Zero Risk Bias

Zero Risk Bias

Time for Reflection 

When it comes to issues related to our health, housing, safety and security, don't we all look for a fool-proof solution, where we expect a complete elimination of the possible risks ?

Somewhere, while expecting a complete elimination of the possible risks, we have fallen trap to the "zero-risk" bias.

Definition

Zero Risk Bias is the tendency to prefer the complete elimination of a risk even when alternative options produce a greater overall reduction in risk. So, while making a choice, our brains prefer to select an option that totally eliminates the risk over options that could, in fact, eliminate more risks and end up with better results. This bias leads us to ensure absolute certainty of outcome while making decisions.We prefer guaranteed benefits over the possibility of much more significant benefits. 

This bias makes use of the human tendency to prefer large decrease in small risks to small decrease in large risks, even when the overall benefit of the latter is vastly superior to the former. Zero risk bias is an extreme form of this behavior, often triggered under conditions of uncertainty.

Few possible reasons for the bias to occur are

• thinking proportionally instead of thinking quantitatively
• minimizing cognitive strain - by eliminating one risk entirely, we reduce the amount of cognitive strain we face, making the option more appealing. 

This bias has applications in many areas such as financial investments, laws related to food and health, sales and marketing, quality adherence and assurance in various domains. This bias proves to be a blessing in disguise when we talk about eliminating zero % harmful elements from food products. Many of the public health/ hygiene, safety campaigns may also promote a zero elimination for the larger benefit of the masses. But for many other area, its at the discretion of the customer/ investor/ stakeholder, like, an investor, might opt for a choice based on his/ her risk and return appetite. 

Zero-risk bias can be reduced by re-framing the problem and building in a different perspective to the problem/ situation, focused on the other side. Being aware of the potential risks helps in addressing the problem at hand. Perhaps the most important strategy to mitigate the impact of zero-risk bias is to be well aware that we live and thrive in a VUCA (Volatile, Uncertain, Complex and Ambiguous) world. This VUCA world is dynamic in nature and full of risks where every moment could present a new challenge. The best way to thrive in this VUCA world is to upgrade our decision-making and critical thinking skills so that we become more rational in our approach. 

Risk is Real - Don't Avoid It, Just Embrace It !

Yin-Yang Effect

Yin-Yang Bias

About Yin-Yang Bias

Talking about equilibrium and duality in life and by default Yin-Yang occurs in the scenario. The concept describes how seemingly opposite or contrary forces may actually be complementary, interconnected and interdependent in the natural world, and how they give rise to each other as they interrelate to one another.

The same concept of Yin-Yang may act as a bias and affect us while seeking holistic well-being, work-life balance, spiritual awakening. When yin-yang bias affects us, our quest for a balanced life takes a hit.This bias results in the feeling of incompleteness as we are always seeking the missing component of yin-yang to complete the picture.  

Few of the key challenges posed by this bias is  

• to focus on which part of the yin-yang 
• Deciding how much to incorporate (the magnitude)
• Deciding how long to incorporate (the frequency) 

The yin-yang bias could be addressed by  

• Accepting the unpredictable and incomplete nature of life
• Practicing Mindfulness 

Xtra Bias

Xtra Bias

Time for Reflection

Has there been times when you wanted that extra bit or that add-on to motivate you to decide "in favour", maybe while shopping for your favourite dress, negotiating for your house with a realtor,  negotiating for your salary package with a new employer, or any other similar situation.

The above tendency to look for that extra bit is an indicator of presence of "Xtra Bias".

Definition

Xtra Bias is exhibited by a tendency to decide only when something "extra" gets provided.

Humans always want that something "extra" as part of the bargain or deal. This "extra" is what provides them look out for that something "extra" to allows to decide. Whether we go shopping, or negotiating or communicating, interacting/ connecting, we are always on the look out for that "add-on". Somehow, when we are affected with this bias, we see "value for money" proposition in our every deal.

The occurrence of bias may possibly be because of 

• self-centric or ego-centric natute of humans
• tendency to seek "value for money"  
• assumption that the things/ goods are over priced

This bias impacts us negatively by

• prompting us to undervalue things, though they may be rightly priced.
• overestimating our ability to negotiate a better deal

The bias also has a positive side by way of building our ability to manage a "Win-Win" scenario in every situation involving 2 or more stakeholders.

Few ways, the damage of "Xtra Bias" could be mitigated are

• be up-to-date date with the latest pricing trends 
• do a comparative before taking final decision
• opt for a trust worthy brand or a brand you trust

Wishful Thinking Bias

Wishful Thinking Bias

Time for Reflection

Haven't we all engaged in wishful thinking, some time or the other, and then realising that things don't turn out to be as we assumed them to be ?

