The fundamental attribution error is the attribution of the source of behaviour to the character and personality of a person above the consideration of context. It's sometimes described as over-attributing causes to disposition over situation.

In a classic example, if a driver swerves in front of you suddenly, it's easy to attribute the cause of the behaviour to the driver being a jerk, i.e. to their character. What we may not see is that the driver is late to pick up their kids, was distracted by a challenging conversation they just had at work, and they're worried they've gone the wrong way and are driving an unfamiliar car.

If a colleague is late to meet us, we might infer that the person is lazy or disrespectful when, in fact, they may have been held up by a traffic accident, been on the phone with a sick relative, and have had trouble sleeping lately. If we are late for a meeting, well, then it's probably for all sorts of good reasons outside our control.

Like confirmation bias, the fundamental attribution error is a big one that can easily colour our interactions with others without us being aware of it.

Remember that what we see is just a tiny fraction of any other person's life and that we don't see the complete picture.

Minimise judgment, particularly around character and personality.

Where appropriate, ask if anything is bothering others.

Build empathy for others as you would for yourself.

Reflect on the positive things others do.

The Fundamental Attribution Error

The Barnum effect is our tendency to apply personal meaning to statements that could apply to many people.

For statements such as the results of a personality test, the effect is stronger if:

they are sufficiently vague — handy phrases include "at times," "a tendency to," "some of," etc.

they are mostly positive — we're more inclined to accept positive evaluations of ourselves than critical ones

You may recognise these tricks from a horoscope or your star sign, magicians, fortune-tellers, fortune cookies, con artists and, perhaps, marketing. There's a fascinating magician's technique you may have seen called cold reading that uses the Barnum effect with other tricks ("I see someone with heart pain in your family.") to make it seem like they know a lot of personal details about someone at a first meeting.

Originally from Bertram Forer, who called it "the fallacy of personal validation," it was later known as the Forer effect until Paul Meehl suggested it should be named the Barnum effect after P. T. Barnum (now of The Greatest Showman fame) for the way he could easily fool an audience with these techniques and to emphasize that we should all know and be on the lookout for being fooled. For that reason, I called it the same here.

Bertram Forer ran an experiment with his students (pdf), giving everyone the same results for their individual personality assessment. Generally, the students all thought the same description applied very well to themselves. He used these statements taken "largely from a newsstand astrology book":

You have a great need for other people to like and admire you.

You have a tendency to be critical of yourself.

You have a great deal of unused capacity which you have not turned to your advantage.

While you have some personality weaknesses, you are generally able to compensate for them.

Your sexual adjustment has presented problems for you.

Disciplined and self-controlled outside, you tend to be worrisome and insecure inside.

At times you have serious doubts as to whether you have made the right decision or done the right thing.

You prefer a certain amount of change and variety and become dissatisfied when hemmed in by restrictions and limitations.

You pride yourself as an independent thinker and do not accept others' statements without satisfactory proof.

You have found it unwise to be too frank in revealing yourself to others.

At times you are extroverted, affable, sociable, while at other times you are introverted, wary, reserved.

Some of your aspirations tend to be pretty unrealistic.

Security is one of your major goals in life.

I learned about it from a discussion of the Meyers-Briggs test (I'm an ENTP btw).

Here's Paul Meehl advocating for the Barnum effect:

"Many psychometric reports bear a disconcerting resemblance to what my colleague Donald G. Paterson calls “personality description after the manner of P. T. Barnum” ... I suggest—and I am quite serious—that we adopt the phrase Barnum effect to stigmatize those pseudo-successful clinical procedures in which personality descriptions from tests are made to fit the patient largely or wholly by virtue of their triviality; and in which any nontrivial, but perhaps erroneous, inferences are hidden in a context of assertions or denials which carry high confidence simply because of the population base rates, regardless of the test’s validity. I think this fallacy is at least as important and frequent as others for which we have familiar labels (halo effect, leniency error, contamination, etc.). One of the best ways to increase the general sensitivity to such fallacies is to give them a name. We ought to make our clinical students as acutely aware of the Barnum effect as they are of the dangers of countertransference or the standard error of r."

