The Conservatism Bias

The tendency for investors to react too slowly to changes in the market.

This is the tendency to cling tenaciously to a view or a forecast. Once a position has been stated most people find it very hard to move away from that view even when they are presented with new data. When movement does occur it is only very slow which creates under-reaction to events. This slowness to revise prior probability estimates is known as “conservatism.”

The Distinction Bias

The tendency to view two options as more dissimilar when evaluating them together than separately.

Understanding the differences between joint evaluation and separate evaluation is important because we often make decisions by comparing options—but we typically experience options in isolation. This creates a mismatch in which the best decision may not provide the best experience. For example, when televisions are displayed next to each other on the sales floor, the difference in quality between two very similar, high-quality televisions may appear great. A consumer may pay a much higher price for the higher-quality television, even though the difference in quality is imperceptible when the televisions are viewed in isolation. Because the consumer will likely be watching only one television at a time, the lower-cost television would have provided a similar-quality viewing at a lower cost.

The Instant Gratification Bias

The tendency to minimize the future and cave in to short-term highs.

Over millions of years, evolution selected strongly for creatures that lived largely in the moment. In every species that's ever been studied, animals tend to value the present far more than the future. And the closer temptation is, the harder it is to resist. When we're hungry, we gobble french fries as if driven to lard up on carbs and fat now, since we might not find any next week. Obesity is chronic not just because we routinely under-exercise, but also because our brain hasn't caught up with the relative cushiness of modern life. We continue to downplay the future hugely, even as we live in a world of all-night grocery stores and 24/7 pizza delivery.

Future-bashing extends way beyond food. It affects how we spend money, why we fail to save enough for retirement, and why we so frequently rack up enormous credit card debt. One dollar now seems more valuable than $1.20 a year from now. Doctors find that many people who've had heart bypass surgery don't take all the measures they recommend to significantly reduce the odds of future cardiac complications. The allure of that juicy pepperoni pizza now is too much to overcome against the distant benefit of living longer. So the more we minimize the future, the more we go for drugs, booze, and gluttony.

GOOGLE IT: This bias is also called “The Hyperbolic Discounting Curve.” The curve gets steeper and steeper as the reward date is pushed further out into the future. This makes it hard for people to make the right choices today for goodies that are years away.

The Base-Rate Bias

The tendency to ignore statistics and focus on the particulars.

Charts and numbers bore and intimidate most of us. We're data phobic, prefer the warm fuzzies of the human touch and testimonials to hard facts. The word "probability" makes us squeamish, feel dumb. Nonetheless, we need to know that when judging a situation―for instance, diagnosing a patient's disease―there are two often types of information:

Type #1  Data about the frequency of the disease occurring in a large population.

Type #2  Specific information about the patient: results of tests and an examination.

When people have both types of information, they tend to make judgments based entirely upon Type 2 information, leaving out the statistics. It's best to consider both types of information because there is always some possibility that an observation or test may be wrong. 

Source: Amos Tversky & Daniel Kahneman, "Evidential Impact of Base Rates", in Judgment Under Uncertainty: Heuristics and Biases, Kahneman, Paul Slovic, and Tversky, editors (1985), pp. 153-160.

The Illusion-of-Control Bias

The tendency to believe we can control outcomes we clearly cannot.

One simple form of this fallacy is found in casinos: when rolling dice in craps, it has been shown that people tend to throw harder for high numbers and softer for low numbers. Under some circumstances, experimental subjects have been induced to believe that they could affect the outcome of a purely random coin toss. Subjects who guessed a series of coin tosses more successfully began to believe that they were actually better guessers, and believed that their guessing performance would be less accurate if they were distracted.

The Ostrich Effect

The tendency to ignore an obvious risky situation by pretending it doesn't exist.

Have you ever been told, "You've got your head in the sand?" I have. I've ignored many obvious, negative situations. The name of this bias comes from the legend that ostriches bury their heads in the sand to avoid danger. In behavioral finance, the ostrich effect is the avoidance of apparently risky financial situations by pretending they don't exist.