Well, the only explanation to the above is that there's a difference between illusion and reality and we tend to ignore it because of a fallacy known as "Wishful Thinking"


Definition

Wishful Thinking Bias refers to the tendency of decision-making and belief formation based on what might be pleasing to imagine, rather than on evidence, rationality, or reality.

Our interpretation of things is around how we want to interpret them and not as how they actually are.  Few examples of wishful thinking are - hallucinations, religious/ spiritual beliefs, day-dreaming, assumptions aligned with our beliefs and goals.

Wishful-Thinking Bias is an outcome of 

• our belief in something that we believe to be true/ false
• overstimation of our abilites which may, in fact, be influenced by our earlier success or failure and impacted us to develop generalisations
• our inability to actualise things and therefore falling back upon being wishful
• our long-held belief, maybe as a result of our culture or religion

Few of the key negative impact of the Wishful-thinking bias are that 

• it leads us into creating a self-affirming universe of ours, a Utopia, which, in fact, might be a Dystopia  
• it may hinder our progress and growth
• leads us to develop self-limiting habits like procrastination, etc.
• it may have a detrimental impact on our self-confidence and self-esteem, when we realise that things have not turned out to be as we wanted them to

Some of the simple ways to address wishful thinking are to

• become more action-oriented
• spend sufficient time in planning stage 
• take smaller steps
• establish realistic goals and do a regular follow up on progress made
• regularly update our belief system (wherever and whenever needed)
• ensuring that our religious beliefs and practices do not turn into an obsession

Von Restorff Effect

Von Restorff Effect

Time for Reflection 

What do you observe in the following lists ? 

• Apple, Orange, Pineapple, Guava, Kiwi, Papaya, Watermelon
• Red, Green, Blue, Black, Brown, Yellow
• Monday, Tuesday, Wednesday, Thursday, Friday, Saturday, Sunday

In all the above three lists, you tend to remember Guava, Green, and Monday respectively because these words stand apart from the rest of the items in the respective lists.

This is termed as "Von-Restorff Effect"

Definition

Von Restorff Effect or Isolation Effect predicts that when multiple similar objects are present, the one which differs from the rest is most likely to be remembered.  The theory was coined by German psychiatrist and pediatrician Hedwig Von Restorff, who, in her 1933 study, found that when participants were presented with a list of categorically similar items with one distinctive, isolated item on the list, memory for the item was improved. In other words, an isolated item, in a list of otherwise similar items, would be better remembered than an item in the same relative position in a list where all items were similar.

There are many studies that demonstrate and confirm the Von- Restorff effect in children and adults and the findings suggest that elder/ older people display lesser benefits for distinctive information compared to younger people. This effect is put to good use in marketing, product promotion and advertising, where, intentionally a particular item is made to stand out and appear different from the rest of the pack (of similar items).

The Von-Restorff effect occurs when there is a difference in context (i.e., a stimulus is different from surrounding stimuli) or a difference in experience (i.e., a stimulus is different from experiences in memory).

The flip side of this effect is that, in our bid to remember the items that's different, our attention gets removed from the other items in the list, thereby resulting in remembering less, overall. Taylor & Fiske, (1978) indicated that attention is usually captured by salient, novel, surprising, or distinctive stimuli and these may be used to enhance the Von-Restorff effect.

We can benefit from the Von-Restorff Effect in many ways in our day-to-day life 

• While making lists, where a particular item (for priority reasons or some other reason) could be highlighted to make it stand out, thereby making it easier to remember it.
• During study, certain important matter/ text could be highlighted and made to stand out. This could help in better memorizing and effective revision
• In advertising and marketing, where, through a change in size, colour or shape, an item can be made to look more attractive and appealing for the potential customers
• While preparing a presentation, certain important slides can be made to stand out by making use of fonts, color, etc.  

Unit Bias

Unit Bias

Time for Reflection

If you are a fitness freak or simply a health conscious person, you would remember adhering to a specific healthy diet plan at times, where a unit/ portion was prescribed to you and then of course, there were cheat days to bite into food of your choice, maybe a pizza at times !

Did it ever happen that if a pizza slice was the recommended unit for you to consume, it didn't matter whether the pizza was medium sized or large sized. All that mattered to you was to consume just one slice (unit) of Pizza !

The above tendency is triggered by "Unit Bias". 

Lets discuss it more  

  

Definition of Unit Bias

Unit Bias is the tendency of the individual to want to finish/ complete a unit or portion of a given item, irrespective of the size of the unit/ portion. 

Andrew B. Geier and Paul Rozin developed the concept of Unit Bias in 2006 and the concept refers to the sense that a single entity (within reasonable ranges or sizes) is the appropriate amount to consume or consider. A study conducted by these three showed that participants eat more candy when served with a large spoon than when they were served with a small spoon even though they had no limits on how many spoonfuls they could have. The experiment showed that humans tend to see things as a single unit and do not take into consideration the size of the unit. Geier also suggested that people learn how big an appropriate food unit is from their culture. 