Meehl, P. E. (1956). Wanted—a good cook-book. American Psychologist, 11(6), 263–272. https://doi.org/10.1037/h0044164

The Barnum effect

A self-serving bias is one where we attribute our failures to external factors and our successes to our own admirable qualities and efforts.

So, a tennis player might internally credit their athleticism and skill for their victory, while the loser may blame the umpire's decisions, their racket or the court. You might have seen it in professional sports.

Self-serving bias may be rational and positive, maintaining our self-esteem and a positive view of ourselves. Conversely, it can hide reality (and give referees and umpires a more draining job) or cause us to reject negative but objective feedback.

Self-serving bias is a form of attribution bias where we misattribute behaviours or events to characteristics rather than circumstances or vice versa.

Self-serving bias is covered nicely (pdf) by Donelson R. Forsyth in the International Encyclopedia of the Social Sciences, 2nd Edition.

Self-serving bias

Attribution bias includes a set of more specific biases where we may attribute behaviour to fixed personality traits or characteristics of a person rather than specific circumstances or actions.

For example, a child may be labelled a genius or gifted when they actually had a supportive environment and worked hard, or someone may be labelled a loser rather than recognising specific circumstances that led to some failures.

Criticism — one of the four horsemen of relationship apocalypse — can become toxic when it's attributed to someone's personality traits. For example, calling someone 'lazy' rather than sharing how it makes you feel when they don't keep the place tidy.

A form of attribution bias may be applied to whole societies via the Destiny Instinct.

Specific examples of attribution bias include the fundamental attribution error and self-serving bias.

Attribution bias

Optimism bias is a tendency to believe that things will turn out well in spite of past evidence or circumstances.

It can be extremely helpful. It allows us to attempt things that many may deem impossible. It probably helps drive entrepreneurs even when everyone is doubting them. Optimists are often healthier and happier.

But it can also undermine us. We might overestimate our chances of success because of what we want to happen rather than what's likely to happen. We may feel pressure from others to give a rosier outlook — like when you might underestimate a timeline when speaking with your boss. We might want others to succeed, or they may be paying us money and be hoping for good news. We probably think we'll get more done next week. We probably think we'll be more disciplined than we will be. We might think that this time it'll be different, or that everyone can't be wrong. Or we may be just discounting evidence without realising it.

Optimism bias

The Rhyme As Reason Effect suggests that we're more likely to consider something as accurate or truthful when it rhymes. In a lovely study that asked people to consider the accuracy of both rhyming and non-rhyming aphorisms, "Woes unite foes," or "What sobriety conceals, alcohol reveals," for example, were considered more accurate than "Woes unite enemies," or "What sobriety conceals, alcohol unmasks."

A classic example outside of old sayings is OJ Simpson's trial where the defense attorney memorably noted "If the gloves don't fit, you must acquit!"

You can read the study in the delightfully titled paper, Birds of a feather flock conjointly: Rhyme as Reason in Aphorisms (pdf), by Matthew McGlone and Jessica Tofighbakhsh.

In a related note I was always curious how "Beer before wine, you'll feel fine," tallied up with what I heard in the US: "Beer before liquor, never been sicker," or even "Grape or grain but never the twain." It turns out from a neat 2019 study that, whichever way round you rhyme them, they have no effect on your hangover despite how persuasive the Rhyme As Reason effect may be — even after a few beers.

The Rhyme As Reason Effect

Brilliance bias is the tendency for people to think of 'brilliance' as generally a male trait. With fewer women generally recorded in the history books, the brilliant people that come to mind from a young age tend to be men.

Underrepresentation has consequences. Careers that are generally understood to require 'brilliance' to succeed such as maths, physics, or philosophy, are likely to have fewer women working in them. Even at school age, attitudes start to shift in both girls and boys. For example, having interest in games that require you to be 'really smart' or whether, when asked to draw a scientist, we draw a woman or a man. We need to stop teaching brilliance bias and we need to celebrate the many female role models we have.

My sister shared with me a page on drawing famous faces that showed 49 men to draw, and an example of the board game Guess Who having as many women to guess as it has men with facial hair as an attribute.

I learned about brilliance bias, including the examples here, from Caroline Criado Perez's eye-opening book Invisible Women.

