Question

Label each of the following behaviors with the correct bias or heuristic. a. Your uncle says that he knew all along that the stock market was going to crash in 2008. b. When Fred does well at work, he credits his intelligence. When anything goes wrong, he blames his secretary. c. Ellen thinks that being struck dead by lightning is much more likely than dying from an accidental fall at home. d. The sales of a TV that is priced at \(\$ 999\) rise after another very similar TV priced at \(\$ 1,300\) is placed next to it at the store. e. The sales of a brand of toothpaste rise after new TV commercials announce that the brand "is preferred by 4 out of 5 dentists."

Short answer

a. Hindsight Bias b. Self-Serving Bias c. Availability Heuristic d. Anchoring Effect e. Authority Bias

Step-by-step solution

Labeling Bias or Heuristic for Stock Market Example

For the statement: "Your uncle says that he knew all along that the stock market was going to crash in 2008.", this behavior can be labeled as the 'Hindsight Bias'. It refers to the tendency of people to believe, after an event has occurred, that they predicted or knew the outcome beforehand.

Labeling Bias for Fred's Workplace Behavior

In the case of: "When Fred does well at work, he credits his intelligence. When anything goes wrong, he blames his secretary.", this behavior is an example of the 'Self-Serving Bias'. This bias occurs when individuals attribute successes to their own character or actions and failures to external factors.

Labeling Heuristic for Ellen's Risk Perception

For the statement: "Ellen thinks that being struck dead by lightning is much more likely than dying from an accidental fall at home.", the behavior is linked to the 'Availability Heuristic'. This cognitive bias causes people to overestimate the likelihood of events associated with memorable or vivid instances, such as being struck by lightning, as opposed to more common but less memorable events.

Labeling Bias for TV Pricing Behavior

The sales of a TV rising when a more expensive TV is placed next to it at the store is attributed to the 'Anchoring Effect'. This bias leads people to rely heavily on the first piece of information (the 'anchor') they receive when making decisions; here, the higher price of the adjacent TV sets an anchor making the lesser-priced TV seem like a good deal.

Labeling Bias for Toothpaste Advertisement

For the statement "The sales of a brand of toothpaste rise after new TV commercials announce that the brand 'is preferred by 4 out of 5 dentists.'," this is an example of the 'Authority Bias'. This bias suggests that people tend to value the opinions of authorities or experts, leading them to believe that a product is superior when endorsed by a majority of experts.

Key concepts

Hindsight Bias

Hindsight bias is an insight into human nature. It's our tendency to believe, after an event has occurred, that we "knew it all along." This can distort our memories and interpretations of past events. After an outcome happens, such as a stock market crash, individuals might feel they predicted it. It's common in historical analysis and personal experiences where outcomes seem logically apparent after they occur. This bias can cloud judgment by creating an illusion of predictability, which wasn’t present before the event.

Self-Serving Bias

This bias reveals a lot about how we protect our self-esteem. When things go right, we claim it’s all due to our skills and intelligence. When things go wrong, we find something or someone else to blame. People like Fred in the example exhibit self-serving bias to maintain a positive self-image. Although often subconscious, this bias can result in a skewed view of oneself and lead to inconsistencies in how we perceive personal success and failure. It’s important to recognize this to foster personal growth and self-awareness.

Availability Heuristic

The availability heuristic affects our perception of probability and frequency. It’s when our brains overemphasize information that is readily recalled or vivid. Ellen's belief about lightning being more common than home accidents shows this bias. We are more likely to consider events frequent if they are dramatic or have received a lot of attention, like lightning strikes showcased in media. To counteract this, you should look at statistical data and broaden perspectives on real risks versus perceived ones.

Anchoring Effect

The anchoring effect highlights how initial information can influence our decisions. This is where the first piece of information serves as a reference point or 'anchor'. For example, when shoppers see a TV priced at \(\\( 1,300\), they use this as a comparison point, making a \(\\) 999\) TV seem cheaper. This bias is a prime example of how cognitive processes can be manipulated, especially in marketing. Recognizing anchoring helps in making more informed decisions by considering a wider range of data before settling on an option.

Authority Bias

Authority bias demonstrates how we weigh opinions from figures of authority more heavily than others. It’s seen when we trust a brand because it has expert endorsements, like "preferred by 4 out of 5 dentists." This bias can lead to decisions that rely more on the perceived power and credibility of experts than on personal evaluation or evidence. While it’s practical in some scenarios to trust expert opinions, it's vital to also seek additional sources to form well-rounded judgments. This balance helps prevent over-reliance on authority figures.