This bias has been widely researched particularly in the areas of "healthy eating" and "portion control". The individual affected with this bias is motivated by the desire to complete and this perception of completion is most satisfying to the individual. 

The bias starts impacting when the individual is just focused on finishing / completing the portion/ without any consideration to the size of the portion/ unit. Even when consuming a larger size of unit/ portion, there's no feeling of guilt whatsover even when the large size is equivalent to several units/ portions of the item.

This bias holds importance especially during these times when fitness, health and diet are on top priority for people and they adhere to strict disciplines and routines to achieve their health/ fitness goals. 

To help prevent unhealthy eating habits, it's essential to provide indicators to the individual to stop eating after a point. Segmentation and Portion Control are 2 ways to ensure limiting the quantity of item to be consumed by the individual.

 At times, even Less is More !

Trait Ascription Bias

Trait Ascription Bias

Time for Reflection

Remember confiding in someone as your "confidant" or "the secret keeper" but later discovering that everyone around was aware of the so called "secret" information/ news.  The realisation thereafter, that you would have done a better job as a "confidant" for someone as you can adapt well to the surrounding situation/ environment.

This tendency of ours to perceive ourself as a better "confidant" or "secret keeper" is an example of the presence of "Trait Ascription Bias". Let's look at it in more detail 

Definition

Trait Ascription is the tendency of the people to view themselves as relatively variable in terms of personality, behavior and mood while viewing others as much more predictable in their personal traits across different situations. 

More about Trait Ascription

This bias refers to the belief that other people's behavior are generally predictable while our own is more unpredictable. In this bias, we tend to describe our own behavior in terms of situational factors and that of other people by ascribing fixed disposition on their personality. The reason for occurrence could be because our own internal stats is more readily observable to us than the internal state of any other person. 

One of the important piece of research in this area (Trait Ascription Bias) is "the actor and the observer" by Jones and Nisbett. They argued that people are biased in how they tend to ascribe traits and dispositions to others that they would not ascribe to themselves. Their actor-observer asymmetry explains the errors that one makes when forming attributions about behavior of others. When people judge their own behavior, and they are the actor, they are more likely to attribute their actions to the particular situation than to a generalization about their personality. Yet, when an observer is explaining the behavior of another person (the actor), they are more likely to attribute this behavior to the actor's overall disposition than to situational factors. This frequent error shows the bias that people hold in their evaluations of behavior. Because people are better acquainted with the situational (external) factors affecting their own decisions, they are more likely to see their own behavior as affected by the social situation they are in. However, because the situational effects of anothers' behavior are less accessible to the observer, observers see the actor's behavior as influenced more by the actor's overall personality.

This bias is responsible for the formation of creation of stereotypes and prejudice while evaluating the personality of the other person. The bias results in a person relying heavily on "gut feeling" instead of information to ascribe traits to other people. 

Scarcity Bias

Scarcity Bias

Time for Reflection

Last Day Left

Few Days Left

Few Items Left

Special Collectibles

Limited Edition

Till Stocks Last

Once in a Lifetime Offer 

If ever, you have been tricked into buying as a result of any of the above ? If yes, then it's all because you wanted to be among the exclusive lot and not miss this great deal of being the proud owner of an "exclusive" item. This is what "Scarcity Bias" does to us ! 

Definition

"Scarcity Bias" refers to our tendency to place a higher value on objects that are scarce, and a lower value on those that are abundant. We, sort of, unconsciously assume things that are scarce as valuable and things that are abundant are not (valuable). We start associating the availability of a product with its quality.

Scarcity associated with a product or promotional offering enhances its desirability and perceived value (Brock, 1968), creating a sense of urgency (Byun & Sternquist, 2008), framing the transaction in the “loss” term (i.e., “If I don’t buy now, I will lose the opportunity”), and thus biasing decision making (Inman, Peter, & Raghubir, 1997).

Stephen Worchel, a researcher, conducted an experiment with 200 students to rate the quality of cookies of identical types. One set of students picked from a jar of 10 cookies and the other from a jar with only 2 cookies. It was found that the students preferred the more "rare" cookies and were willing to pay 11% more for them.  

More About Scarcity Bias

Whenever a person decides to purchase a "scarce" product, brain regions related to emotion gets more active and when a person decides not to purchase a "scarce" product, brain regions involved in controlled processing gets more active. The decision to purchase an item is due to the "buy it now" mentality created through a reduced activity in the brain region involved with controlled processing.This creates a sense of urgency which impacts the purchaser's cognitive ability to do a proper cost-benefit analysis, instead focusing the cognitive resources on the (symbolic) value of the product. The "emotional high" / "ego boost" that this bias gives us leads us towards this bias.  

