Biases in Decision-Making 🧠

Biases significantly influence decision-making by distorting the way information is perceived, interpreted, and acted upon. They can lead to irrational judgments, impaired critical thinking, and poor outcomes. Individuals often make decisions based on subjective judgments or mental shortcuts, rather than objective data or rational analysis. Understanding how various biases affect decision-making can help individuals and organizations mitigate their impact and improve decision quality.

Key Decision-Making Biases

⚖️ (1) Anchoring Bias

• Definition: Anchoring bias occurs when an individual relies too heavily on an initial piece of information (the “anchor”) when making decisions, even if the anchor is irrelevant or arbitrary. This initial information serves as a reference point and influences subsequent judgments.

• Example: If you see a jacket priced at $500 and then see another one priced at $300, you may perceive the second jacket as a good deal, even though $300 might still be more than what you would normally pay for a jacket. The initial price of $500 serves as an anchor.

💸 (2) Escalation of Commitment (Sunk Cost Fallacy)

• Definition: Escalation of commitment, also known as the “sunk cost fallacy,” occurs when people continue to invest in a decision or project despite it being clear that it is failing or not yielding positive outcomes. This happens because people are reluctant to admit failure or feel they must justify previous investments.

• Example: A company keeps pouring money into a failing product because they’ve already invested millions in its development, rather than cutting their losses and discontinuing it.

🔍 (3) Confirmation Bias

• Definition: Confirmation bias is the tendency to search for, interpret, or focus on information that confirms one’s pre-existing beliefs or hypotheses, while giving less consideration to information that contradicts those beliefs.

• Example: If someone believes that a specific diet is effective, they might only seek out success stories or studies that support that diet while ignoring studies that show its ineffectiveness or potential harms.

⏳ (4) Hindsight Bias

• Definition: Hindsight bias, often called the “I knew it all along” effect, refers to the tendency for people to believe, after an event has occurred, that they would have predicted the outcome. People perceive the outcome as being more predictable than it actually was before it happened.

• Example: After a football team loses a game, fans might claim they knew the team was going to lose, even though, before the game, they were hopeful about their chances.