The Better-Than-Average Bias

The tendency to think we're better-than-average at many things.

People generally consider themselves smarter, luckier, better-looking and more important than they really are. They regard themselves as exceptional and believe they will avoid the divorces, premature deaths or weight gains that befall everyone else. The link between people’s personal estimations and the not-so-flattering reality is sometimes perilously weak. To social psychologists, flawed self-assessment is the norm. People systematically misjudge their abilities, virtues, importance and future actions. And those erroneous views can endanger health, ruin relationships, ruin finances and cause other miseries. 

The Familiarity Bias

The tendency to prefer things that are familiar.

Familiarity breeds liking. People tend to develop a preference for things merely because they are familiar with them. In studies of interpersonal attraction, the more often a person is seen by someone, the more pleasing and likeable that person appears to be. The earliest known research on the exposure effect was conducted by Gustav Fechner in 1876. Edward B. Titchener also documented the effect and described the "glow of warmth" one feels when in the presence of something that is familiar.

Also called "The Mere Exposure Effect" and "The Propinquity Effect."

FAMILIARITY & YOUR MONEY

Tens of thousands of potential stock, bond, and mutual fund investments exist. So how do investors choose? Financial theory suggests we should analyze the expected return and risk of each investment. But no, investors tend to trade in the securities with which they are familiar. There is comfort in having your money invested in a business that is visible to you. This familiarity bias has a strong influence on what you buy.

Choosing investments is an exercise in decision-making under risk and uncertainty. Chip Heath and Amos Tversky show in a series of experiments that when people are faced with a choice between two gambles, they will pick the one that is more familiar to them. In fact, they will sometimes pick the more familiar gamble even if the odds of winning are lower! Gur Huberman argues that "Familiarity is associated with a general sense of comfort with the known and discomfort with-even distaste for and fear of-the alien and distant." For example, when given a list of countries and asked to rank order the performance of the economy or stock market in those countries, people rank their home country's performance better.

This sentiment can also be expressed in the form of affect, a belief that investment alternatives that are more familiar are better than those that are not. In this case, "better" usually means that they have higher expected return and lower risk than unfamiliar ones.

How does this bias impact you as an investor? The main problem is that when you buy the familiar, you underestimate the amount of risk in the investment. Because you underestimate the risk, you do not take the purposeful steps of reducing risk, like diversifying. So you end up taking more risk than desired. Implications are:

• Inferior asset allocation

• Too much allocation to one or few stocks

• Preferences for local stocks (home bias)

• Preferences for cultural proximity

• Preferences for professional proximity

REFERENCES: See Heath, Chip, and Amos Tversky, 1991, "Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, 4, 5-28, and Huberman, Gur, 2001, "Familiarity Breeds Investment," Review of Financial Studies, 14, 659-680.

HERE IS THE LINK TO THE ORIGINAL ARTICLE.

The Choice Supportive Bias

The tendency to give positive qualities to an option we've chosen, simply because we've chosen it. 

We conger up reasons why we chose the right, smart and edgy thing, and why our other options were wrong, stupid and dated. It's easy to justify our choices because we're living with them, in our drawers, parked in our garages, and in bed next to us in a granny gown. They're in our face while our other options are relegated to the fringes of consciousness. In truth, every choice has an upside and a downside, nothing is 100-percent desirable or undesirable. So why are we so smug about our choices? For one thing, the minute we commit to them, they become a part of our identity, our self image. To know thyself, make a list of thy choices. 

The Optimism Bias

The tendency to view ourselves as invulnerable (or less likely than others) to experiencing negative life events.

This personal fable also involves the tendency to overestimate one’s probability of experiencing positive life events. Humans expect positive events in the future even when there is no evidence to support such expectations. It seems that optimism bias is part of a general bias towards thinking positive things or "The Pollyanna Principle."