The bias is used to great extent in marketing and advertising to lure the potential customers/ consumers and create a "buy it now" tendency in them. Those limited edition products, those few rooms left in a hotel, those few seats left in an airline are all application of Scarcity Bias in real-life.

hotels, airlines, 

Talking about the impact of  Scarcity Bias, it leads us to 

• overvalue a thing
• easily get influenced and manipulated into buying
• not pay any attention to the quality aspect
• excessive spending  
• irrational buying where the purchase is not aligned with our needs most of the times
• live a cluttered life where we tend to hoard things
• compulsive buying which may be detrimental to our mental health
• living a more materialistic life

Few ways we could mitigate the risk of Scarcity Bias are

• Do a reality check and recognise the need for the item in our life
• Identify how does buying/ possessing this thing align with my long-term goal
• Track the usage of the item to identify its real value in our life
• Imbibe Minimalism, Essentialism 
• Revisit our belief system and perception about Scarcity
• Better personal financial planning could help reduce the tendency to fall prey to the bias
• Focus on Holistic well-being, giving sufficient focus to non-materialistic aspects of our personality/ life also. 

Scarcity = Rarity + Value

Restraint Bias

Restraint Bias

Time for Reflection 

Ever fell prey to a temptation that you thought you could resist ?

Ever made a resolution (new year or otherwise) to get rid of an addictive or compulsive behavior but gave up your efforts when it proved too much for you ?

Ever tried testing your will power on something you were confident of accomplishing, but fell short ?

Life is full of temptations and urges and we come across many of them in our daily life. Many a times, we tend to miscalculate our ability to resist the temptation/ challenge and this is what indicates the presence of  "Restraint Bias" in us, as in the case of above cited scenarios.

About Restraint Bias

Restraint Bias is defined as the tendency of the people to overestimate their capacity for impulse control. Various studies have examined how our beliefs regarding our ability to regulate visceral impulses influence our self-control process. Inflated impulse-control beliefs led people to overexpose themselves to temptation, thereby promoting impulsive behavior.

Loran Nordgren from Northwestern University performed a series of four experiments to show the presence of "restraint bias" in people and also demonstrated that those who feel invulnerable fall prey to this bias most strongly and are more likely to face tempting situations.

The bias leads us into taking decision that increase our exposure to temptations and urges, and, thus, increase our probability to succumb to these temptations and urges. The bias also offers unique insight into how erroneous beliefs about self-restraint promote impulsive behavior. The bias is quite evident in people suffering from addiction, who tend to overestimate their ability to control urges, find themselves facing a bigger temptation/ urge and in the end fall for it.

The cause of Restraint Bias is our inability to correctly predict the future and our feelings and behavior in circumstances that are different from the current one.

The bias impacts exposes us to more temptation and increased impulsiveness. It also impacts our decision-making and our over-inflated ego leads to denting our self-esteem badly. 

Taming a bigger temptation/ urge takes time and practice ! 

Quality Consciousness Bias

Quality Consciousness Bias

Time for Reflection

Has there been times when you lost out on an opportunity because you abandoned/ delayed taking a decision as you were not sure about the quality of the process/ product ?

Maybe - that project proposal, that idea you always wanted to put across to your boss/ management, that opinion you wanted to give. Well, the list goes on and we can cite "n" number of scenarios for this. These scenarios get manifested because of "Quality Consciousness" bias. Let's discuss more about the same

About "Quality Consciousness" Bias 

"Quality Consciousness" bias refers to our tendency to defer or abandon decision-taking because we are unsure about the quality of the process/ product.

Maintaining quality is crucial for success, whether at an individual level or business level but many a times in our life, we lose out on opportunities just for the reason that we were not okay with the quality, resulting in stalling of projects, assignments and also in stagnancy (stuck and unable to move). 

The more the responsibility on us, the more quality conscious we get because a lot is put at stake - our credibility, our survival, our growth and more.  

The bias may occur because of 

• non-adherence to certain identified standards and specification
• inability to recognise the exact area and aspect - whether the issue lies at the product/ service/ task level or in the decision-making process.
• lack of requisite knowledge about the quality aspect in the related context
• tendency to ensure 100% even when it is not required 
• reliance on single interpretation of quality i.e. self or an expert

The bias impacts in some of the following ways

• results in delays and cancellation of projects, assignments but also
• impacts the self-confidence and self-esteem of the person. 
• puts undue stress on the person, resulting in procrastination and inaction

 

Some of the ways, the risks of Quality Consciousness could be mitigated are by 

• Using an established framework for decision-making to ensure rationality in the process
• Awareness and Knowledge about the quality benchmarks related to the product
• Follow the SOP (Standard Operating Procedures) if the context is a task
• Focus on ensuring progress instead of undesirable quality 
• Involve/ Engage a 3rd party to ensure quality monitoring

Projection Bias

Projection Bias

Time for Reflection

When you look around at your possessions, are you able to identify items (gadgets, books, accessories, etc.) bought purely on instinct and not used since bought ? 

