You’re not as objective as you think.

 

We all want to believe our decisions are rational.

But your brain is wired for shortcuts.

They’re called cognitive biases.

They’re meant to help you move fast.

But they don’t always lead you in the right direction.

And in leadership, that can cost you.

10 thinking traps to watch out for:

1. Overconfidence Bias

You think you know more than you do.

And act before validating.

2. Confirmation Bias

You seek out data that agrees with your view.

And ignore the rest.

3. Groupthink

You go with the team’s consensus.

Even when it doesn’t feel right.

4. Authority Bias

You trust “experts” without questioning

their logic or evidence.

5. Anchoring Bias

You let the first number or idea

influence the rest of the negotiation.

6. Availability Bias

You overreact to what’s most vivid.

Not what’s most important.

7. Recency Bias

You put too much weight on the latest event.

And miss the bigger picture.

8. Status Quo Bias

You stick with what's familiar.

Even if it's no longer working.

9. Sunk Cost Fallacy

You keep investing in a losing path.

Because you’ve already sunk so much into it.

10. Survivorship Bias

You study only the winners.

And miss the lessons from those who failed.

These biases don’t make you a bad leader.

They make you human.

But awareness gives you leverage.

When you catch them in action,

you give yourself a chance to:

Pause

Reframe

And lead smarter

Here’s a simple question to ask before every big decision:

“What might I be missing?”

It’s not always about making perfect choices.

It’s about building the habit of clearer thinking.

Your best decisions start with better thinking.

And better thinking starts with seeing your blind spots.

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The Psychology of Money: How Biases Shape Your Financial Decisions

 

Money decisions aren’t just about logic—they're deeply influenced by psychology. How we feel and think about money can lead us to make choices that don't always align with our best financial interests. In this post, we'll explore three common psychological biases—present bias, the sunk cost fallacy, and loss aversion—and how they can lead us to poor financial decisions. Understanding these biases and learning how to manage them can help you make smarter financial choices.

Present Bias

Let’s start with present bias, which is our tendency to favor immediate rewards over future benefits. This can lead to impulsive spending rather than saving for the future. For example, we might splurge on a daily coffee treat, even though that money could be building up toward a long-term financial goal. Present bias makes the instant gratification of the coffee seem more rewarding than the distant satisfaction of saving for something bigger. Cognitive dissonance can also play a role, where we justify our small indulgences by telling ourselves that we deserve them—making it even harder to resist the pull of immediate rewards.

To keep present bias in check, set specific financial goals with realistic timelines to make future rewards feel more tangible. Automating your savings can also help by removing the need to constantly decide between saving and spending. Regular check-ins on your progress can keep you motivated to stay on track.

Sunk Cost Fallacy

Next is the sunk cost fallacy, which happens when we continue investing in something simply because we’ve already put in time, money, or effort—even if it's no longer worth it. There's an emotional element to this—it's tough to walk away from something we've already invested ourselves in. The sunk cost fallacy is often accompanied by loss aversion, the tendency to feel the pain of a loss more acutely than the pleasure of a gain.

To avoid this trap, focus on the potential future benefits, not the resources you've already committed. Consider setting clear limits on when to reevaluate or exit an investment, whether that’s a financial commitment or a project that’s no longer viable. For example, if you’ve already paid for a subscription service you rarely use, consider whether continuing to pay for it is really worth it.

Loss Aversion

Finally, loss aversion is the fear of losing what we already have, and it often leads us to make overly cautious decisions that prevent us from taking beneficial risks. We’re wired to overestimate the pain of a loss and avoid risk, even if the potential for gain outweighs it. This can hold us back from opportunities that could benefit our finances in the long run.

To manage loss aversion, try reframing your perspective. Rather than focusing on the risk of losing money, shift your attention to the potential rewards. Diversifying your investments is one way to mitigate risk—by spreading out your exposure, you can better weather individual losses and take more calculated financial risks.

