How to Make Better Decisions: 10 Cognitive Biases and How to Outsmart Them

Part two of my series on Cognitive Biases

What Are Cognitive Biases?

A cognitive bias is a systematic error in thinking. It also works as a mental shortcut to making decisions or judgements. Everyone is susceptible to cognitive bias, no matter their age, gender, or cultural background.

Why do cognitive biases exist? Our brains need to take in an incredible amount of information but it also wants to save as much thinking energy as possible. So, it relies on generalities or rules of thumb (also called heuristics) to help it make hard decisions fast.

You can think of a cognitive bias as an information filter, through which objective information flows and is transformed as it passes through. Like coffee grounds and water changing into coffee — it’s the same ingredients but a slightly different experience once it’s transformed.

We usually rely on cognitive biases when we’re emotional, rushed to decide, or feel social pressure to make a choice. However, everyday thinking and decision-making are subject to cognitive biases as well. In this article, I’ve outlined ten common cognitive biases and ways to avoid them in your everyday thinking.

  1. Affect Heuristic

  2. Halo Effect

  3. Groupthink

  4. Sunk Cost Fallacy

  5. Overconfidence Bias

  6. Confirmation Bias 

  7. Dunning-Kruger Effect

  8. Optimism Bias 

  9. Hindsight Bias 

  10. Cashless Effect 

1. Affect Heuristic

This is the tendency for people to make a decision based on their emotional state. For example, if you associate the concept of innovation with something positive, you’re more likely to judge a new project as being lower risk.

TO AVOID THIS BIAS, ASK YOURSELF:

  • Have I fallen in love with this idea? 

  • Are my emotions outweighing my ration mind?

  • Have I interrogated my emotional state and feeling about this decision?

2. Halo Effect

The tendency for people to let one positive trait guide their total opinion of a person, product, or experience. For example, studies have shown that we consider good-looking individuals more intelligent, more successful, and more popular than less good looking peers.

Learn how brands use the Halo Effect to get us to buy, in this YouTube video: 

TO AVOID THIS BIAS, ASK YOURSELF:

  • What do I really like about this [person/place/idea]? 

  • Do I feel the same way if I imagine this [person/place/idea] without their “halo” trait?

3. Groupthink

The tendency for people in a group to make irrational decisions because they’d rather go along with a group than to debate a decision and risk being labelled as dissenting.

TO AVOID THIS BIAS, ASK YOURSELF:

  • Am I getting on board with this idea just to get along with the group?

  • What would the ramifications be if I disagreed with the group?

4. Sunk Cost Fallacy

The tendency for people to keep pursuing a bad idea because they don’t want to lose the time and money they’ve already invested in it. This fallacy is often described as “throwing good money after bad.”

TO AVOID THIS BIAS, ASK YOURSELF:

  • Am I emotionally attached to the work I’ve already done?

  • If I was an outsider observing the project right now, would I suggest that we kill it or keep going?

  • What’s the worst thing that could happen if I cut my losses and abandon this project?

5. Overconfidence Bias

The tendency for people to let subjective confidence in their own abilities outweigh the objective accuracy of a choice. This is especially true of a topic with which you’re unfamiliar. As scientist Nicholaus Copernicus put it

“To know that we know what we know, and that we do not know what we do not know, that is true knowledge.”

TO AVOID THIS BIAS, ASK YOURSELF:

  • How informed am I in this field? 

  • On a scale of 0% to 100%, how sure am I that I’m right?

  • Would I make the same decision if I was 20% less certain of this choice?

6. Confirmation Bias

Peoples’ tendency to search for, interpret, favor, and remember information that confirms their preexisting choices and beliefs. As author Harper Lee put it

“People generally see what they look for and hear what they listen for.”

TO AVOID THIS BIAS, ASK YOURSELF:

  • Have I sought out conflicting information about my belief? 

  • Do I get emotional when defending my position, or do I have a rational perspective?

7. Dunning-Kruger Effect

The tendency for unskilled people to overestimate their ability to be successful at a task. They lack the self-awareness to objectively measure their competence. 

TO AVOID THIS BIAS, ASK YOURSELF:

  • How new am I to this topic? Am I truly an expert?

  • How confident do I feel about this decision?

  • Is there an expert I can lean on to vet this idea or decision?

8. Optimism Bias

The tendency for people to think they’re less likely to experience something negative or fail. 

TO AVOID THIS BIAS, ASK YOURSELF:

  • Am I understanding the riskiness of this situation? 

  • Have I planned for failure, just in case?

  • What’s the worst thing that could happen if I fail?

9. Hindsight Bias

This is the tendency for people to think that events that have already happened were more predictable than they actually were. Often associated with the statement, “I knew it all along!”

TO AVOID THIS BIAS, ASK YOURSELF:

  • How would I change my decision process if I thought I had a terrible track record at predicting outcomes?

  • What was out of my control, and what was in my control?

  • Hint: Keep a diary and compare your prediction with the outcome. Were you right? Why or why not?

10. Cashless Effect

The tendency for people to spend more money when they use credit or debit cards, as opposed to cash. In other words, the more tangible payments are, the more psychologically painful it is for customers to spend.

TO AVOID THIS BIAS, ASK YOURSELF:

  • Visualize how you’d feel about buying a specific item if you had to go down to an ATM, get out cash, and then physically trade that cash for a product.

  • After doing this exercise, examine your feelings. Are you more or less willing to buy this product?

The Bottom Line

An interesting feature of cognitive biases is that even if you’re aware of them, you still have to stay attentive to what biases might be driving your thinking. You can also follow a process like the one below to help keep yourself vigilant:

  • First, be aware of the common cognitive biases that exist (you’ve started that process with this article).

  • Second, be attentive. Pay attention and actively work to combat cognitive biases in your decision-making process.

  • Last, question yourself. The “ask yourself” considerations in this article are a good place to start, but make sure you have a process in place to de-bias your thinking when making decisions.