Recollect those discussion sessions, meetings, presentations, brainstorming when you assumed that all others involved in the process would align with your opinion, belief, thought process because of the idiosyncratic nature of your opinion !

Remember the time when you went on binge-shopping assuming you would need it all in future !

There are plenty of other similar scenarios such as our saving habits, fitness routine(exercising), getting-in/ moving-out of a relationship, where our future need get defined by our current needs and where we overestimated the normality of our belief/ opinion/ decision and expected others around to comply with it. These scenarios are very typical of a bias referred to as "Projection Bias". Let's explore this bias in more depth     

Definition and Background

"Projection Bias" is the tendency to project current preferences into the future as if future tastes will match current ones (Loewenstein, O'Donoghue, and Rabin 2003). The bias refers to our estimation of ourselves, where we tend to assume that our current tastes and preferences to continue in future too. We, somehow, underestimate the magnitude of change and believe that the way we think, feel and act now is the way we would do in future too. 

Projection Bias also refers to our tendency to overestimate the degree to which other people agree with us which could be in terms of the way we think or the way we work. 

So, Projection Bias refers to the following 2 aspects 

• Typicality or Normality of our behaviour when comparing with others
• Estimation of our future selves

The Projection Bias leads to the presence of "empathy gap", a situation where we tend to put our future selves in the same emotional state as our current self. This means that decisions related to our future are entirely based on out "emotional state" right now, in the present.

(An "empathy gap" is the inability to predict our behaviour from a calm and cool emotional state to a tempting hot emotional state)

The term "Projection Bias" was first introduced in the 2003 paper titled "Projection Bias in Predicting Future Utility" by Loewenstein, O'Donoghue and Rabin.

Why/ How does Projection Bias occur ?

The Project Bias occurs because of our current emotional state forming an "anchoring point" for our future emotional state. This implies that all decisions related to our future self are done with reference to this "anchoring point". The thoughts, feelings and behaviour of our future state are determined by

how/ what they are currently (in our current state).

Another reason for the bias to occur is because of our assumption that our beliefs, feelings and behaviours are accurate and appropriate and so shared by all, be it our future self or by people around us.    

According to Loewenstein and team, "Projection Bias" can happen when people make status-based decision that cause them to compare themselves to a different group of peers

Some of the triggers of Projection Bias are

• Hunger and Craving
• Overestimation of self, leading to Overconfidence
• Falling trap to impulsive buying

More about Projection Bias

Projection Bias is visible in many areas of our life such as 

• Car/ Vehicle Market 
• Housing Market
• Healthcare
• Financial Investment
• Consumerism
• Insurance

Just to elaborate on the above, there's a seasonal surge in the purchase of Cars and Houses. People tend to buy cars and houses, consistent with the weather conditions. In case of Healthcare, people tend to ignore opting for regular medical check-up if they are healthy currently. Another elaboration could be on Consumerism, where again people tend to go in for compulsive buying assuming the future weather conditions would remain consistent with how they are at present (currently). Likewise, similar examples exist for the other areas in the above list like Financial Investment and Insurance.

Projection Bias leads to many issue, some of which are

• focus only on short-term planning
• missing the big/ whole picture
• leading to obsessive behaviour
• insulated decision-making

The following are few methods/ techniques to mitigate the risks of Projection Bias

• Get rid of assumption and rely more on objectivity during decision-making
• Practice Visioning exercise to help clarify/ establish goals and destination  
• Mood Management, especially during decision-making to avoid irrational decision-making
• Practice Visualisation which helps provide details and insight into the future, ensuring that future is seen more from one's ambition and purpose in life than current situation. 
• Breaking the habit formation pattern for areas impacted by Projection Bias

Change is the only constant. Let our "Beliefs, Tastes and Preferences" embrace it (Change) too !

Optimism Bias

Optimism Bias

Time for Reflection

Have you ever

• been consumed by that "it can't happen to me" feeling ?
• felt totally immune to everything negative ? 
• had a feeling of invulnerability ?
• thought that you can't be a victim of a layoff, can't suffer from any type of serious illness, can't meet with any mishap, you will get that coveted promotion or award above others, and similar ones that gives you the feeling of being better than you peers   

If you have ever been affected by any of the above, then that's a clear indication that Optimism Bias is at play.

Definition and Background

Optimism Bias refers to the belief that our chances of experiencing negative events in life are lower and our chances of experiencing positive events in life are higher than those of our peers. This belief suggests that we are immune to any ill-happening in life and less likely to suffer from any misfortune and more likely to attain success than what reality would suggest.