EXAMPLES

• People expect to live longer and be healthier than average.

• People underestimate their likelihood of getting a divorce.

• People overestimate their prospects for success on the job market.

• People expect to complete personal projects in less time than it actually takes to complete them.

• Second-year MBA students were found to overestimate the number of job offers they would receive, the magnitude of their starting salary, and how early they would receive their first offer."

• Professional financial analysts were reasonably able to anticipate periods of growth and decline in corporate earnings, but consistently overestimated earnings realized.

• Vacationers anticipate greater enjoyment during upcoming trips than they actually expressed during their trips

• Newlyweds almost uniformly expect that their marriages will endure a lifetime" despite the large proportion of marriages that end in divorce.

• Most people expect they have a better-then-average chance of living long, healthy lives; being successfully employed and happily married; and avoiding a variety of unwanted experiences such as being robbed and assaulted, injured in an automobile accident, or experiencing health problems.

• Between 85% and 90% of respondents claim that their future will be better —more pleasant and less painful—than the future of an average peer"

• Most smokers believe they are less at risk of developing smoking-related diseases than others who smoke.

• People believe that they are less likely [than average] to be victims of auto accidents and earthquakes.

• People believe that they are less likely than others to fall prey to illness, depression and unwanted pregnancies.

The Wishful-Thinking Bias

The tendency to wish something to be true that's false, or vice versa.

We often interpret facts as we'd like them to be, not how they actually are. If I believe I can talk to Hazel, my beautiful, deceased grandmother, that's wishful-thinking. Lots of people subscribe to this fantasy. So what's the fact? The fact is there is no proof that I'm actually meeting with Hazel. No one can see her, except me, and I'm hallucinating or have a vivid imagination. A list of common wishful-thinking examples: seeing ghosts, believing there are gods, imagining eternal life, thinking the stock market will go up for another ten years, and so on. This bias is related to "The Tinkerbell Effect." If you wish hard enough for something to come true, this theory suggests you will get your wish. 

The Ingroup Bias

The tendency for people to give preferential treatment to members of their own group.

Experiments in psychology have shown that group members will award one another higher pay-offs even when the "group" is random and arbitrary, such as having the same birthday, grouped by shirt color, or being assigned to the same flip of a coin. Ingroup effects appear to be stronger when the group is smaller relative to another high-power group.

The Trait-Ascription Bias

The tendency to believe that we are more unpredictable than others. "I know what you're up to, but you can't see through me."

I've often said, "She's so predictable, so consistent!" I thought I could predict what others might do and they would be clueless about me because I'm more mysterious and spontaneous. So much for that illusion. This attributional-bias has an obvious role in the formation of stereotypes and prejudice. 

The Barnum Effect

The tendency to give high-accuracy ratings to vague and general descriptions of our personalities. 

"We've got something for everyone," said P. T. Barnum. His knack for creating shows with a broad appeal inspired the name of this effect, also called "The Forer Effect" and "The Personal Validation Fallacy." This bias provides a partial explanation for the widespread acceptance of some pseudosciences such as astrology and fortune telling, as well as many types of personality tests. Cunning psychics take advantage of this effect because it enables them to pitch generalized statements and feel confident that many people will apply them to themselves and believe they are specific.

So successful psychics are crafty, talented generalizers. They toss out fabricated information about you rapidly until something sticks, until they see a glimmer in your eye and excitement in our demeanor. They read your body language then expand on the topics that cause you to react. They are reaction readers.

BrainTip: You, too, can become a psychic. Just read, study and practice the information in the little booklet, Learn To Be A Psychic In 10 Easy Lessons!, a free pdf download from Skeptic.com.

The Dunning-Kruger Effect

The tendency for people to reach erroneous conclusions, but their incompetence robs them of the ability to see it.

The phenomenon was demonstrated in a series of experiments performed by Justin Kruger and David Dunning, both of Cornell University. Their results were published in the Journal of Personality and Social Psychology in December 1999. The duo concluded the following:

• Incompetent people overestimate their level of skill.

