Monday , 17 January 2022

Better Recognize Your Investment Biases – Here They Are

There are over 180 cognitive biases that interfere with how we process data, think critically, and perceive reality. Today’s infographic comes to us from School of Thought, a non-profit dedicated to spreading critical thinking. The graphic describes 24 of the key biases that warp our sense of reality, providing useful examples along the way.

This post by Lorimer Wilson, Managing Editor of munKNEE.com, comes from Jeff Desjardins of VisualCapitalist.com

24 Cognitive Biases That Are Warping Your Perception of Reality

At the beginning of the infographic, you may have noticed illustrations of two gentlemen…[and they] represent Daniel Kahneman and Amos Tversky, two of the leading social scientists known for their contributions to this field. Not only did they pioneer work around cognitive biases starting in the late 1960s, but their partnership also resulted in a Nobel Prize in Economics in 2002.

Biases Distorting Reality

Here are some of the biases we found most interesting from the list:

Declinism:
You remember the past as better than it was, and expect the future to be worse than it is likely to be. This is an interesting one, since statistically this is one of the most peaceful and prosperous times in history—yet the 24-hour news cycle rarely reflects this. (For a good example how the world is improving, see these six charts)

Just World Hypothesis:
Your preference for a just world makes you presume that it exists. Of course, it’s much more uncomfortable to think that the world is unfair, but by understanding this you will make more accurate judgments about people and situations.

Belief Bias
If a conclusion supports your existing beliefs, you’ll rationalize anything that supports it. In other words, instead of willingly looking at new information, we are primed to defend our own ideas without actually questioning them.

Framing Effect:
Context and delivery can have a big impact on how a story is interpreted. We must have the humility to recognize that we can be manipulated, and work to limit the effect that framing has on our critical thinking.

The Curse of Knowledge
Ever try to explain something you know intricately and have worked on for many years? It’s hard, because you’ve internalized everything you’ve learned, and now you forget how to explain it. This bias is similar—you know something inside and out, and what is obvious to you is not to others.

Reactance:
Sometimes we all get the urge to do the opposite of what we’re told. Nobody likes being constrained. The only problem is that when we’re in this situation, there is a tendency to overreact and to throw any logic out of the window.

Spotlight Effect:
Because we each live inside our own heads, our natural focus is on what we’re thinking and doing. We project this onto others, and we overestimate how much they notice about how we look or how we act.

Want to see more on cognitive biases? Here are 188 of them in one infographic.

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