Misfortune is a part of our day-to-day living and no one is spared by it. Living in this highly dynamic VUCA (Volatile, Uncertain, Complex , Ambiguous) and assuming yourself to be immune to anything negative in the environment is but living in an illusion. This illusion is what keeps us away from the reality.

Optimism Bias occurs for both positive events and negative events, though the bias is stronger for negative events. About 80% of people across all age groups and gender, suffer from Optimism Bias.

The "Optimism Bias" phenomenon was initially described by Weinstein (1980). In a study conducted by Weinstein, 100 college students compared their own chances of experiencing 45 different health-and life-threatening problem with the chances of their peers. They showed a significant optimism bias for 34 of these hazards, considering their own chances to be below average.

For negative events, majority of the college students believed that they have a lower tendency than other students, whereas in case of positive events, majority of the college students felt they have a higher tendency than other students.

Tali Sharot, Professor, University College, London has worked extensively in the area of Optimism (Bias) and also authored book on the subject. Her work on Optimism grew out of a keen interest in the positive side of human nature and that's what prompted her to survey and interview people about their memory of 9/ 11 . Few of her findings about Optimism Bias are as below:

• We are more optimistic than realistic
• Collectively, we may grow pessimistic but privately, we are still optimistic
• Optimism runs across all cultures, irrespective of any race, religion or socio-economic bracket
• Overly positive assumptions can lead to disastrous miscalculations
• Optimism bias protects us and inspires us
• Optimism may be hardwired by evolution into the human brain

During her TED talk on Optimism Bias, Talia Sharot calls Optimism Bias as "cognitive illusion" and also as long as we are aware of our own optimism bias, we can protect our actions from its harms.

The TED talk of Talia Sharot can be viewed at the following link

https://www.youtube.com/watch?v=vQ6JJjyYHbk

Why/ How Does Optimism Bias occur ?

The Optimism Bias occurs because people tend to overestimate the probability of positive events and underestimate the probability of negative events happening to them in the future.

Optimism starts with one of the most potent ability humans have, which is the "mental time travel". This ability is crucial to our survival and enables us to move through time and space in our mind. The "mental time travel" helps us to plan ahead by setting goals, drawing then big picture, anticipating problems, and related things.

The four factors that cause a person to be optimistically biased are

• their desired end state - the goals people want and the outcomes they wish to see

• their cognitive mechanisms - mental processes that guide judgements and decision-making

• the information they have about themselves versus others - people have more information about their own risks compared to the risks faced by others and this lack of relevant information about others results in drawing wrong conclusions and making erroneous judgements 

• overall mood - person in a sad mood (anger, frustration, etc.) tend to exhibit a low tendency towards optimism bias whereas person in a happy mood tends to display a high tendency towards optimism bias

Impact of Optimism Bias

Talia Sharot highlights that being optimistic leads to success and health benefits, thereby reducing anxiety and stress. She gives three reasons about why it's good to be an optimist

• Whatever happens, whether you succeed or fail, people with high expectations always feel better
• Regardless of the outcome, the pure act of anticipation makes us happy
• Optimism changes objective reality.

Few other key positive impacts of Optimism Bias are 

• enhanced well being
• enhanced self-belief
• anticipating goodness

Few of the key negative impacts of Optimism Bias

• underestimation of risks
• leads to poor decision making
• engaging in risky behavior
• making poor choices
• illusion of being in control
• reflecting little on past decisions
• enhanced health risk due to a tendency to skip necessary tests, checkups, etc

Overcome/ Addressing Optimism Bias

• Experiencing events in real reduces optimism bias 
• Building objectivity while doing comparisons which means thinking beyond the general stereotypes
• Being a skeptic of our own ideas and opinions to avoid overconfidence and over-estimation
• Gathering proper and requisite information and relying on a fact-driven approach while taking decisions 
• Self-Analysis on different aspects of our life indicates the composite nature of our personality 
• SWOT helps provide insight into one's "weaknesses" and thereby a realisation that everything is not positive always
• Engaging in group/ team tasks builds insights about other person's capability and helps be more realistic in our approach
• Developing EI (Emotional Intelligence) skills helps with better self-awareness and others' awareness too.

A yin-yang belief prepares us better for any future eventuality !

Negativity Bias

Negativity Bias

Time for Reflection

What stands out in our mind about

• an argument we had with with your friend, spouse, partner on some serious matter
• a feedback we received from your boss/ superior about you about your performance
• audience's reaction to a presentation/ speech/ talk we delivered
• the advice you received from your parents, and elders/ seniors when you messed up an important task
• a commitment broken by a person you trusted a lot 
• a partnership that ended not quite "amicably"

The answer is - some "unpleasant thought/ memory" related to the episode is what tends to occupy our mind space.  It isn't the case that there are no pleasant or happy memories associated with any of the above episodes; it's just that the "unpleasant or unhappy" memories seem to get recalled faster in our memory than the "pleasant or happy" memories. What's getting exhibited here is a case of  "Negativity Bias". 

