Biases and Heuristics

Pearl Malhotra
MPPO – 1-Oct-2018
Read only when you are asked. Go question by
question as requested by the instructor.
 What’s happening?

• Anchoring bias
• Representative bias (similarity, randomness)/ Gambler’s fallacy (next time it’s going to be it)/
Regression fallacy (common cold)/ Conjunction fallacy (the Linda problem)/ Disjunction fallacy
(the biology student)
• Availability heuristics (the mental patient study)
• Framing Effect (Late fee vs. early registration)
Framing Treatment A Treatment B
"A 33% chance of saving all 600 people, 66% possibility of
Positive "Saves 200 lives"
saving no one."
"A 33% chance that no people will die, 66% probability that all
Negative "400 people will die"
600 will die."
 What’s happening?

• Loss Aversion (teacher’s bonus/ endowment effect – seller vs. buyers estimation
etc./ poor choices) – extension of framing

• Mental Accounting (Sunk cost – e.g. Tennis lessons, Ski passes and bad weather,
yearly vs monthly gym membership & exercise, pennies a day strategy)

• Intertemporal discounting (cookies and chocolates, lottery shenanigans)

• Stereotyping (social biases)/ Self-serving bias/ Fundamental attribution error/

Choice overload
 Self-interest Affective bias Group think

The Saliency bias Confirmation bias Availability bias

checklist
for
biases Anchoring bias Halo effect
Sunk-cost fallacy/
Endowment Effect

Over-confidence,
planning fallacy,
Disaster neglect Loss Aversion
optimistic biases &
competitor neglect
Informal fallacies in an argument
• Ad Hominem: irrelevant attack on arguer
suggesting that the argument is undermined by the
attack (e.g. TV-panels)

• Ad Verecundiam: appeal to authority; X is so

because Y said it! (Theophilus Painter and the case
of 24 chromosomes)

• Poisoning the well: pre-emptive attack on a person

in order to discredit their testimony or argument in
advance
System 1 vs System 2
• Involuntary/ intrinsic
• Cognitive bias
• Irrational behaviour (preferences for certain
$ BANK
coffee sizes, gasoline categories etc.) BANK
• Create a choice architecture
• Memorisation / categorisation
• Mental models

For example:
Context is complicated:

Visual cues, memories & associations

Goals, anxieties etc

System 1 – suppresses alternative theories when a

story has been formed
Cognitive bias mitigation
• Theory of decision points
• Rethink relational impact
• Rational analysis (obviously) Self
• External opinion
• Recognise patterns
• Nudges
• Pure incentives Others
• Reframing
 Healthy food for kids (India, USA)

Arrows for direction (Pay & Save/ Metro stations)

Organ Donation (Austria)

Common Big Bin, little bin

Nudges Tax paying notices in UK

Paid to quit (Philippines)

Women in ads
Solve the garbage
problem in India