Brilliance bias

In much of life we're used to things adding up — got one scoop of ice cream? Two is likely to be better. Buying one thing? Getting another free is probably a good thing. The dilution effect, however, illustrates an interesting action of our brain when evaluating our options. Niro Sivanathan showed that when displaying possible side-effects of drugs, if you were to add another side-effect, a minor one like 'itchy feet', instead of the extra negative side-effect increasing our overall perception of the risk of the drug it actually lowered it. So, people would deem a drug with the side effects heart attack, stroke, and itchy feet, as less risky than one with just heart attack and stroke.

In another clever experiment by Christopher Hsee at the University of Chicago, people were willing to pay less for a new dinnerware set when the set was actually larger but also included some broken items. Even though a set had more intact items the presence of a few broken ones decreased the set's perceived value.

And the same may be true when making an argument to persuade someone to see our point of view. If you have 2 strong points and 1 weaker one, your argument may actually be made weaker by adding the extra point. As Niro Sivanathan, an Associate Professor of Organisational Behaviour at London Business School, explains: Arguments don't add up. They average out.

Next time you're making your case, consider sticking to your strong arguments.

Hear Niro Sivanathan explain the dilution effect in his 10 min TED talk The counterintuitive way to be more persuasive

The paper: Sivanathan, N., Kakkar, H. The unintended consequences of argument dilution in direct-to-consumer drug advertisements.Nat Hum Behav 1,797–802 (2017).

The dilution effect

There are a lot of reasons why it can make sense to go with the majority. Going with the popular view is a shortcut for taking the time and effort to make our own decisions from scratch. We might reason that if others believe it, then it's probably true. But we can also keenly feel the desire to conform to the majority view because it's uncomfortable to hold a different opinion — the easy choice is so often to go with the flow even if, deep down, you disagree. So we get the bandwagon effect.

The bandwagon effect can lead to the Abilene paradox — where a group can make a decision that no one in the group agrees with. On a night out it may lead to just following the crowd, but in a company it could lead to launching a product that no one thinks is good or, more seriously, in safety critical industries like airlines, if people don't feel comfortable speaking up against the group or authority it could lead to accidents.

The bandwagon effect

So the story goes, as told by Stephen Sigler, Nature May 1989:

"The US military studied fighter planes returning from missions to try to improve their survival rate and were considering adding heavy armour to those parts of the plane that tended to show the greatest concentration of hits from enemy fire, until statisticians pointed out the fallacy of that argument. The more vulnerable parts of the plane were those with the fewest hits; planes hit there tended not to return at all. The single most vulnerable part, the pilot’s head, was without serious scar in the sample of planes that returned."

It’s easy to draw correlations from what we see in front of us. But what we see usually represents just a small part of what has happened. Focusing on the evidence we can easily see at the expense of that we can’t leads to survivorship bias. To say it another way, when Bill Gates drops out of college and starts Microsoft it might seem like dropping out is a path to success for others too, but that ignores all the dropouts who didn’t create Microsofts and consequently you didn’t hear about.

Silent evidence — the evidence that we don’t or can’t easily choose to consider — is a term from Nicholas Nassim Talleb.

When trying to discover the veracity of the planes story I enjoyed Bill Casselman’s American Mathematical Society article on The Legend of Abraham Wald. The postscript points to some of the source behind the story including a mention of Stephen Sigler’s letter in Nature quoted above.

I covered survivorship bias before, but I like this story so much I thought it was worth doing again.

Survivorship bias

Fading affect bias is the name given to the fact that the intensity of emotion, or the affect, of our bad memories seems to fade faster than for our good memories.

This means that, say, our happy memories keep us happier for longer, and our bad memories don’t affect us as much in the future. It’s called the fading affect bias, as the fading is biased more strongly for negative memories.

This is handy as it naturally gives us a more positive disposition. So, for instance, after some time has passed, we may find we remember the good parts of a holiday — like an amazing beach — more clearly than the bad — like the mosquitoes at the beach. And thinking about the good parts keeps making us happy longer than thinking about the bad parts might make us sad. Brilliant!

This is a different use of affect than the common affect/effect confusion.