Definition and Background

Negativity Bias is defined as "the tendency of the negative things to stick longer in memory than the positive things". In other words, it refers to the notion that even when of equal intensity, things (thoughts, emotions, events, etc.) of a negative nature have a greater effect on us (our behavior and cognition) than the ones that are neutral or positive in nature. So, basically, it means "bad stuff sticks to our memory better than the good stuff".

There has been a lot of research on Negativity Bias. John Cacioppo at the University of Chicago, conducted study on negativity bias and in one such study he recorded the electrical activity in the brain (cerebral cortex) when the subjects(participants) were presented with both, positive and negative stimuli. His study showed that there was a greater surge in electrical neural activity when the stimuli presented was negative as compared to when the stimuli presented was positive. The study concluded that our personality (behavior and attitude) is influenced more with bad news than good news or neutral news.

Findings of Vaish et al. suggested that infants displayed a strong negativity bias in social referencing behavior.

In 2001, researchers Paul Rozin and Edward Royzman identified 4 types of negativity biases which are - 1. Negative Potency, 2. Negative Gradients, 3. Negative Dominance, and 4. Negative Differentiation

Why/ How does Negativity Bias occur ?

By default, our brain is accustomed to pay more attention to negative events in our environment,  which, in some way, pose danger or harm to us.

The Negative Bias has its roots in human evolution, when our ancestors used it as a survival technique. While going hunting for food, humans were attuned to "flight-or-fight" mode, an outcome  of their anticipation of a looming danger. So, it was this "danger anticipation" approach that kept the men on their toes always, prepared to face any eventuality. 

Rick Hanson, a renowned psychologist who has studied/ researched Negativity Bias shares an interesting insight about Amygdala, a part of the brain responsible for processing of emotions, uses about two-third of its neurons looking for the negative stuff and when found, it stores them the related negative experiences and event very quickly in the memory. This is in direct contrast to encountering of positive things/ news by Amygdala, where it takes about a 12-15 seconds to shift the related experience and events from the short term memory to long term memory.

More About Negativity Bias

Negativity Bias served an important evolutionary purpose by aiding our ancestors in their survival bid and because of this bias we are out of harm whenever confronted with something negative. Our brain has developed certain systems that makes it impossible for us to not notice any danger and respond to it. We tend to give more weightage to negative/ bad experience than positive/ good one.

Our brain is built with greater sensitivity to unpleasant news and this could be gauged from the greater surge in electrical activity in our brain whenever it encounters a negative stimuli. Our brain, subconsciously, places more significance on negative events than the positive ones, affecting

cognition and behavior.

Researchers assert that negative emotions has a 3X (three times) stronger impact than the positive ones. Some contend its 5X (five times). So, to negate the impact of any negative/ bad act, we need to counter it with three positive/ good acts.

A clear indication of the existence of Negativity Bias is visible  through our brain activity, where more electrical activity shows up in brain scans in response to negative stimuli that a positive stimuli.

Another interesting thing to note about the role that amygdala plays in negativity bias is that negative information is sent directly to LTM (Long Term Memory) to invoke the "flight or fight" response, whereas positive information takes longer to reach LTM as the information passes through STM(Short Term Memory) also before being sent further to LTM.

Impact of Negativity Bias

Negativity Bias impacts us not only at an individual personality level but also in our relationships at both, personal and professional front. It affects our our attention and memory which ultimately impacts our behaviour, attitude and emotional self.

Negativity bias renders a person worried, anxious, stressed and depressed. The person tends to develop a pessimistic outlook towards life and is always absorbed in anticipating problems. The bias affects affects the performance as most of the energy and effort is spent in thwarting seen and unseen obstacles. The person may not be able to identify even easy and obvious opportunities because of the focus on the negative/ bad and may get stagnant, unable to realise goals and move ahead in life. The bias could lead a person to a state of becoming obsessive with something really negative. 

Negativity Bias can adversely affect a person's self-esteem and confidence 

But there's a flip side (positive side) to negativity bias and that is - it keeps us alert and focused always. It makes us cautious and leaves us well prepared for the imminent danger. This bias acts as a saviour in matters of extreme danger (especially when it's a matter of life and death or something as serious). The presence of this bias may also provide us with better insight and additional perspective to things and situations. 

  

Overoming/ Addressing Negativity Bias

Because of the evolutionary nature of the bias, it cannot be undone but we can definitely address it by changing the way we interact with the stimuli. We can thrive on the following 2 facts 

• Neurons that fire together, wire together which means that if we can get a bunch of neurons firing together for positive experiences, that will build new neural structures.