• Incompetent people fail to recognize genuine skill in others.

• Incompetent people don't recognize the extremity of their inadequacy.

• If they can be trained to substantially improve their own skill level, these people can recognize and talk about their previous lack of skill.

The Peter Principle spotlights the fact that every organisation feels the overpowering compulsion to promote a person from one level in the hierarchy to the next higher level. The danger of this predilection is that often this is from a level of competence to a level of incompetence. Thus, a competent mechanic is promoted to become an incompetent foreman, a competent foreman is made into an incompetent superintendent, a competent teacher is made into an incompetent vice-principal and a competent soldier is promoted to become an incompetent Field Marshal. In all these cases, the employees had been promoted to a position that they were incompetent to fill. Or, in other words, they have been promoted from a position of competence to a position of incompetence.

The Choice Blindness Effect

The tendency to defend a choice even if our original choice has been covertly exchanged for something else.

In a fascinating study, volunteers were shown pairs of pictures of faces and asked them to choose the most attractive. Immediately after they made their choice, the people were asked to explain the reasons for their choices. Unknown to them, the scientists used a double-card magic trick to covertly exchange one face for the other, so they ended up with the face they didn't choose. You would think that they would notice such a big change in the outcome of a choice. But the result showed that in 75 percent of the trials, the participants were blind to the mismatch, even offering "reasons" for their "choice".

The Compromise Effect

The tendency to avoid extremes and choose an intermediate choice.

People shy away from extremes. This aversion gives rise to “The Compromise Effect” which states that a customer is more likely to choose the middle option of a selection-set rather than the extreme option. The framing of a choice matters. Here are three classic examples based on studies:

• Going Out to Dinner: Almost everyone has had the experience of switching to the second most expensive entree on the menu, of doing so partly because of the presence of the most expensive item. Did you know that the expensive item is there to lure you into buying the second item? And guess which one has a higher profit margin? Yep, the second one.

• Buying a Car: A car-shopper who is given three options: the low-priced basic model with no extras, a high-priced fully-loaded model with all the extras, and a mid-priced model with a few extras, will most likely choose the middle option. 

• Buying a Radio: When choosing between a small radio A and a midsized radio B, people usually choose A; but if a large radio C is added, people will choose B instead of A. 

MANTRA: To act more rationally, I must not be swayed to choose a middle option flanked by two extremes.

The Actor-Observer Bias

The tendency to think: "If others make mistakes, it's their fault. If I do it, it's not my fault. It's due to the situation I'm in."

People frequently presume that the mistakes of others are due to a personality flaw, possibly genetic. This bias is coupled with the opposite tendency to explain our own actions by overemphasizing situations and underemphasizing our personality. "The situation made me do it, so gimme some slack. It's not my fault."

"Dreadful experiences make us wonder whether the person who experiences them may not be dreadful." —Friedrich Nietzsche in Beyond Good and Evil (p. 61)

The Halo Effect

The tendency for people to think that a person's positive or negative traits "spill over" from one area of life to another.

Halo Effects occur when one good quality about a person—for instance, a woman keeps a highly organized home—leads us to assume she is organized in other areas of her life. In a school context, a student who receives an "A" on the first piece of homework might end up getting undue slack from a teacher on further grading, because the teacher expects him to continue producing A-work. The inverse of the halo effect is the "Devil Effect" or the "Horns Effect," where one instance of bad performance causes the victim to be attributed negatively in an unfair fashion in the future.

The halo effect is a cognitive bias, a "mental shortcut" or even "cognitive illusion," that causes people to behave in ways that an unbiased observer considers unjustified. Because our entire lives are permeated by these cognitive judgments, they affect the very fabric of our society. So hang it there and keep learning them on this website. Metacognition rocks.

The Hindsight Bias

The tendency to see past events as being predictable.