Fading affect bias

We have a natural tendency to think that big events must have big causes. For instance, in one study, participants who were told that a plane had crashed and everyone died were more likely to believe it was a terrorist incident than one in which they were told a plane had crashed but people survived. It might also help explain why, when we want to roll that big lucky number to win, we might find ourselves giving the dice an extra shake before rolling, as if the extra effort might lead to the better outcome.

Normally, proportionality bias makes a lot of sense, but sometimes it leads us astray. Working with software, for example, might help train this out of us as a mere misplaced comma can bring entire systems grinding to a halt. And small changes to ecosystems, or, say, a small temperature rise on a planet, can lead to massive consequences.

Proportionality bias is considered one of the drivers of conspiracy theories. For example, we might be inclined to think that someone like Lady Diana couldn’t possibly have just died in a driving accident — there must be more to it. Or JFK couldn’t have been killed just by a lone gunman — there must be a larger plot at work.

Proportionality bias

The destiny instinct is the mistaken belief that people, countries, cultures, or religions can't change. But even slow change can lead to large changes over time.

Change tends to happen slowly in large, complex things like people, countries, religions, or cultures. And because the change is small, we might think they’re not changing at all. Our instinct may be that they can’t, in fact, change because of their innate characteristics. But the destiny instinct misleads us.

Small change adds up to big changes over enough time. And while things may not seem to change in a week or a month, or a year, when you look back over decades, huge changes can happen. Changes in poverty, life expectancy, economies, women’s rights, or attitudes to homosexuality — things that may have seemed at one time that they were hardly changing at all —  have all transformed when we look back over sufficient time. Change that may not have seemed like it was adding up to much is still change.

Read more from the Roslings: Culture, nations, and religions are not rocks — they’re always changing.

And, at a time of the year perfect for reflection, here are four ways to control our destiny instinct from Gapminder:

Keep track of gradual improvements. A small change every year can translate to a huge change over decades.

Update your knowledge. Some knowledge goes out of date quickly. Technology, countries, societies, cultures, and religions are constantly changing.

Talk to Grandpa/Grandma. If you want to be reminded of how values have changed, think about your grandparents’ values and how they differ from yours.

Collect examples of cultural change. Challenge the idea that today’s culture must also have been yesterday’s and will also be tomorrow’s.

The Destiny Instinct

The availability heuristic is a deceptively simple, almost too simple to notice, heuristic where we consider the likelihood of events by the ease with which relevant instances come to mind.

In simple terms, things that we can easily recall or where we can think of examples, we generally consider as more important or more common than other things. A heuristic is  a mental shortcut to solve a common problem.

If we were asked to consider the divorce rate in the community, we might evaluate that by considering how many of our acquaintances are divorced. If none of your friends are divorced, you’re naturally less likely to think the divorce rate locally will be high.

In many situations, it makes good sense to give credence to what you remember easily. However, in situations involving probabilities, in particular, the heuristic will lead us predictably astray such that more often I think of it as an availability bias — a predictable pattern of thought and behaviour leading to incorrect conclusions. 

So, the vividness of shark attacks causes us to overrate how likely they are to actually occur. Or we’re more likely to worry about lions than hippos, even though hippos kill more people each year than lions. Or the risk of being struck by lightning vs stuck by a car crossing a road. Or, the prevalence of violent crime on the news compared to the likelihood of you being a victim. Or the fact that it’s cold outside and yet the planet is gradually warming.

Here’s a 1973 Kahneman and Tversky paper: Availability: A Heuristic for Judging Frequency and Probability

The availability heuristic (and bias)

The Implicit Association Test (IAT) is an amazingly simple way to uncover if and how strong your implicit biases may be. For example, you could test if you have a bias on gender roles (as in the sketch), race, religion or in fact any attitudes you may have. You could forget about reading this and simply go take the Implicit Association Test online now and you’ll get the idea and perhaps surprise yourself.

In the example I gave in the sketch, you could see how strong your biases are for traditional gender roles by measuring the difference in time it takes to sort first career words towards men and home and family words towards women, and then sorting the other way around.

It’s fascinating, and a little uncomfortable, to see your implicit attitudes so clearly come to light. Don’t forget to try taking a test.

