Loss aversion is a strong emotion, and we don’t like to lose things we own.Īnother example is the fear of missing out. Psychologists Amos Tversky and Daniel Kahneman once proved that losing $100 is twice as painful as the pleasure of gaining $100. And so, you decide to leave your money in the bank.Īlthough this choice is irrational, it isn’t surprising.
Not counting inflation, this choice eliminates the risk of losing your money, but it also keeps you from potential gains.Įven though you’re still young, you fear the impact of a stock market crash. You could also leave the money in your bank account and throw away the key. With an average return of 7 percent per year on the stock market, you could expect to double your money in about ten years. The pain of giving up an object is greater than the value associated with acquiring it Secondly, you can make better-informed decisions and get an edge in life.
The dirty dozen cognitive biases we are about to explore are:īy knowing what these cognitive biases are and how to identify them, you gain at least two advantages: First, you can avoid most of the pain and regret caused by cognitive biases. I hope you accept my warm welcome to this collection of 12 cognitive biases that can really mess up your decision-making, screw up your mind, and even make you look like an idiot unless you become aware of them all. We are all prone to cognitive biases, which are errors we make in our everyday thinking.
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