To get things done, we tend to complete things we’ve time & energy in
The behavioral economist’s version of Newton’s first law of motion: an object in motion stays in motion. This helps us finish things, even if we come across more and more reasons to give up.
Backfire Effect
Given evidence against their beliefs, people can reject the evidence and believe even more strongly.
Disposition Effect
The tendency of investors to sell shares whose price has increased, while keeping assets that have dropped in value based solely on a psychological feeling. Stock market momentum tends to indicate that stocks that have done well over the past six months tend to keep doing well over the next six months and that stocks that have done poorly over the past six months tend to keep doing poorly over the next six months. This being the case, the generally rational act would be to hold on to stocks that have recently risen in value and to sell stocks that have recently fallen in value; but individual investors tend to do exactly the opposite.
Endowment Effect (Divestiture Aversion)
People ascribe more value to things merely because they own them. Read More.
Escalation of Commitment
Escalation of commitment is a human behavior pattern in which an individual or group facing increasingly negative outcomes from a decision, action, or investment nevertheless continues the behavior instead of altering course.
Example. Sticking with a job that you hate is certainly an instance of escalation of commitment. You know that quitting and looking for a new job is an option, but you’ve invested so much time and effort into your role that it’s difficult to face the idea of just leaving. You’ve too worked hard to abandon ship — maybe you’ve even taken part in training or earned credentials to do this specific job — and it all seems like a waste if you just quit.
Generation Effect
A phenomenon where information is better remembered if it is generated from one’s own mind rather than simply read.
IKEA Effect
A cognitive bias in which consumers place a disproportionately high value on products they partially created.
This amazing illustration was made by @cartoonbias. Do check out their work on Instagram.
Irrational Escalation (Escalation of Commitment)
A human behavior pattern in which an individual or group—when faced with increasingly negative outcomes from some decision, action, or investment—continues the same behavior rather than alter course. They maintain actions that are irrational, but align with previous decisions and actions.
Related. Sunk Cost Fallacy
Loss Aversion
People’s tendency to prefer avoiding losses to acquiring equivalent gains it’s better to not lose $5 than to find $5. Some studies have suggested that losses are twice as powerful, psychologically, as gains. Read More.
Related. Negativity Bias
Processing Difficulty Effect
The relation between processing difficulty and subsequent memory performance, in that processing difficulty has shown to enhance memory.
Related. Levels of Processing Effect
Pseudocertainty Effect
The tendency for people to perceive an outcome as certain while it is actually uncertain. This is mostly observed in multi-stage decision making, in which evaluation of the probability of the outcome in a previous stage of decisions is assumed certain when selecting an option in subsequent stages.
Related. Certainty Effect
Certainty Effect
The psychological effect resulting from the reduction of probability from certainty to probable. Normally a reduction in probability of winning a reward leads to the perception of loss from the original probability thus favoring a risk-aversion decision. However, the same percentage reduction results in larger psychological effect when it reduces from certainty vice probable.
Sunk Cost Fallacy
The misconception you make rational decisions based on the future value of objects, investments and experiences. The Truth Your decisions are tainted by the emotional investments you accumulate, and the more you invest in something the harder it becomes to abandon it. Read More.
Example. R&D costs. Once spent, such costs are sunk and should have no effect on future pricing decisions. So a pharmaceutical company’s attempt to justify high prices because of the need to recoup R&D expenses is fallacious. The company will charge market prices whether R&D had cost one dollar or one million dollars. However, R&D costs, and the ability to recoup those costs, are a factor in deciding whether to spend the money on R&D. Its important to distinguish that while justifying high prices on past R&D is a fallacy, raising prices in order to finance future R&D is not.
Counterpoint. It is sometimes not that simple. In a broad range of situations, it is rational for people to condition behavior on sunk costs, because of informational content, reputational concerns, or financial and time constraints.
Related. Irrational Escalation
This amazing illustration was made by @cartoonbias. Do check out their work on Instagram.
Zero Risk Bias
A tendency to prefer the complete elimination of a risk even when alternative options produce a greater reduction in overall risk.
Unit Bias
A tendency to prefer the complete elimination of a risk even when alternative options produce a greater reduction in overall risk.
See Also:
- To avoid mistakes, we aim to preserve autonomy and group status and avoid irreversible decisions
- We favor simple-looking options and complete information over complex, ambiguous options
- To stay focused, we favor the immediate, relatable thing in front of us
- To act, we must be confident we can make an impact and feel what we do is important
