Tuesday, November 8, 2011

The Big List of Biases

The psy-fi blog has a big list of biases related to investment, some of which can certainly be extrapolated to cover different spheres of experience. Below are their selections from A-F. See the whole A-Z list here.

Adverse Selection
: you should only offer health insurance to those who don't need it: see Dark Pools and Adverse Selection.
Affect Heuristic: we use feelings not logic to make snap decisions, even when we don't need to: see Risk, Stone Age Economics and the Affect Heuristic.
Akerlof's Lemons: why the market for used cars doesn't work properly: see Akerlof's Lemons: Risk Asymmetric Dangers for Investors.
Ambiguity Aversion: we don't mind risk but we hate uncertainty: see Ambuiguity Aversion: Investing Under Conditions of Uncertainty.
Anchoring: our habit of focusing on one salient point and ignoring all others, such as the price at which we buy a stock: see Anchoring: the Mother of Behavioral Biases.
Authority, Appeal to: we tend to thoughtlessly obey those we regard as being in positions of authority: see CEO Pay: Because They're Worth It?.
Barnum Effect: we see insightful information in random rubbish: see Your Financial Horoscope.
Beauty Effect: we attribute qualities to people based on their appearance: see Trust is in the Eye of the Beholder.
Benford's Law: in finance numbers starting with 1 are more frequent than those starting 2 and so on: see Forensic Finance, Benford's Way.
Bystander Effect: people waiting for others to take the lead when someone else in is trouble: see A Lollapallooza Effect: Capitalism & The Death of Wang Yue.
Choice Overload: too much choice makes us indecisive: see Jam Today, Tyranny Tomorrow?
Clever Hans Effect: we give off unconscious cues that are unconsciously picked up on: see Market Confidence, Tricks and Placebos.
Cognitive Dissonance: the effect of simultaneously trying to believe two incompatible things at the same time; see Fairy Tales for Investors.
Commitment Bias: once we'e publicly committed ourselves to a position we find it difficult to retreat: see Robert Cialdini and the Weapons of Influence.
Confirmation Bias: we interpret evidence to support our prior beliefs and, if all else fails, we ignore evidence that contradicts it: seeConfirmation Bias, the Investor's Curse.
Conjunction Fallacy: the conjunction of two events is always less likely than a single event: see Behavioral Finance's Smoking Gun.
Conversational Bias: we tend to present ourselves in the best possible light, which has knock-on consequences for the relaying of positive and negative information: see Herd of Investors.
Data Mining Errors: if you mine the data hard enough you can prove anything: see Twits, Butter and the Superbowl Effect.
Data Snooping Bias: see Data Mining ErrorsExploiting the Anomalies.
Denomination Bias: we're more likely to spend small denomination notes than large ones: see Fooled by Fluency.
Disaster Myopia: an in-built tendency to forget really nasty stuff after it's stopped happening for a while: see Black Swans,Tsunamis and Cardiac Arrests.
Disposition Effect: we prefer to sell shares whose value has increased and keep those whose value's dropped: see Disposed to Lose Money.
Dread Risk: an irrational fear of extreme events: see Dread Risk: Investing Outside the Goldfish Bowl.
Dunning-Kruger Effect: some people never learn by experience: see Don't Lose Money in the Stupid Corner.
Economic Reflexivity: the way that the economy changes people's behavior, which changes the economy: see Soros' Economic Reflexivity.
Familiarity Effect: being familiar with something makes you favour it: see The Language of Lucre.
Fallacy of Composition: the tendency for individuals to act in their own self interest and, in by doing so en-mass, to cause themselves to lose out: see Panic!
Fallacy of Frequency: we see regular patterns where none exist: see Deep Time and the Fallacy of Frequency.
False Memory: memory is a construction, not a direct recollection : see Financial Memory Syndrome.
Framing: the way a question or situation is framed can determine your response: see Investors, You've Been Framed.
Fundamental Attribution Error: we attribute success to our own skill and failure to everyone else's lack of it: see Profit from Self-Knowledge.

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