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Cognitive biases: Difference between revisions
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[[File:Cognitive biases.jpg|alt=Cognitive biases|Cognitive biases|thumb]]'''A cognitive bias is a systematic error in thinking that occurs when people are processing and interpreting information in the world around them. They are predictable patterns of thought and behaviour leading to incorrect conclusions.''' | [[File:Cognitive biases.jpg|alt=Cognitive biases|Cognitive biases|thumb]]'''A cognitive bias is a systematic error in thinking that occurs when people are processing and interpreting information in the world around them. They are predictable patterns of thought and behaviour leading to incorrect conclusions.''' | ||
There are many cognitive biases which have been documented | There are many cognitive biases which have been documented they persist in society as they are self-reinforced by the [[Dunning Kruger effect]] combining with the [[Confirmation Bias]], which get worse in crowds<ref>Fisher M, Oppenheimer DM. Harder Than You Think: How Outside Assistance Leads to Overconfidence. Psychological Science. 2021;32(4):598-610. doi:10.1177/0956797620975779 | ||
</ref>. Below is a list of the most prevalent in society ranked on their importance: | |||
# [[Optimism bias]] - a computer cannot tell you whether it will rain or not, only the probability of it occurring. | # [[Optimism bias]] - a computer cannot tell you whether it will rain or not, only the probability of it occurring. | ||
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Obviously, investors make similar bets all the time in financial markets. Option A is essentially a bond investment, while option A* is a typical stock market investment. Option B is an income stock with steady dividends while option B* is a growth stock with no dividends but a bright future. | Obviously, investors make similar bets all the time in financial markets. Option A is essentially a bond investment, while option A* is a typical stock market investment. Option B is an income stock with steady dividends while option B* is a growth stock with no dividends but a bright future. | ||
'''References''' | |||