- Cognitive bias
- A cognitive bias is an error in judgement that pushes people's choices away from the rational choice in the same direction time after time.
- Bounded rationality
- Bounded rationality is deciding within limits of information, time and brainpower, so people settle for a choice that is good enough.
Biases in decision-making
Can you name four biases that push everyday decisions off course?
Each one sends choices the same way time after time.
A rule of thumb, or heuristic, is a simple guide people follow to decide quickly without weighing every option.
Can you think of an example?
A driver always fills up at the petrol station on her way home, though one half a mile away often charges 5p a litre less.
Anchoring is relying too heavily on the first figure people see, so that later judgements of value stay close to it even when it is irrelevant.
Can you think of an example?
A sofa carries the label "Was £1,200, now £799". Shoppers judge £799 against £1,200 and see a bargain of £401, whether or not anyone ever paid £1,200 for it.
Availability bias is judging how likely an event is by how easily examples come to mind, so vivid or recent events seem likelier than they are.
Can you think of an example?
After a house fire in the next street makes the local news, a family doubles its home insurance, though the chance of a fire at their house has not changed.
Social norms are the ways of behaving that people see as normal among those around them, and people tend to follow them.
Can you think of an example?
HMRC letters told late taxpayers that nine out of ten people in their area had already paid. In one trial, payment rates rose from 38.7 per cent to 45.5 per cent.