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Every business decision you make passes through your brain's mental shortcuts—and those shortcuts come with built-in blind spots. Cognitive biases aren't just psychology trivia; they're the hidden forces behind failed product launches, botched negotiations, and billion-dollar strategic blunders. Understanding these biases means understanding why smart people make predictable mistakes, and that's exactly what you're being tested on.
The key insight here isn't memorizing fifteen bias definitions—it's recognizing the underlying mechanisms that cause systematic errors in judgment. These biases cluster around core problems: how we filter information, how we evaluate risk, how we process past decisions, and how we respond to social pressure. When you can identify which mechanism is at play, you can diagnose business problems and recommend solutions. Don't just memorize the names—know what type of thinking error each bias represents.
These biases distort what information we pay attention to and how we interpret it. The underlying mechanism is selective processing—our brains can't handle all available data, so they take shortcuts that systematically favor certain inputs over others.
Compare: Availability Heuristic vs. Recency Bias—both cause overweighting of certain information, but availability focuses on vividness and ease of recall while recency focuses specifically on timing. If an FRQ describes a manager reacting to a dramatic news story, think availability; if they're overreacting to last month's sales dip, think recency.
These biases affect how initial information shapes all subsequent thinking. The mechanism involves mental reference points—once established, anchors and frames become the baseline against which everything else is measured.
Compare: Anchoring vs. Framing—anchoring is about numerical reference points that pull subsequent estimates toward them, while framing is about how equivalent information is presented (gain vs. loss, positive vs. negative). Both show that context matters as much as content in decision-making.
These biases systematically distort how we assess probabilities and potential outcomes. The mechanism involves asymmetric emotional responses—losses, gains, and uncertainty trigger predictable but irrational reactions.
Compare: Overconfidence vs. Optimism Bias—overconfidence is about overestimating your own capabilities, while optimism bias is about underestimating the probability of bad outcomes. A manager might be overconfident in their negotiation skills AND optimistically assume the deal won't fall through—both biases, different mechanisms.
These biases distort how we evaluate previous choices and their outcomes. The mechanism involves protecting our self-image—we resist admitting mistakes and reconstruct the past to feel more in control.
Compare: Sunk Cost Fallacy vs. Hindsight Bias—sunk cost affects current decisions by making us irrationally committed to past investments, while hindsight bias affects how we remember and learn by making us think we predicted outcomes we didn't. Both involve the past, but one distorts present choices and the other distorts future learning.
These biases emerge from how we respond to others' behavior and our relative position. The mechanism involves social proof and status protection—we look to others for cues and resist changes that threaten our standing.
Compare: Bandwagon Effect vs. Status Quo Bias—bandwagon involves following others into change, while status quo involves resisting change to maintain current state. They can actually conflict: social pressure to adopt a trend (bandwagon) versus preference for existing practices (status quo). The winner often depends on which reference group the decision-maker identifies with.
These biases affect how we make predictions and assess people and situations. The mechanism involves mental shortcuts (heuristics) that substitute easy questions for hard ones.
Compare: Representativeness Heuristic vs. Dunning-Kruger Effect—representativeness causes errors in judging external situations by pattern-matching to prototypes, while Dunning-Kruger causes errors in judging oneself due to lacking the competence to recognize incompetence. Both involve flawed assessment, but different targets.
| Concept Category | Best Examples |
|---|---|
| Information Filtering | Confirmation Bias, Availability Heuristic, Recency Bias |
| Anchoring & Framing | Anchoring Bias, Framing Effect |
| Risk Evaluation | Loss Aversion, Overconfidence Bias, Optimism Bias |
| Past Decision Errors | Sunk Cost Fallacy, Hindsight Bias, Survivorship Bias |
| Social Influence | Bandwagon Effect, Status Quo Bias |
| Judgment Shortcuts | Representativeness Heuristic, Dunning-Kruger Effect |
| Negotiation-Critical | Anchoring Bias, Framing Effect, Loss Aversion |
| Strategic Planning Risks | Overconfidence Bias, Survivorship Bias, Confirmation Bias |
A CEO continues funding a failing product line because the company has already invested $$50 million. Which bias is operating, and why does it violate rational decision-making principles?
Compare and contrast Availability Heuristic and Confirmation Bias—both involve information filtering, but what's the key difference in which information gets prioritized?
A venture capitalist studies only successful startups to identify what makes companies succeed. What bias does this represent, and what critical information is being missed?
Which two biases would most directly affect a salary negotiation, and how would you advise someone to counteract each one?
An executive says "I knew the merger would fail—it was obvious from the start" after the deal collapses. Identify the bias and explain how it might harm the organization's ability to learn from the experience.