Hindsight is the inclination to see events that have occurred as being more predictable than they, in fact, were before they took place. The event that actually happened is more prominent in our mind than the possible outcomes that didn't occur. This bias has been demonstrated experimentally in a variety of settings, including politics, games and medicine. Also called "The I-Knew-It-All-Along Effect."  

The Expert's Opinion Bias

The tendency to overvalue the opinion of experts and undervalue our own ability for making wise decisions.

With hindsight, the causes of the current global financial meltdown seem obvious, even predictable. Now, brain imaging offers one explanation for why so few investors challenged foolhardy fiscal advice. Our brains raise few objections when presented with seemingly expert guidance, new research suggests.

"Most average people have this tendency to turn off their own capacity for making judgments when an expert comes into the picture," says Gregory Berns, a neuroeconomist at Emory University in Atlanta. 

Berns' team presented 24 young volunteers with a simple choice: accept a sure payment or bet on a riskier, yet higher-paying lottery. When weighing this decision, volunteers activated brain circuits known to calculate risk and reward. In line with previous research, the team noticed more brain activation in these dopamine-delivering areas when the expected reward was higher.

"When advice is not there, when people are making these judgments on their own, you can make clear correlations with expected value in the lottery and areas associated with the dopamine system," he says.

To see how subjects respond to financial advice, the team told volunteers that Charles Noussair, an economics professor at Emory who advises the US Federal Reserve, would offer his opinion on whether they should accept the easy money or take a chance.

In reality, a computer program told volunteers to accept the sure thing if it added up to about 20% or more of the lottery sweepstake. Volunteers usually took this advice blindly, brain scans suggest. Correlations between increased potential reward and brain activity disappeared when volunteers received the advice.

"That suggests that the normal mechanisms people use to evaluate risk and reward are not being used when you have an expert telling you what to do," Berns says. "I think this explains a lot, if not everything, about the current market situation," he adds, urging people to take expert advice—fiscal, medical or otherwise—more shrewdly. "In my opinion, decision-making shouldn't be handed over to anyone, expert or otherwise."

Reference: New Scientist magazine, 24 March 2009; "Brain quirk could help explain financial crisis" by Ewen Callaway.

The Money Illusion Bias

The tendency for people to think of money in nominal, rather than real terms.

In economics, "nominal value" refers to any price expressed in money of the day, as opposed to "real value," which adjusts for the effect of inflation. The Money Illusion refers to the tendency of people to think of currency in nominal terms only. In other words, the numerical/face value (nominal value) of money is mistaken for its purchasing power (real value). This is irrational because modern fiat currencies have no inherent value and their real value is derived from their ability to be exchanged for goods.

John Maynard Keynes coined the term "money illusion" in the early twentieth century, and in 1928, Irving Fisher wrote an important book on the subject, The Money Illusion. The existence of money illusion is disputed by monetary economists who contend that people act rationally (read: think in real prices) with regard to their personal wealth. Nonetheless, Shafir, Diamond and Tversky (1997) have provided compelling empirical evidence for the existence of this brain bias. 

The Money Illusion influences economic behaviour in three main ways:

• Price stickiness: Money illusion provides one strong reason why nominal prices are slow to change even when inflation has caused real prices and costs to skyrocket.

• Contracts and laws are not indexed to inflation as frequently as one would expect.

• Social discourse, in formal media and more generally, reflects some confusion about real and nominal value.

The Projection Bias

The tendency to assume that others share similar values, beliefs or thoughts.

Here are three types of projection:

• Complementary projection is assuming that others do, think and feel in the same way as you.  Thus we see our friends as being more like us than they really are.

• Complimentary projection is assuming that others can do things as well as you.

• Neurotic projection is perceiving others as operating in ways one finds objectionable in oneself.

Being aware of psychological projection in interpersonal relationships is very important. Before attributing thoughts or ideas to someone else, you may want to reflect on whether those beliefs can also be seen in yourself.

