Cognitive Biases: 5 Mistakes You Don’t Know You’re Making

On March 12, 2020, sales of toilet paper rose 734% when compared to the same day in 2019. American shoppers wiped inventory clean at Amazon and supermarkets across the country. ¹

US Toilet paper sales totaled 1.4 billion dollars in the four weeks between March 7 and April 7—a 102% increase over the previous year’s sales. ²

At first glance, the unknown threat of the COVID-19 virus appears to be the only reason for this spike in sales. Given an indefinite stay-at-home order, Americans stocked up to avoid running out.

But then something odd happened. Americans kept buying.

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“You never knew when you weren’t going to be able to get it, so every time we went out, we got some,” said Marjorie Greenberg, 62 years old, of New Rochelle, N.Y. “They just kept amassing.” ³

Despite reassurances from retailers, Americans filled guest rooms, linen closets, and basements with apocalyptic quantities of toilet paper.

“There are no shortages in the supply chains if we’re only consuming what would be reasonable in these circumstances. The supply chain will, and is, catching up to backfill those sudden urgent demands of hoarding, and we are not seeing anything that’s causing us long-term concerns at this point.”—Clint Mahlman President, London Drugs ⁴

What’s going on here? What would possess people to buy irrational quantities of toilet paper when they’ve been told supplies will not run out?

The answer lies partially in thinking errors known as cognitive biases.

Your brain is powerful but not perfect. In an attempt to simplify information, your brain often makes mistakes. These mistakes lead you to make irrational decisions.

Cognitive biases wouldn’t be an issue if your poor decisions ended in buying too much toilet paper. You might have a storage problem, but the overall effect on your life would be minimal.

But cognitive biases also lead you to make poor decisions in important areas of your life.

Given the right conditions, cognitive biases can lead you to pay too much, stay in the wrong relationship, and ignore important information.

Thankfully, by learning about cognitive biases, you can prevent them from affecting your life. This article will show you how.

What Causes Cognitive Biases?

The human brain has two regions that have allowed us to avoid the extinction list for millions of years.

The first region makes lightning-fast decisions that are primarily subconscious, effortless, and automatic. This part of your brain allows you to build habits and react in an instant when faced with threats. I refer to this region as the reacting brain.

The second region is slow but powerful. It makes conscious logical decisions that require a lot of processing. This part of your brain allows you to do math, learn languages, and build things. I refer to this region as the thinking brain.

Here’s how you can simplify all of this information.

You can think of the reacting brain as being fast, efficient, and easy to use, but kind of dumb. And, you can consider the thinking brain to be smart and powerful but an inefficient energy hog.

Ideally, you’d use your thinking brain for important decisions that weren’t life-threatening. But this doesn’t always happen.

Because your brain likes to save energy, it tends to be lazy. As a result, your brain often uses the efficient and dumb reacting brain to make decisions that are better suited for the thinking brain. This error is the birthplace of all cognitive biases.

Examples Of Cognitive Biases

Wikipedia lists more than 100 cognitive biases. ⁵ Because it’s beyond the scope of this article to list them all, I’ll share five of the most common cognitive biases. Hopefully, by learning about these biases, you can decrease the odds that they’ll negatively influence your decisions.

1. Bandwagon Effect

The bandwagon effect refers to our tendency to do something primarily because everyone else is doing it. Examples include adopting behaviors, beliefs, and attitudes.

From an evolutionary standpoint, the bandwagon effect makes sense for two reasons. First, if a large group of people is doing something, the behavior is likely safe and beneficial. And second, you save energy by following the crowd because you don’t have to think about what you are doing.

The bandwagon effect is helpful when behaviors are beneficial. A few examples might be avoiding danger, adopting an exercise routine, or fostering better beliefs.

Unfortunately, the bandwagon effect can also lead to harmful behaviors. Examples include joining the 2008 housing crisis, adopting a fad diet, or buying copious amounts of toilet paper.

