6. Cognitive Biases

Studies have shown that we make only (roughly) half of our decisions based on reason. The rest are based on habit, emotion, imitating others, tradition, environment, plus a special kind of pirate software in our operating system called cognitive biases. Without us knowing, cognitive biases trick us into behaving irrationally, for instance, by working twice as hard to avoid a loss than to secure a gain of the same amount or by continuing a failing project just because of all we have invested in it so far. This chapter explores the origin of cognitive biases and analyzes a select set that is often encountered in business. By reading about cognitive biases, their mechanism, examples, and ways to counteract, readers will be immunized and less likely to fall into these traps. This chapter also shows how cognitive biases are employed in marketing campaigns.