The Self-Fulfilling Prophecy

The tendency to engage in behaviors that bring results which confirm our beliefs.

A self-fulfilling prophecy is a prediction that causes itself to become true due to positive feedback between belief and behavior. Although examples of such prophecies can be found in literature as far back as ancient Greece and ancient India, it is 20th-century sociologist Robert K. Merton who is credited with coining the expression "self-fulfilling prophecy" and formalizing its structure and consequences. In his book Social Theory and Social Structure, Merton says:

"The self-fulfilling prophecy is, in the beginning, a false definition of the situation evoking a new behaviour which makes the original false conception come 'true'. This specious validity of the self-fulfilling prophecy perpetuates a reign of error. For the prophet will cite the actual course of events as proof that he was right from the very beginning."

In other words, a prophecy declared as truth, when it is actually false, may influence people, either through fear or confusion, so that their reactions fulfill the once-false prophecy.

The Pygmalion Effect, or Rosenthal effect, refers to situations in which students perform better than other students simply because they are expected to do so. The effect is named after George Bernard Shaw's play Pygmalion, in which a professor makes a bet that he can teach a poor flower girl to speak and act like an upper-class lady, and is successful. This effect requires a student to internalize the expectations of their superiors. It is a form of Self-fulfilling Prophecy, and in this respect, students with poor expectations internalize their negative label, and those with positive labels succeed accordingly. Within sociology, the effect is often cited with regards to education and social class.

Reference: Merton, Robert K (1968). Social Theory and Social Structure. New York: Free Press. pp. 477.

The Availability Bias

The tendency to base a prediction of the frequency of an event on how easily one example comes to mind.

When a story (anecdote, testimonial) like "I know an Aussie who..." is used to prove a claim, the availability bias has kicked in. Because an example is "mentally available," we think it is representative of the whole, even if it is a glaring exception. Essentially the availability bias operates on the notion that "If you can think of it, it must be important." It thrives on what is readily available in memory, what is vivid, unusual, or emotionally charged. Two examples follow:

• Someone says to a group of friends, "People who drive red cars get more speeding tickets." The group agrees because they all know Jason who drives a red Porsche and frequently gets nabbed for speeding. The reality is, he has a history of driving fast in every car he's owned since high school. His previous cars were blue, silver and black.

• Tom told me that cigarettes—he smoked Camels without a filter and marijuana—aren't unhealthy because his grandfather smoked two packs a day and lived to be 93. "He passed away with a cigarette in his hands." Tom died of lung cancer at 64. He bet his life on his story.

"The availability bias is present in the minds of everyone from young children to professional economists. Research shows that even formal education through the PhD level has only marginal effects on this bias," says John Ray, a decision-science major at Carnegie-Mellon University, in Skeptical Inquirer magazine (March/April 2009, p. 41)

The availability bias was discovered in 1974 by Daniel Kahnemann and Amos Tversky who said, "There are situations in which people assess the probability of an event by the ease with which instances or occurrences can be brought to mind."

The Outgroup Homogeneity Bias

The tendency to see members of one's own group as being more varied than members of other groups.

In sociology, an outgroup is a social group towards which an individual feels contempt, opposition or a desire to compete. The implications of this effect to stereotyping is obvious. A similar bias on the individual level is The Trait Ascription Bias.

The Gullibility Bias

The tendency to become more gullible when we feel out of control.

Why do people fall for con-artists, conspiracy theories, and paranormal ideas? In situations in which a person is not in control, they're more likely to spot patterns where none exist, to see illusions, to believe things that are highly improbable.

In a series of experiments, researchers created situations in which people had less control over their situation, and then tested how likely the participants were to see imaginary images embedded in snowy pictures. The researchers also had participants write about either a situation in which they had control, or a situation in which they didn't, and then presented stories involving strange coincidences. People who had written about a situation in which they were not in control were more likely to draw non-existent connections between the coincidences, the researchers found.

