Tuesday, October 02, 2012

Another example of our thinking with our brains, not our minds

An interesting article by Charles Roxburgh identifies 8 cognitive biases that people should beware of in defining strategy:

  1. Overconfidence: especially in the brains ability to make accurate estimates.
  2. Mental Accounting: The tendency to account for money differently according to where it comes from, where it is kept and how it is used.
  3. Bias in favor of the status quo.
  4. Anchoring: tendency to make new estimates closer to the last estimate than is justified.
  5. The sunk cost effect: otherwise known as throwing good money after bad.
  6. The herding instinct: the tendency to make the same kind of investments that others are making.
  7. Misestimating future hedonic states: people are not good at estimating how good or how bad they will feel in  the future.
  8. False consensus: overestimating the degree that others agree with us.
He suggests measures one can take to counteract each of these biases.

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