The Implicit Association Test

I like the spotlight effect because it basically shows that most of us can just relax a bit and not stress about what other people think — because they’re probably not thinking about us, they’re probably thinking about themselves.

I probably only remember it because of the effect effect

The spotlight effect

The effect effect is the undoubted extra stickiness and shareability of an idea by calling it an effect.

There’s something about summing up a piece of research or an observation with the name effect that makes it a whole lot easier to communicate and remember.

The more solar panels installed in a neighbourhood the greater chance of a growth of solar panels in that neighbourhood

And, for those of you wondering why it’s not the affect affect, here's a sketch explaining when to use affect vs effect

Perhaps because of the effect effect, I've covered a lot of effects already in sketches (though there are many more to do). See all "effect" sketches

The Effect Effect

It turns out when our body gets excited about something, we can’t reliably tell what caused the excitement.

In David McRaney’s brilliant article, he explains how we routinely misattribute physiological arousal and how the most common target of misattribution is other people. It’s part of why doing challenging or exciting activities with your partner can help strengthen your relationship, and why roller coasters and scary movies can make great first dates — when we reflect on the time, we often assume that it was the person we were with that helped get our heart racing rather than the excitement of the activity.

The misattribution of arousal

The Lucretius problem is our tendency to believe that the worst possible thing that can happen is the worst possible thing we know has happened. The name was given by Nicolas Taleb in his book Antifragile.

So, should we plan to stress test an investment portfolio, for example, we might test it against how it fared in the worst market crash. Or stress test a building for the biggest known earthquake or a nuclear reactor for the biggest known tsunami. And yet, when each of these events happened, they were bigger than what had come before, and the same could happen again.

Lucretius was a Roman philosopher who wrote that:

"The fool believes that the tallest mountain in the world will be equal to the tallest one he has observed."

Also known as The Lucretius underestimation.

See other sketchplanations on cognitive biases.

The Lucretius problem

Psychic numbing is the phenomenon where we find it increasingly hard to empathise with the plight of larger numbers of people.

A story about a family who needs help is much easier for us to relate to than, say, a story about 1000s of people displaced or dying. As the number increases, the situation gets more abstract, and we just can’t connect with it.

See the work of Paul Slovic or this super article by Brian Resnick: A psychologist explains the limits of human compassion

Other contexts where we see psychic numbing are the general withdrawal of people and societies from potentially major catastrophes that seem unlikely to happen. Individually, it may also be reduced engagement with a past traumatic experience.

I read in Murphy's Law Book Two, by Arthur Bloch, Fuller's Law of Journalism, which goes, "The further away the disaster or accident occurs, the greater the number of dead and injured required for it to become a story."

Psychic numbing

Mean world syndrome is the name given to the observation that people who watch more TV seem to believe the world is a more dangerous place than people who watch less.

It's likely due to the prevalence of violence on TV and coverage of extreme events that are actually quite rare in most people’s lives.

The term comes from cultivation theory — broadly the study of the long-term effects of television — which has a more general idea that people who watch a lot of TV tend to see reality more like the reality they see on TV.

Mean world syndrome

It turns out that, when considering how enjoyable, or indeed how painful something was, we don’t mentally do an average enjoyment check to decide if it was good or bad. Our minds are swayed by the peak and end levels. So, an experience that may have been dull for most of it, if it had a cracking bit in the middle and ended on a high, will generally be remembered as more enjoyable than something that was decent all the way through but never reached those highs.

Here’s a classic study of the pain side of the phenomenon from Dan Kahneman:

"Kahneman and his associates showed, in 1993, that participants exposed to 30 seconds of 14-degree ice water (very cold!) rated the experience as more painful than participants exposed to 90 seconds of exposure to 60 seconds of 14-degree ice water plus 30 additional seconds of 15-degree ice water. In other words, participants found the 90 seconds of ice water exposure less painful than those exposed to 60 seconds of nearly equally cold water because the 90 seconds ended with exposure to a “warmer” stimulus. We will rate an experience as less painful then if it ends on a slightly less painful way. The “peak-end” in this case was a one-degree difference in water temperature."

From Susan Krauss-Whitbourne PhD, Happiness: it’s all about the ending, Psychology Today.