This summary suggests out-of-control-feeling folks are biased to see more than there is, but perhaps in-control-feeling folks are biased to see less than there is.

The Fading Effect

The tendency for unpleasant memories to fade more quickly than pleasant ones.

Surveys conducted in the United States and around the world consistently show that people are generally happy with their lives, even for those with physical and mental disabilities and people without much money. Researchers reviewing several studies on autobiographical memory and happiness have found that human memory is biased toward happiness.

In their article, W. Richard Walker, Ph.D., of Winston-Salem State University and colleagues find two causes for people’s recollection of the past to be positively biased. The first cause, according to their review of the research, seems to be due to the simple fact that pleasant events do in fact outnumber unpleasant events because people seek out positive experiences and avoid negative ones. Across 12 studies conducted by five different research teams, people of different racial and ethnic backgrounds and participants who ranged in age from late teens to early 50’s consistently reported experiencing more positive events in their lives than negative events.

The other process at work involves our memory system treating pleasant emotions differently from unpleasant emotions. Seven studies reviewed by the researchers provide support for a fading affect for negative emotions. Pleasant emotions have been found to fade more slowly from our memory than unpleasant emotions. One mechanism for this uneven fading may involve a process known as minimization. In order to return to our normal level of happiness, we try to minimize the impact of life events. This minimization process – which occurs biologically, cognitively and socially -- is usually stronger for negative events than for positive events.

“This implies that there is a tendency to ‘deaden’ the emotional impact of negative events relative to the impact of positive events,” according Dr. Walker. “Such deadening occurs directly because people are motivated to view their life events in a relatively positive light.”

The research shows that this fading affect bias represents genuine emotional fading rather than a retrospective error in memory, and it should be viewed as evidence of healthy coping processes operating in memory, according to the authors. They add that this should not be confused with repression, a theory proposed by Sigmund Freud. This research suggests that people do remember negative events; they just remember them less negatively.

Of course, life is not pleasant for everyone. Of the 229 participants involved in eight reviewed studies where diary entries were tracked, 17 reported more unpleasant than pleasant events, indicating that the fading affect does not work for everyone. Among those with mild depression, unpleasant and pleasant emotions tend to fade evenly. In a new study to be published by the review authors, 330 participants recalled six emotionally intense memories from their lives and provided a series of ratings for each event. The participants were also assessed on depression levels. The researchers found increased levels of depression were associated with a greater disruption of the fading affect bias.

These findings are published in the June 2003 issue of Review of General Psychology, a journal of the American Psychological Association (APA).

The Reactance Bias

The tendency to do the opposite of what someone wants you to do because you think they are trying to constrain your freedom of choice.

Reactance can occur when someone pressures you to accept a certain viewpoint. It can cause you to actually strengthen your stance. For example, do teens drink in excess in an environment of prohibition when they wouldn't do so in a more permissive culture.

People who use "reverse psychology" are playing on an awareness of reactance, attempting to influence someone to choose the opposite of what they request. This is a frequent method used in fraudulent or unethical sales pitches, manipulating a consumer into choosing an option they would not necessarily buy. 

The Authority Bias

The tendency to take on the opinion of someone who's seen as an authority on a subject.

First, we over-value the opinion of mommy and daddy, then our peers, our teachers and our personal god(s). Later on, it's experts on stuff: art critics, pundits, doctors, repair people, and so on. Adoring the opinion on one expert is risky. There's always a second, third, fourth opinion. "But what if I don't have the time or money for another opinion?" Then you're screwed, or could be. "And what if a really brilliant expert screws up?" That's bad luck.

BrainTip: Inquire about the credentials of so-called experts? Gather, at least, one more opinion, especially if the issue is import and, if your health of wealth are at risk. Think critically!

The Racism Bias

The tendency to avoid and mistreat people who look different.

