuristics results in making decisions that are drastically different from one another. We may incorrectly apply the same decision process that was successful in the past but to a completely different context in the future.

We do not receive clear signals about the quality of our decisions, but may excessively rely on our intuition in determining if to use a particular problem-solving strategy in the future. This may result in systematic errors.

In general there are three general heuristics namely availability, representative and confirmation heuristics. They encompass eleven specific biases. When heuristics are inappropriately applied, they become biases.

Adapted from

Bazerman, M.H. and Moore, D.A., 1994. Judgment in managerial decision making (p. 226). New York: Wiley.

Common biases in decision making

In general there are three general heuristics namely availability, representative and confirmation heuristics. They encompass eleven specific biases.

Cognitive bias

Economists claim individuals are rational decision makers. They collect a lot of information, examine all alternatives and make decisions that maximise personal satisfaction. However, we do not make decisions in…

Heuristic definition

Individuals rely on rules of thumb (heuristics) to lessen the information processing demands of making decisions.

Availability heuristic

The inferences we make about event commonness based on the ease with which we can remember instances of that event.

Retrievability bias

We are better at retrieving some subjects from our memory than other things. Individuals base judgement on commonality and easier base strategies.

Base rate fallacy

People tend to ignore background information relevant to the problem such as base rate. We tend to assume that causes and consequences are related.

Gambler’s fallacy

Simple statistics claims each event in a sequence is equally likely to occur. But individuals believe random and non-random events will balance out.

Small sample size fallacy

Simple statistics state that we are more likely to observe an unusual event in a small sample compared to a large one. Learn more.

Conjunction fallacy

Describes how conjunction is judged to be more probable than a single component descriptor. Intuitively thinking, something appears to be more correct.

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