2. Confirmation Bias

Confirmation bias is our tendency to favor information that supports our existing beliefs or values and devalue information that doesn’t.

This problematic bias keeps us from changing our opinion for the better, even when presented with facts.

Everyday examples of confirmation bias include:

1. The scientist who ignores relevant data to secure funding
2. The negotiator who ignores facts resulting in a poor agreement.
3. The reader who ignores the advice in a book that is hard to hear.
4. The shopper who believes they need hundreds of rolls of toilet paper because store shelves are nearly empty.

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3. Availability Bias

The availability bias is our tendency to overestimate the possibility of events based on how easily we remember examples of that event. This bias can both keep us from doing helpful things and encourage us to do harmful things.

What we see in the media influences the availability bias.

A few examples are as follows:

1. The media highlights lottery winners. As a result, people believe their odds of winning are much higher than they are.
2. The media highlights shark attacks. As a result, people believe shark attacks are more common than they are.
3. The media highlights a dip in the stock market. As a result, people refuse to invest in a retirement account.
4. The media highlights the toilet paper crisis. As a result, people buy more toilet paper than they need.

4. Anchoring Bias

The anchoring bias is our tendency to let the first piece of information we receive about a topic sway our decision.

A famous study explains this bias well. ⁶

Drazen Prelec and Dan Ariely had participants write down the last two digits of their social security numbers. They then presented the participants with a list of items for sale.

The last two numbers of the participant’s social security number became the price of all items. For example, if the last two numbers of the participant’s social security number were 1 and 7, the price of the items were $17.

Participants were then asked to state the most they would pay for each item. Results showed that people with high social security numbers paid up to 346% more than people with low social security numbers.

You may be subject to the anchoring bias in the following ways.

1. You are shopping for a car. The dealership starts with a high initial price because salesmen are trained to set a high anchor. This inflated price leads you to overestimate the value of the car. As a result, you pay above market value.
2. You are looking for a software solution for your business. When you visit the pricing page, you see three pricing tiers. The Basic plan is $9, the Pro plan is $29, and the Premium plan is $199. Even though you may have originally felt $29 was expensive, you select the pro plan because it appears like a deal compared to the $199 anchor.
3. Your first impression of someone affects what you think of them moving forward.

5. Sunk-Cost Bias

The sunk-cost bias is our tendency to continue an endeavor if we have already given it time, money, or effort. This bias is problematic when the endeavor is no longer beneficial.

Here are some examples that show how the sunk-cost bias could be affecting your life.

1. You’ve spent six months and a lot of money training a new employee. The employee has proven that they cannot do the job, but you don’t fire them because doing so feels like a loss.
2. You’ve spent three years in a romantic relationship. Deep down, you know you need to end the relationship. Yet, you choose to remain in the relationship because doing so feels like a waste of three years.
3. You’ve spent two years and $80,000 starting a new business. All evidence suggests the business has failed. Regardless, you invest another $40,000 because giving up feels like a waste of time and money.

How To Avoid Cognitive Biases

Cognitive biases occur on a subconscious level, making them hard to recognize. You won’t be able to catch every bias, but the following ideas will improve your chances.

1. Do your research. You can make better decisions when you have relevant information. For example, if you’re buying a car, know its value before visiting the dealership. That way, when the salesman starts with a high anchor, you can let it roll off your back.

2. Consider the counterargument. Your depth of knowledge improves when you consider multiple points of view. So, if you’re writing an opinion piece, make sure you learn various opinions before coming to a conclusion. Or, if you’re negotiating, pay attention to what is important to all parties before making your final offer.

3. Monitor your emotions. It’s believed that stress increases the likelihood of cognitive biases. ⁷ Given this fact, try to avoid making important decisions if you feel overly stressed.

4. Get more feedback. Without feedback, the outcome of your decision is unknown. For example, consider an entrepreneur who privately spends years building a product that nobody wants. However, with feedback, the entrepreneur could have designed a product that has a place in the market.