The peak-end rule

The nocebo effect is how the expectation of pain or negative effects of a treatment increases the chances people will feel them — even if they're aren't any. So, tell someone that a treatment will hurt or have side-effects and they're now more likely to feel that pain or find something wrong.

Taken together with the placebo effect I guess we might do well, for normal affairs, to let people know that what they will get will probably help them and not raise unnecessary expectations that something might hurt.

The nocebo effect

The placebo effect is the remarkable yet commonplace fact that when people expect a treatment to help, it can, even if the treatment doesn't actually do anything.

The placebo effect

The Fresh Start Effect explains why we’re more likely to tackle meaningful goals or form new habits at the start of a day, week, month, or year. These fresh beginnings—like a birthday, moving to a new house, or even a Monday morning—are powerful mental triggers that motivate us to take action and start anew.

It’s fascinating how the simple act of marking a “start” can make us more open to change and new challenges. Whether it’s the first day of the year or the start of a new chapter in life, these moments provide a sense of renewal and opportunity.

We explored this idea on the podcast: Listen to The Fresh Start Effect on the Sketchplanations podcast

And you can also hear about it from Katy Milkman herself, Professor at The Wharton School of the University of Pennsylvania, on the Freakonomics podcast: When Willpower Isn’t Enough.

The fresh start effect

We love it more if we made it. Or, more scientifically perhaps, the IKEA effect is ‘the increase in valuation of self-made products,’ when we have put more effort into it. 

Turns out, if we’ve put effort in ourselves we’re also likely to think that others will like it even more just as we do—usually not the case. But for us at least, more effort = more love.

Watch Dan Ariely do a great job explaining some experiments that lead to this conclusion, or read the full paper, The “IKEA effect”: When Labor Leads to Love (pdf), Norton, Mochon, Ariely HBS working paper, 2011.

Dan points out that kids are the ultimate expression of the IKEA effect: they’re very hard, they don’t come with instructions and they take a lot of effort.

Also see The Betty Crocker Effect, or ‘the egg theory.’

The IKEA effect

The reason, generally, is simply that all those times previously, we weren’t tuned in to notice what’s top of mind now. The frequency likely hasn’t changed a bit, but our noticing of it has.

Also known as the Baader-Meinhof Phenomenon.

The frequency illusion: we notice what’s top of mind

These terms come around a bit, and I wanted to get them clear in my head so I understood the difference.

Cognitive biases are predictable patterns of thought and behaviour leading to incorrect conclusions. Things like anchoring, where we are predictably led astray by the presence of a previous number we have seen.

A heuristic is a mental shortcut to solve common problems. Things like social proof, how if others seem to like something that’s a shortcut for "we’ll probably like it."

A logical fallacy is a flaw in our reasoning, leading to a faulty argument. Things like the sunk cost fallacy, where we will sometimes make ourselves unhappy in the future because of something we’ve already done that we can’t change. The logical step would be to choose the path that would make you happiest in the future regardless of any sunk costs up to now. Turns out that’s hard.

Cognitive bias, heuristic, logical fallacy: hidden features of the mind

Update: More recent research has brought into question the captivating notion of ego depletion with difficulties reproducing some key experiments and suggesting other factors may be at work.

In his book You are now less dumb, David McCraney explains an concept called ego depletion with the basic idea that our brains require fuel, particularly the decision-making and glucose hungry pre-frontal cortex. Every time you have to make decisions or deal with difficult situations it tires you such that we have a sort of finite amount of will power. If you spent the morning battling to get the kids dressed and out the door, then jostling your way through a crowded commute, by the time you get to work you’re more likely to say ‘whatever’ to any decisions that come your way. Making decisions is hard work.

McCraney brings up a remarkable, and slightly disturbing, study by Shai Danziger which followed eight Israeli judges as they decided on over 1,000 parole applications. The findings show that prisoners were most likely to be granted parole first thing in the morning, after a snack break, and right after lunch. If you were unlucky enough to be up for parole just before lunch, bad luck.

If you want the most control over your own mind so that you can alter your responses to the world instead of giving in and doing what comes naturally, stay fresh. Take breaks. Get some sleep. And until we understand what ego depletion really is, don’t make important decisions on an empty stomach.