It's innate to be repulsed by people who have different belief systems. We wonder, "Where'd they get such twisted ideas?" and "I'm right, they're loco." It's so easy to loathe people who look different. "Their nose is so wide?" and  "They wear funny clothes." We do not relate well to otherness.  We become gripped by an avoidance reflex, a self-protection mechanism which is, sadly, a totally natural impulse. So why blame ourselves for racism when we're born hugely tribal? Why not? Blame, in this instance, seems sane.

"We have a natural aversion to Others, and we show a remarkable ability to sort people into in-group/out-group categories on the most minute levels of criteria—think of such gangs are the Crips and the Bloods, or such ethnic disputes as those between the Hutus and the Tutsis, or the Shiites and the Sunnis. Although we have educated and legislated these ancient tribal rituals out of our culture, their psychological underpinnings are still buried deep in our Paleolithic brains, waiting to be stirred into action." writes Michael Shermer in his bestseller The Mind of the Market.

The Difficulty of Loving Strangers

• by Jonah Lehrer 

Over at Not Exactly Rocket Science, Ed Yong has a great post on a new study looking at oxytocin, a brain hormone that’s typically associated with feelings of trust and love. The hormone pours into the bloodstream, for instance, during childbirth, triggering contractions and child-mother bonding. (Synthetic versions of oxytocin, such as pitocin, are used to induce labor.) In recent years, the chemical also been linked to Prairie vole monogamy, increased generosity in the Ultimatum Game and trusting behavior when making risky investments. Such research has led, inevitably, to idiotic products like this:

This new study, however, complicates the feel good narrative. It turns out that oxytocin isn’t simply a chemical version of social affection. Here’s Yong, summarizing the work of Carsten de Dreu at the University of Amsterdam:

De Dreu asked 280 Dutch men to take three puffs form an oxytocin nose-spray, or a placebo that contained the same mixture without the hormone. It was a “double-blind” study – neither de Dreu nor the men knew who had been given what until the results were in.

First, de Dreu looked for any hidden biases in the volunteers’ reactions to German, Arab or other Dutch men. He used an ‘implicit association test, where volunteers used two keys to categorise words into different groups (e.g. Dutch names or German/Arab names, or positive and negative). Combinations of categories that contradict our biases should subtly slow our reaction times. If people are biased against Arab people, they’d take longer to finish the test if the same key was assigned to both Arab names and positive words. These “implicit associations” are very hard to fake, especially if the test is done at speed.

Sure enough, oxytocin strengthened the biases of the Dutch volunteers. When they sniffed oxytocin (rather than the placebo), they were quicker to associate positive words with Dutch names than with either German or Arab ones.

Finally, de Dreu showed that these shifting biases could affect the moral choices we make. He presented volunteers with a famous series of moral dilemmas. For example, a runaway rail trolley is hurtling towards five people who are about to be killed unless you flip a switch that diverts the trolley into the path of just one person. All of the dilemmas took the same form – you weigh the lives of one person against a group. And in all the cases, the lone person had either a Dutch, German or Arab name, while the group were nameless.

After a sniff of placebo, the Dutch volunteers were just as likely to sacrifice the single person, no matter what name they had. But after sniffing oxytocin, they were far less likely to sacrifice the Dutch loners than the German and Arab ones.

This suggests that the feelings of trust and warmth triggered by oxytocin come with a hidden cost, in that we become less likely to trust “outsiders.” Although the chemical sharpens our positive feelings towards those we already know and understand, it also exaggerates the perceived differences between our in-group and everyone else. There is no love for all.

The Gambler's Fallacy

The tendency to believe in hot-and-cold streaks.

We tend to assume that individual random events are influenced by previous random events. We've all seen people win several rolls of the dice in roulette and have marveled at basketball players who shoot successfully in "streaks." Sportscasters say they have a "hot hand." This widely held belief is false. Scientists have found that the success of a previous throw only very slightly predicts a subsequent success or miss. A similar effect occurs for other types of random dispersions, including seeing streaks in stock market price fluctuations over time. This bias is also called "The Monte Carlo Bias" and "The Clustering Illusion."