• "Neuroplastic" nature of the brain which means that through repeated action of a similar type,  brain has the ability to change itself. 

Rick Hanson, the renowned neuroscientist and psychologist, suggests a 3-step process to address the Negativity Bias. This process is termed as "Take in the Good". The three steps are as mentioned below

• Let positive facts become positive experiences. Always be open to notice and cherish, even the small, little moments of success and happiness. 

• Savour the positive experience for 10-20-30 seconds. Let the experience get as intense as possible.

• Intend and sense that the positive experience is soaking into you, becoming a part of you   

As per some scientists/ researchers, "Self-Talk" plays a key role in minimizing the impact of Negativity Bias. "How we talk to ourselves about our experiences" goes a long way in addressing the negativity bias

Grant Benner, Mt. Sinai Beth Israel Medical Center, has suggested the following steps to address the Negativity Bias

• Awareness - Recognize what's happening when negative pattern gets activated and then try to break the pattern by doing something each and every time, even if it is very small

• Stop Overanalysing things

• Replace negative self-talk with positive self-talk

• Savour - Celebrate small victories

At times, it pays to be Positive about Negativity !

Money Illusion Bias

Money Illusion Bias

Time For Reflection

Let's look at a hypothetical scenario

Looking back at our investments which yielded us say,  a certain x% of returns, don't we all feel happy about getting a bit richer with that ROI - an additional x% of what we initially invested ?

Let's do a reality check - During the period when our investment increased by x%, the inflation also increased by, say (x+1)% .  Now, the question is - If we factor in the inflation, did we calculate the  profit on our initial investment correctly? The answer would be NO, because the accrued amount (of my initial investment) does not hold the same purchasing value as my initial investment at that point in time and i may not be able to buy as much as i could with my (invested) money earlier !

This exactly is what "money illusion bias" does to us in reality. We forget to factor in the inflation factor and end up calculating the return on out investments incorrectly.

Definition and Background

Money Illusion Bias refers to the tendency of people to think of money in terms of nominal value (face value) rather than real value (purchasing power). Here, nominal value refers to the price expressed in money of the day and real value refers to the price which adjusts for the effect of inflation.   

The bias happens when the numerical/ face value of money is mistaken for its purchasing power(real value) and the increased nominal amount of money creates the illusion that we have become wealthier. 

The term "Money Illusion" was coined by Irving Fisher in 1920s and he also wrote a book titled "The Money Illusion" in 1928, where he clearly defined the problem that many people think in terms of nominal values instead of real values, or as the case may be, in a mix of the two. The concept of money illusion was popularised by John Maynard Keynes.

Why/ How Does Money Illusion occur ?

The "Money Illusion" occurs because a particular amount of money, at a specific point of time, is not not worth the same amount today. The main reason is because of the effect of inflation. 

When some nominal income increases, it can generate the mistaken feeling of purchasing power having gone up, when in fact, monetary erosion due to inflation may be decreasing the purchasing power in real terms 

More About Money Illusion

The concept of Money Illusion can be understood with this quote by Warren Buffet - 

"It is not how many dollars you have, but how many cheeseburgers you can buy. In other words, if stocks double but so does the price of milk, gas and cornflakes, you haven't actually gained anything in real net worth."

Eldar Shafir, Peter A. Diamond and Amor Tversky (1997)  have provided empirical evidence for the existence of Money Illusion Effect, and it has been shown to affect behaviour in a variety of experimental and real-world situations.

Shafir et al. also state that money illusion influences economic behaviour in 3 main ways which are as mentioned below :

• Price Stickiness - Nominal prices are slow to change even when inflation causes real prices or costs to rise.

• Contracts and Laws are not indexed to inflation as much as one would rationally expect

• Social disclosure, in formal media and more generally, reflects some confusion regarding real and nominal value. 

The "Money Illusion" influences people's perceptions of outcomes. Experiments have shown that people generally perceive an approximate 2% cut in nominal value with no change in monetary value as unfair, whereas, a rise of 2% in nominal value where there's a 4% inflation as fair, despite them being almost rational equivalents. Also, in money illusion, nominal changes in price can influence demand even if real prices have remained constant. 

Many economists contend that money illusion does not exist and people act rationally i.e. they think in terms of real value, by accounting for inflation/ deflation, with regard to their money 

The presence of Money Illusion could be seen in areas like Wages/ Salary, Housing, Stocks/ Bonds and any cash flow including dividends and interest. more. Talking about the impact of Money Illusion, it it could lead to 

• underestimation of the need to save
• sharp reduction in purchasing power
• poor economic choices
• inaccurate view of prices and costs

Though there is no easy solution for the money illusion bias and the most we can do is to adjust any nominal value increase with respect to the inflation.

"Investment adjusted with Inflation" is the best antidote to "Money Illusion"