Hindsight biasHindsight BiasHindsight bias is the misconception, after the fact, that one "always knew" that they were right. Consider the way people choose one news source over another–they want to read (or watch) whatever aligns with their perspectives. But each is to a product that we've researched and highly recommend. Put another way, we chose how to attribute the cause of an outcome based on what makes us look best. As an Amazon Associate we earn from qualifying purchases. So, to come up with a guess, we have to be resourceful by relying on mental shortcuts to estimate the answer. At least that’s what first came to mind for me when reading this first question in a series of three in the Cognitive Reflection Test. This cognitive bias also limits people’s ability to be empathetic because it causes people to mainly focus on their own emotions, therefore ignoring how other people feel. But, you’re only making this judgment after all is said and done instead of equipping yourself with enough information from the beginning to make an informed decision. Someone may also mistakenly assume that they possessed special insight or talent in predicting an outcome. A cognitive bias is an error in cognition that arises in a person’s line of reasoning when making a decision is flawed by personal beliefs. It can be a dangerous bias and is very prolific in behavioral finance and capital markets. In finance, herd mentality bias refers to investors' tendency to follow and copy what other investors are doing. is when someone makes a decision because of the way information is presented to them, rather than based just on the facts. We love stories and we let our preference for a good story cloud the facts and our ability to make rational decisions. So, let’s say your goal has to do with losing weight, but lately, your efforts have been lacking. What is a cognitive bias? As it turns out, many people mistakenly consider themselves to be above average in a variety of skills. The egocentric bias can also lead people to believe that outcomes that are in their favor are fair–knowing full well that if that same outcome were to have favored others instead, they would have considered it to be unfair. (click for related definitions) Anchoring. But in a world where everything we do is changing rapidly—from the way we store information to the way we watch TV—what really classifies as rational thinking? Behavioral interview questions are very common for finance jobs, and yet applicants are often under-prepared for them. 1. There are four main types: self-deception, heuristic simplification, emotion, and social bias. If an employee has made a recent error, but their overall performance is good and they have done several impressive things over the past quarter, their supervisor may put undue focus on their mistake without putting it into proper perspective with their comprehensive work performance. People don’t like to admit that they made a bad decision (if, in fact, your decision turned out to not be as great as you were expecting). Of course there are extreme examples of this cognitive bias such as cult followers, but you may also see this type of cognitive bias in everyday decisions such as fashion trends, diet fads, or political votes. You can also use this list to help you identify when other people are thinking in terms of a cognitive bias so you can be better prepared to make your own conclusions when someone is making an argument or trying to convince you of something. As we hear one success story after another, we start to overestimate the likelihood of being successful as we disregard the initial number of players.

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