Cognitive Bias

By Fahad Nari Ram Ramalingam

A game to start of the session

1. There is a disease outbreak. And you have a choice as the Govt, of going ahead with 2 programs 2. Just 2 easy questions to answer

Question 1 Program A: "200 people will be saved" Program B: "there is a one-third probability that 600 people will be saved, and a two-thirds probability that no people will be saved" Question 2

Question 1 What was your 10th class percentage What percentage of African nations are in the UN

Program C: "400 people will die" Program D: "there is a one-third probability that nobody will die, and a two-third probability that 600 people will die

Question 2 How old are you What percentage of African nations are in the UN

Cognition
The term cognition (Latin: cognoscere, "to know) refers to a faculty for the processing of information, applying knowledge, and changing preferences (recognize, incognito, cognizant technology solutions ) This applies to processes such as memory, association, concept formation, language, attention, perception, action, problem solving and mental imagery

What is Cognitive Bias?

Definition A cognitive bias is the human tendency to make systematic errors in judgment, knowledge, and reasoning. Such biases can result from information-processing shortcuts called heuristics.

They include errors in statistical judgment, social attribution, and memory errors.
Cognitive biases are a common outcome of human thought, and often drastically skew the reliability of anecdotal and legal evidence. It is a phenomenon that has been studied extensively in cognitive science and social psychology.

Pioneers of Cognitive Bias

Amos Tversky& Daniel Kahneman (Nobel Prize for Economics, 2002)
1. Rational Choice -> Optimising 2. Innumeracy -> Satisficing 3. Prospect Theory -> Behavioural Economics

Causes
1. Bounded Rationality 2. Attribute substitution 3. Dissonance reduction

4. Introspective Illusion
5. Heuristics 6. Adaptive Bias 7. Statistical misrepresentation

Bounded Rationality
1. In decision making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time 2. Decision-maker is a satisficer, not Optimizer

3. Proposed by Herbert Simon as an alternative to Economic modeling; it complements rationality as optimization 1. limiting what sorts of utility functions there might be. 2. recognizing the costs of gathering and processing information. 3. the possibility of having a "vector" or "multi-valued" utility func
4. Example: Anchoring effect; Selective perception

Attribute Substitution
1. When making a judgment that is computationally complex, we tend to substitute a more easily calculated heuristic attribute 2. Intuitive substitution rather than self-aware/reflective 3. When does it happen 1. The target attribute is relatively inaccessible 2. An associated attribute is highly accessible e.g. priming (game 2) 3. The substitution is not detected and corrected by the system 1. A bat and a ball together cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?

Most people guess the answer as $1.0 for Bat. $0.10 for ball. Did you?

Dissonance Reduction
1. Cognitive dissonance is an uncomfortable feeling caused by holding conflicting ideas simultaneously 2. People have a motivational drive to reduce dissonance - by justifying, blaming, and denying 3. Aesops fable: Fox and the grapes 4. Ben Franklin effect winning over a political opponent by borrowing a rare and curious book 5. Effort justification etc

Causes
1. Bounded Rationality 2. Attribute substitution 3. Dissonance reduction

4. Introspective Illusion thinking you have thought and understood

5. Heuristics basing ones experience over other facts 6. Adaptive Bias Cost optimized more than count. Type I and Type II errors 7. Statistical misrepresentation using correct data for wrong conclusions. E.g. Black swan

Types of Cognitive Bias

1. Decision Making Bias 2. Probability and Belief Bias 3. Social Bias

4. Memory Bias

Decision Making Bias

Anchoring Effect

Basing one's judgment on just one source of information

Caused by Attribute substitution

Anchoring Effect

E.g.1 . Gen example: Amos Tversky and Daniel Kahneman in one of their first studies, the two showed that when asked to guess the percentage of African nations which are members of the United Nations, people who were first asked "Was it more or less than 10%? guessed lower values (25% on average) than those who had been asked if it was more or less than 65% (45% on average) IT World-

Giving just one estimate/cost for projects often backfires because of this
people tend to stick to numbers and dont budge easily

Bandwagon Effect

Groupthink - the tendency to do things because many other people do the same

Caused by Attribute substitution

Bandwagon Effect
Example1: When everyone started doing ERP/DWH/Agile... Thats bandwagon effect. Example 2: When ULIP schemes were launched in India, UTI etc. created a media storm that had everyone buying and regretting later IT world: + using statistics to convince: Quote Forrester research on Agile efficiency to convince customer - Blindly using some tools or techniques from other experience?

Confirmation Bias

Confirmation bias refers to a type of selective thinkingwhereby one tends to notice and to look for what confirms one's beliefs, and to ignore, not look for, or undervalue the relevance of what contradicts one's beliefs caused by heuristics and bounded rationality

Confirmation Bias

Example 1 : Superstition of a black cat crossing your path and something bad happens to you on the same day Example 2: Derren Brown Astrology hoaxes IT examples: ??

Selective Perception

Tendency for expectations to affect perception Caused by attribute substitution

Selective Perception

E.g.1: Not taking inputs from some users. Ignoring some info, because we prejudice that they usually don't make sense. Listening only to the loudest speaker etc. E.g.2.: Ignoring user testing when building a product for a larger audience

Probability/Belief Bias

Zero Risk Bias

Preference for reducing a small risk to zero over a greater reduction in a larger risk E.g. People not insuring high risk event and investing for high risk high return

Availability Heuristic

The availability heuristic is a phenomenon in which people predict the frequency of an event, or a proportion within a population, based on how easily an example can be brought to mind

E.g. Smoking is perfectly fine as my grand dad lived for 100

years.

Social Bias

Bias that arise during social interactions due asymmetry in situation or perceptions of personality

Halo Effect

The tendency for a person's positive or negative traits to "spill over" from one area of their personality to another in others' perceptions of them Example : Ipod makes us think all apple products are good.

Illusion of Transparency

Experiment: Need a volunteer who can do the occasional table-top drumming

Illusion of Transparency

People overestimate others' ability to know them, and they also

overestimate their ability to know others. Examples 1: In the domain of public speaking, for example, individuals who are nervous about delivering a public speech believe their nervousness is

more apparent to their audience than it actually is

Memory Bias

Hindsight Bias

Hindsight bias is the inclination to see events that have occurred as being more predictable than they were before they took place. Also known I-knew-it-all-along-effect Example1: Someone predicts rains and it happens the next moment and they claim as if they I-knew-it-all-along-effect

Self Serving Bias

A self-serving bias occurs when people attribute their successes to internal or personal factors but attribute their failures to situational factors beyond

their control
E.g. 1 : Blaming failure of peace in Kashmir upon Pakistan E.g. 2 : Devs blame BAs when stories change during development :D

Conclusion

These topics are not comprehensive. They are quite complex, as Fahad discovered much to his consternation The lesson here, is not to start looking for each of this biases in every activity we do, but keep in mind. Understand that a BAs job is not just to trans-literate, but actively find ways to account for and overcome the bigger impact biases

Sources

Wikipedia Images from images.google.com Istock photos Getty Images