How To Overcome Problems When Following This Advice

Your ego is often the biggest hurdle to overcome when dealing with cognitive biases. Let me give you a few examples.

You might join a group because your ego persuades you to fit in or look cool. Your desire to be right may cause you to ignore important information. And the fear of failure could encourage you to keep working on a project that has already failed.

Knowing this, here are three ideas that can help you resist the pull of your ego.

1. Focus on the big picture. It feels great to be right but consider the cost. For instance, your business will suffer if your need to be right makes your employees feel unappreciated. In this case, finding a compromise that makes your employees feel valued would be beneficial.

2. Learn a lesson and move on. Failure hurts, but don’t ignore what failure can teach you. For context, YouTube started as a dating website, and Instagram began as a whiskey app. Ultimately, both companies became successful because their founders discovered a way to learn from failure.

3. Remember your values. Fitting in with the crowd feels great. But if you ignore your values in the process, you’ll pay the price long-term. So if you feel the pull of peer pressure, remember what’s important to you. Don’t let the need to feel accepted encourage you to do something you’ll regret.

How To Know When You’ve Taken These Ideas Too Far

Analyzing your decisions is helpful, but you can take the concept too far. Here are two examples of how you could be overanalyzing.

1. You’ve stopped making progress. You won’t always have all the data you need, but don’t let that hold you back. When this happens, make the best decision you can with the information you have and move on.

2. You’ve got a gut feeling. There are times when you can’t explain why, but something just doesn’t feel right. For example, perhaps something feels off with a business deal or a romantic relationship. In these situations, trusting your gut is often a good idea.

In A Nutshell

Here are the key takeaways from this article.

• Cognitive biases cause people to make unexplainable irrational decisions.
• These poor decisions affect your life.
• By learning how to identify cognitive biases, you can make better decisions.
• Five cognitive biases to watch out for are (1) the bandwagon effect, (2) the confirmation bias, (3) the availability bias, (4) the anchoring bias, and (5) the sunk-cost bias.
• To help yourself identify cognitive biases, (1) do your research, (2) consider the counterargument, (3) monitor your emotions, and (4) get more feedback.
• To overcome common problems, (1) focus on the big picture, (2) learn a lesson and move on, and (3) remember your values.
• To prevent yourself from taking these ideas too far, (1) be aware of times when you’ve stopped making progress, and (2) don’t be afraid to trust your gut feeling.

Books That Influenced This Article

The following book links are Amazon affiliate links. If you purchase a book after clicking one of the links, I will receive a commission.

Thinking Fast And Slow
Book | Audiobook | Kindle

Predictably Irrational
Book | Audiobook | Kindle

Influence
Book | Audiobook | Kindle

Footnotes

1. Jen Wieczner. The case of the missing toilet paper: How the coronavirus exposed U.S. supply chain flaws. FORTUNE.com. (May 18, 2020).
2. Marc Fisher. Flushing out the true cause of the global toilet paper shortage amid coronavirus pandemic. WashingtonPost.com. (April 7, 2020).
3. Sharon Terlep. Americans Have Too Much Toilet Paper. Finally, Sales Slow. WSJ.com. (April 13, 2021).
4. London Drugs CEO surprised by COVID-19 toilet paper hoarding. CBC News: The National. (March 20, 2020).
5. List of cognitive biases. Wikipedia.
6. Dan Ariely, George Loewenstein, & Drazen Prelec. “Coherent Arbitrariness”: Stable Demand Curves Without Stable Preferences. ResearchGate.net. (February 2003).
7. Carmen Jacob, Verena Hoffmann, Elisabeth Olliges, Anja Haile, Benjamin Jacobi, Leander Steinkopf, Marina Lanz, Matthias Tschoep, & Karin Meissner. Stress changes how we think – Psychophysiological evidence for the Stress-Induced Deliberation to Intuition (SIDI)-model. ScienceDirect.com (September 11, 2017).