What is the Disposition Effect? The Disposition Effect occurs when an individual holds onto a losing investment due to an irrational attachment to it, even if it would be more prudent to sell and move on. This bias is often seen in financial markets, where investors may hold onto stocks that are no longer performing […]
Cognitive Biases: Ambiguity Effect
What is the Ambiguity Effect? The Ambiguity Effect occurs when individuals are faced with a choice between two or more options, one of which has an ambiguous outcome. Despite the potential benefits of the ambiguous option, people tend to prefer the option with a clear and certain outcome, even if it is less rewarding. For […]
Cognitive Biases: Zero-Sum Bias
What is the Zero-Sum Bias? The Zero-Sum Bias occurs when individuals perceive a situation as having only two possible outcomes: win or lose. They tend to believe that if one person wins, another must necessarily lose, and vice versa. This perception can lead people to view interactions and negotiations as zero-sum games, where the objective […]
Cognitive Biases: Time-Saving Bias
What is the Time-Saving Bias? The Time-Saving Bias occurs when people are presented with a choice between taking a shortcut or using a more efficient method to complete a task. Despite the potential benefits of these alternatives, individuals tend to overestimate the amount of time they will save by choosing the shortcut. This distorted perception […]
Cognitive Biases: Subadditivity Effect
What is the Subadditivity Effect? The Subadditivity Effect occurs when people are presented with multiple risks and asked to estimate the total probability of all these risks occurring. Despite having accurate information about each individual risk, individuals tend to underestimate the overall probability by adding up the probabilities in a suboptimal way. For example, if […]
Cognitive Biases: Plan Continuation Bias
What is the Plan Continuation Bias? The Plan Continuation Bias occurs when people exhibit a strong attachment to their original plans and are reluctant to change them, even in the face of new information or changing circumstances. This bias can lead individuals to continue with a plan that is no longer optimal, simply because it […]
Cognitive Biases: Hot-Hand Fallacy
What is the Hot-Hand Fallacy? The Hot-Hand Fallacy occurs when people mistakenly attribute short-term success to skill, ability, or some inherent quality, rather than recognizing that luck, chance, and randomness play a significant role. This bias leads individuals to overestimate their own abilities, as well as those of others, based on limited samples of performance. […]
Cognitive Biases: Gambler’s Fallacy
What is the Gambler’s Fallacy? The Gambler’s Fallacy occurs when people assume that a random process will correct itself in the short term, resulting in an unrealistic expectation of future outcomes. This bias is rooted in the misunderstanding of probability and randomness. In reality, each event in a sequence of independent trials (such as coin […]