Here’s a nice summary of Shai Danziger’s parole study in the Economist including a remarkable chart.

Don’t make important decisions on an empty stomach

Dan Kahneman and Amos Tversky’s behavioural economics theory modeling how we make decisions. It illustrates, among other things, some of the non-rational decisions we make as we are guided by emotion and heuristics in decisions. The sketch points out a few of the key points:

Loss aversion - the different shape of the curves as we make gains or losses (either side of the centre) represents how a loss of £100 annoys us much more than a gain of £100 gives us pleasure.

Diminishing sensitivity - the levelling off of the curves represents that we’ll enjoy winning £100, if we only have £100, much more than we’d enjoy winning £100 if we had £900.

Adaptation level - We don’t evaluate from some absolute level - we evaluate whether something is good or bad from a neutral reference point that we adapt to. So, by the end of a movie the movie theatre doesn’t feel dark, yet walking out feels blinding. Your reaction to the £100 example above was probably affected by whether you think £100 is a lot of money or a little, which is all to do with your adaptation level.

Prospect theory

The technique of adding a significantly more expensive option in order to instantly make the other options look reasonable by comparison. These kinds of manipulations have been shown to be scarily effective.

Pricing decoys are another way retailers get you to part with more money than you planned on. In his book Predictably Irrational, behavioural economist and professor Dan Ariely demonstrates how a large magazine successfully employed a strategy called the “decoy effect” to increase revenue from subscription sales. Prospective subscribers were given three choices:

1.       Web-only subscription for $59
2.       Print-only subscription for $125
3.       Web + print subscription for $125

At first glance, the middle price point appears to be superfluous. Why would anyone buy a print-only subscription for $125 if they could get a web and print for the same price? Ariely tested the price points with MIT students and found that 16% of students chose option 1 and 84% chose option 3; not surprisingly, none chose option 2.

Then Ariely did something really interesting; on the assumption that having a decoy price (option 2) was influencing people’s choices, he removed the decoy and retested the price points. This time, the subscription choices were as follows:

1.       Web-only subscription for $59
2.       Web + print subscription for $125

With the decoy removed, the option that had previously been the most popular – the more expensive print + online access subscription – suddenly became the least popular choice. Only 32% of those surveyed chose the more expensive option, with 68% selecting the online-only subscription. Clearly the middle price point wasn’t superfluous; it was smart marketing that made option 3 look more attractive to subscribers.

Avraham Byers, Here’s why you should always pay full retail price, Financial Post, April 22nd 2014

The decoy price

Where “all the children are above average.” From the intro by Garrison Keillor to the News from Lake Wobegon on the radio show A Prairie Home Companion. Also known as illusory superiority. From the popular studies where, for example, 80% of people think they are above average drivers, when asked to estimate the % of chores done in the household it adds up to more than 100%, and we overestimate our input to project work and it’s impact on its success. For the best treatment I’ve read, and references, see Thinking Fast and Slow by Dan Kahneman.

The Lake Wobegon Effect

We usually only see the winners. The losers tend to disappear from the record. Which is why all the fund managers in the papers seem to be giving great returns, or starting the next Whatsapp or Instagram seems like such a sure fire way to get rich. We don’t see all the funds, apps and entrepreneurs who never made it.

Hindsight bias, Loss aversion and Recency bias. Parents in particular frustratingly seem to suffer from hindsight bias where everything becomes blindingly obvious as soon as a child has dropped the glass/fallen over/bumped into someone. Though ‘careful’ is not so useful after the fact.

Sneaky cognitive biases: hindsight bias, loss aversion, recency bias

Anchoring

Stories feel better than randomness — even when randomness may be the truth. Another reason that reading the papers is not always worth your time. This TEDx talk has a nice summary of a host of our common cognitive biases.

Narrative bias

Framing

We’re not very consistent at estimating the future value of something and have a bias, perhaps motivated by survival, towards overvaluing nearer outcomes at the expense of later ones.

Hyperbolic discounting

We have a tendency to think that we’ll be able to act differently in the future. So while this lucky chap plans to start his diet tomorrow having been presented with this giant cake, he underestimates his likelihood of not sticking to it on future days.

Cognitive bias sketches