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The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics

Apr 26, 2019

This is the start of a new series on cognitive biases. To present the series in an organized fashion I found around 200 biases and then categorized them in a way that would be relevant to what we do here on The Brainy Business. I came up with eight categories, and I will go over each bias in the category in a pretty quick succession.

A cognitive bias is an error in the way humans think. It's a way that is often not in our best interest. These biases aren't random. They are predictable and that is the basis for behavioral economics. This week we are talking about those personal biases that lead us all to believe we are uniquely talented and awesome…and generally better than everyone else.

As you listen to the list, think about yourself – how have you experienced this in your own life? And also think about other people – have you seen this in others? How could you use that bias in the way you message to customers or attract people to your business?

Show Notes

  • Optimism bias: Humans assume they are more likely to have a positive outcome in life compared to other people.
  • [11:28] You want to look at ways you can use optimism bias to your advantage when setting big goals, but your day to day tasks should be more realistic and less than you think you can accomplish.
  • [11:32] Planning fallacy is the tendency to underestimate how long it will take us to complete a task.
  • [12:30] Do you ever find yourself with a list of 10 things you “need to do” today and you only end up getting through two? Understanding planning fallacy can help you do better in setting more realistic tasks (and therefore being happier - and more productive).
  • [12:48] Naive realism is the belief that unlike other people, we see reality exactly as it is.
  • [14:21] Try to be open to the perspectives of others. Your curse of knowledge will make this hard because you know a lot about your area of expertise.
  • [15:01] In order to be successful in life and business, you need to be able to understand the perspectives of other people and how they differ from yours.
  • [16:09] The false consensus effect is our tendency to overestimate how much other people agree with us.
  • [17:41] Illusion of asymmetric insight this is when people think they understand their peers better than those same people understand them.
  • [18:15] If you assume that everyone thinks you don’t understand them as well as they understand you, it could be beneficial to ask them questions that help them explain more about themselves to you.
  • [18:49] Illusion of transparency: people also overestimate their ability to know others, and the ability for others to know them.
  • [19:56] False uniqueness bias is when everybody thinks of themselves and their business as a special snowflake with unique problems unlike anyone else's.
  • [21:17] When you are communicating what you offer, use the Forer effect (also known as the Barnum effect) to your advantage. This could also be seen as the astrology effect or the fortune telling phenomenon: people tend to think statements that are vague and general enough to relate to a large group of people are highly accurate and “exactly them!”
  • [22:42] Generalities can inspire people to take action, so keep that in mind when creating your messaging.
  • [22:57] Illusion of control, which is your tendency to overestimate the influence you have over external events.
  • [25:33] Egocentric bias is when you feel like you do more than the other person and because of our naive cynicism, we also expect other people to have this bias more than ourselves.
  • [26:47] It's important to praise others for their contributions without diminishing your own efforts.
  • [27:28] Social comparison bias: Because of self-preservation and wanting to stand out and be the best, we tend to favor potential candidates whose strengths are not in direct competition with our own.
  • [27:50] Self serving bias, where we want to claim more responsibility for successes than the things we might have failed on. We want all the glory and none of the blame.
  • [28:23] The spotlight effect is the tendency to overestimate the amount that others are focused on our appearance or the things we say or do.
  • [28:53] Because everyone else is the center of their own universe as well, you can relax a little.
  • [30:07] Because of the 3rd person effect everyone believes they're less likely to be influenced by mass marketing than other people.
  • [30:40] A bias blind spot is where we see ourselves as less biased than others and tend to be better at spotting these cognitive biases in others than in ourselves.
  • [31:23] Illusory superiority is where we overestimate our own desirable qualities and underestimate our undesirable qualities.
  • [32:14] Restraint bias: We all think we have more restraint than others and generally overestimating our ability to resist temptations.
  • [32:53] Trait ascription bias: We think others have very predictable personalities, moods and behaviors (that they are more one dimensional) and that we personally are much more dynamic.
  • [35:14] The overconfidence effect: for certain types of questions, people will say they are 99% certain in their answers…but they are actually wrong 40% of the time.
  • [36:24] Pro innovation bias, which is essentially having massive optimism about an invention or innovation.
  • [38:06] Post purchase rationalization is when people buy on emotion and then persuade themselves it was the right decision.
  • [38:55] Choice supportive bias is where we say retroactively are choices were more informed than they actually were.
  • [39:22] Illusion of external agency, which means we think our personal preferences are based on insightful influences and benevolence.
  • [40:21] Illusion of validity, where we believe our judgments and choices were accurate.
  • [40:43] Conservatism belief revision you would not sufficiently revise your belief.
  • [41:13] Continued influence effect, where you continue to believe misinformation even after it has been corrected.

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