Tutorial 1 cognitive biases

Question 1

Availability bias

Answer 1

Reliance upon the knowledge that is readily
available in the mind rather than examining
additional sources of information.

ex. After reading an article about lottery winners, you start to
overestimate your own likelihood of winning the jackpot.

Question 2

Anchoring bias

Answer 2

Giving disproportionate weight and fixation to
the initial information the mind receives without
adequate adjustment for subsequent
information

ex. If you first see a T-shirt that costs $1,200 – then see a second
one that costs $100 – you’re prone to see the second shirt as
cheap.

Question 3

Confirmation bias

Answer 3

Only seeking information that confirms pre-
existing views or past choices and ignoring
information that supports alternative
judgments.

ex. An employer who believes that a job applicant is highly
intelligent may pay attention to only information that is
consistent with the belief that the job applicant is highly
intelligent, while neglecting negative character traits

Question 4

Conjunction fallacy

Answer 4

Overestimating the likelihood of a scenario with
more detail than with less. More specific
conditions are seen more probable than general
ones.

ex. A person is reading the financial section of the New York Times
on the subway. When asked whether it is more likely that (1)
she has a PhD, or (2) she has a PhD and works in the financial
sector, people tend to choose for option 2

Question 5

False consensus bias

Answer 5

Overestimating the extent to which own
thoughts, opinions, beliefs, and experiences are
common and shared by others

ex. 53% of a group agrees to something and suspect 83% to agree
with them as well. While 47% disagrees and they expect that
79% to disagree as well.

Question 6

Framing effect

Answer 6

Decisions are influenced by the way or
expression of how logically equivalent
information is presented

ex. Proposing the risk of losing 10 out of 100 lives vs the
opportunity to save 90 out of 100 lives. Most people would
choose the latter, while it has the same resul

Question 7

Halo effect

Answer 7

Drawing overall impressions about something
based on only a single character

ex. When a person finds out someone they have formed a positive
gestalt with has cheated on his/her taxes. Because of the
positive gestalt, the person may dismiss the significance of this
behavior. They may even think that the person simply made a
mistake.

Question 8

Illusion of control

Answer 8

Overestimating the ability and power to control
events. Illusionary believe to have influence on
things that are beyond one’s control.

ex. One place to look is at gambling. Studies have shown that
people tend to roll dice harder if they want a higher number
and softer if they want a lower number. This is based on a
subconscious (and sometimes conscious) urge to control a
random event.

Question 9

Optimism bias

Answer 9

Believing oneself is less at risk of experiencing a
negative event or more likely to be successful
compared to others neglecting actual
probability.

ex. People underrate their own chance of getting a divorce, and
overate their chance of getting very old

Question 10

Positive outcome
bias

Answer 10

Overestimating the probability of good things
happening and underestimating the probability
of undesirable outcomes.

ex. An investor decides to invest in real estate after learning a
colleague made a big return on an investment in real estate
when interest rates were at a different level

Question 11

Sunk cost fallacy

Answer 11

Judging investment decisions not only on their
own merits but considering costs that have
already been incurred and cannot be recovered.

ex. Individuals sometimes order too much food and then over-eat
just to “get their money’s worth’’.