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9 Biases which help us simplify numbers and probabilities

We simplify probabilities and numbers to make them easier to think about.

Our subconscious mind is terrible at math and generally gets all kinds of things wrong about the likelihood of something happening if any data is missing.

 

Appeal to Probability Fallacy (Appeal to Possibility)

The logical fallacy of taking something for granted because it would probably be the case (or might possibly be the case).

 

Denomination Effect

A form of cognitive bias relating to currency, whereby people are less likely to spend larger bills than their equivalent value in smaller bills.

 

Magic Number 7 ± 2 (Miller’s Law)

The number of objects an average human can hold in working memory is 7 ± 2.

 

Mental Accounting (Psychological Accounting)

The process whereby people code, categorize, and evaluate economic outcomes. People may have multiple mental accounts for the same kind of resource. A person may use different monthly budgets for grocery shopping and eating out at restaurants, for example, and constrain one kind of purchase when its budget has run out while not constraining the other kind of purchase, even though both expenditures draw on the same fungible resource (income).

 

Murphy’s Law

Murphy’s law is a popular adage that states that “things will go wrong in any given situation, if you give them a chance,” or more commonly, “whatever can go wrong, will go wrong.”

 

Normalcy Bias

A belief that causes people to underestimate both the possibility of a disaster and its possible effects because it causes people to have a bias that things will always function the way things normally function. People with a normalcy bias have difficulties reacting to something they have not experienced before. They also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation. Normalcy bias is essentially a “desire for the status quo.”

 

Related. Ostrich Effect, Selective Perception

 

Subadditivity Effect

The tendency to judge probability of the whole to be less than the probabilities of the parts.

 

Survivorship Bias (Survival bias)

The logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. Survivorship bias can lead to overly optimistic beliefs because failures are ignored, such as when companies that no longer exist are excluded from analyses of financial performance. It can also lead to the false belief that the successes in a group have some special property, rather than just coincidence (correlation proves causality). Read More.

 

Example. If three of the five students with the best college grades went to the same high school, that can lead one to believe that the high school must offer an excellent education. This could be true, but the question cannot be answered without looking at the grades of all the other students from that high school, not just the ones who “survived” the top-five selection process.

 

Zero Sum Bias

A general belief system about the antagonistic nature of social relations shared by people in a society or culture and based on the implicit assumption that a finite amount of goods exists in the world. Therefore one person’s winning makes others the losers, and vice versa which leads to a relatively permanent and general conviction that social relations are like a zero-sum game. People who share this conviction believe that success, especially economic success, is possible only at the expense of other people’s failures.

 

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