In an age of infinite leverage, judgment is the most important skill – Naval RavikantToday, judgment is more important than being smart or working hard because it helps you make clear decisions and to avoid bad ones.The ability to make good decisions under pressure is the skill of the future.In a world where even creativity will be taken over by AI, the real differentiator for success will be the ability to make good decisions.Decisions about finding the highest points of leverage in any situation, decisions about which problems to allocate the most human and financial capital to.And most of all, decisions about how to live the best way to live a meaningful lifeThe one thing that holds us back the most from making good decisions is Cognitive Biases.Cognitive Biases are shortcuts our brains take for fast decision making.While this fast decision-making approach worked well in the pre-historic days of hunting and gathering, in modern times we need to slow down to make good decisions.We need to actively overcome our cognitive biases to think clearly.There are hundreds of biases identified by behavioral scientists, and we have written about a lot of them, but these are the 5 Most important cognitive biases holding you back👇
Status Quo Bias
Sunk Costs Fallacy
Now let’s get to know each of them a little more and see how we can tackle them.
1. Confirmation Bias
Trapped in our filter bubbles
Confirmation Bias is a term that refers to the tendency of people to seek and accept information that agrees with their preconceptions. This bias leads us to become locked into decisions or beliefs, even when faced with evidence contrary to those decisions or beliefs.Confirmation bias can lead to people becoming trapped in their filter bubbles, forming blind spots and missing opportunities.As humans, we have evolved with this capability because it has helped us make quick decisions when needed but now it often leads us astray from our original intention or goal.Here are some ways you can reduce your risk of falling victim to confirmation bias:
Actively seek out diverse topics and people in your social media feeds.
Whenever you see a piece of news you care about, make an effort to look for evidence that doesn’t conform to your previously held belief.
Look for new takes on old issues, look for criticisms to your dearly held opinions, do the work required to hold an opinion.
Before a big life-changing decision, actively seek dis-confirming opinions from people around you.
Before embarking on a big new project, list down all the ways it can fail. Do a little pre-mortem.
Status quo bias also known as boiling frog syndrome
Status Quo Bias is a mental shortcut that causes people to prefer things to stay the same even when they are not working well. This bias can cause us to be afraid of change and take risks, which may limit our opportunities for success.It is the tendency to stick with the current situation just because it’s familiar.It doesn’t matter if we’re happy or unhappy with our current situation, status quo bias can make us stay put and not change anything for fear of the unknown.Here are some simple tips to overcome status quo bias:
Be Aware. Know that you can fall for this bias, that is the first step.
Take an outsider’s view of your current situation. Dispassionately analyze your decisions and try to identify if you’re stuck in a status quo
Find ways to measure change to your life. Things like quantity and quality of sleep, your weight, productivity, mental clarity are good indicators of whether you are stuck in a rut or progressing.
Realize that there is no one size fits all solution, you will have to make your own way eventually!
“We seek explanations even to the point that we will manufacture them” — Nassim Nicholas TalebThe narrative fallacy is a cognitive bias that creates stories from incomplete information.It’s the tendency to think in terms of narratives and causal connections where none exist.The human brain loves patterns, even when they don’t exist.It occurs when someone believes the story they are telling themselves. It’s a natural human tendency to see ourselves as the hero of our own personal narrative, but it can be limiting and destructive.Here are some simple tips to overcome the Narrative Fallacy:
Be honest about what you don’t know.
Understand the difference between “correlation” and “causation”
Don’t fall for the ideology or mythology. Most modern and ancient religions like Communism, Capitalism, Christianity or Hinduism have deep symbolism associated with them. But know they are all narratives, not facts. There is a difference, be aware of that.
Know that life is random. Appreciate the role of luck in your successes and failures. Don’t fall for your own narratives. Take responsibility for your losses, and stay humble in your wins.
Survivorship Bias occurs when people focus on successful outcomes and ignore unsuccessful ones.It is the inclination to believe that only survivors have made it through a difficult situation.Survivors are often people who have succeeded in some way, and they are typically considered more successful than non-survivors simply because they survived.When we observe a small sample of people who have succeeded in some area, and then generalize that success to all members of the population (e.g., “people who are rich must be smart”) without taking into account how difficult it is to get from point A to point B, survivorship bias can lead us astray.Some simple tips to overcome survivorship bias in your decision making:
Be careful with anything that guarantees instant results. Be it a hot new stock tip, or the latest fad diet. It’s likely to work with a small subset of the population, only the survivors.
Be skeptical of your chances of replicating other people’s success exactly.
Gather more data. Especially from failures. Go out of your way to look for details about other people’s mistakes whenever you are pursuing a new endeavor.
Be careful when you give adviceto someone else. You may be a “survivor”. You may not realize it, but if you’re successful at something, there’s a good chance that you have benefited from some luck in your life. Appreciate your privileges.
Sunk cost fallacy – Like throwing good money after bad money
“When the Facts Change, I Change My Mind” – John Maynard KeynesThe sunk cost fallacy occurs when people continue to invest in something because they’ve already put so much effort into it.A sunk cost is an expense that has been incurred and cannot be recovered.Colloquially it’s called throwing bad money after good money.But it’s true for investing, business, and even relationships.Some simple tips to overcome Sunk Costs Fallacy:
Know It’s A Cost. Don’t live under the illusion that your past decisions were investments. Think of them as costs, and objectively evaluate them.
Accept that you can’t change the past and that it’s okay to move on
Re-evaluate your Decision. Rethink about your decisions with an open mind. Nothing in life is set in stone.
Know Your Stop Loss. Have some humility and accept some losses. Be ready to walk away from past mistakes. Be ready to change your own mind.