Conclusion

By becoming aware of these psychological traps, you can start making more informed financial decisions that align with your long-term goals. Take a moment to reflect on your financial habits. If any of these biases sound familiar, try small steps to overcome them and gradually build greater financial confidence. The more you understand how psychology shapes your choices, the better equipped you'll be to make decisions that serve your future.

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Nine cognitive biases risk managers should know

01 Law of large numbers

The godfather of bias detection is Daniel Kahneman, who won the Nobel prize for his work. He revealed that intuition, even in matters we know a lot about, can be awful. For example, imagine two maternity hospitals, one large, one small. In a week, 60 per cent of births are female. Which hospital is more likely to be the venue? It takes time to figure out… the smaller one. Small sample sizes suffer more from deviation from the mean. Kahneman found people of all backgrounds failed to analyse sample sizes adequately. “Even statisticians were not good intuitive statisticians,” he concluded.

02 Gambler’s fallacy

The original sin of investors is the tendency to assume that bad luck will be compensated by good luck. Karma. Alas, investors are frequently crippled by the belief that the market will magically auto-correct to compensate them for previous losses. Recently the Cboe Volatility Index, known as VIX, which reflects market volatility, tanked. Many investors held on to their positions, praying the market would turn around. It didn’t, losing 90 per cent of its value in a single day. “I’ve lost $4 million, three years’ work and other people’s money,” howled one burnt gambler.

03 Authority bias

Airline pilots wear smart uniforms for a reason. Not because they belong to a military order. They don’t. But because they want to imply authority. This is great for controlling passengers. They obey. The problem is, so do co-pilots. The writer Malcolm Gladwell in his book Outliers suggests the Korean Air flight 801 crashed because the co-pilot was too reticent to challenge the pilot about his decisions. Post-crash, British investigators demanded the airline “promote a more free atmosphere between the captain and the first officer” to permit questioning. The air of authority can dupe the best of us. A flash of military insignia, or sharp suit, can short-circuit our normal capacity for analysis.

04 Conservatism bias

It’s a misconception that the right approach to risk is solely to minimise it. Risk is a vital and necessary part of life. Conservatism bias is what happens when this is not well understood. For example, consumers leave cash in their current account rather than move to a higher yield deposit. The bias for inaction means they forgo revenue. Conservatism bias is why Blockbuster video turned down the acquisition of Netflix for $50 million. The management found it easier to do nothing than embrace risk.

05 Triviality law

It’s exhausting to think about complex issues. Given half a chance, the human mind will make a break for a simpler, trivial issue to distract itself. Politics is dominated by this effect. Major issues, such as a politician’s view on the national debt, are rarely discussed or reported. Too hard. Instead the focus is on trivial issues, such as whether they can eat a bacon sandwich with dignity. This is a serious issue in risk. It takes effort to get people to think about critical issues, such as life insurance, or the design of a nuclear power station. Given the chance they’ll veer off and focus on something fluffy and trivial, to spare their grey cells.

06 Risk compensation

The British Medical Journal recently came out against bicycle helmets. It’s not that helmets don’t work. Fall off and you’ll be grateful your fragile skull is encased in protective plastic. Rather, the phenomenon of risk compensation negates the benefit. Data from multiple nations shows that when cyclists feel safer they compensate, by taking extra risks, cutting in front of cars and not looking at junctions. Individuals with documented helmet use had 2.2 times the odds of non–helmet users of being involved in an injury-related accident. Furthermore, mandatory helmet wearing reduced cycling, adding to negative effects.

07 Social proof

The legendary investor Charlie Munger believed his research into cognitive biases led him to better risk decisions. He marvelled at the beguiling power of effects such as social proof, writing: “Big-shot businessmen get into these waves of social proof. Do you remember some years ago when one oil company bought a fertiliser company, and every other major oil company practically ran out and bought a fertiliser company? And there was no more damned reason for all these oil companies to buy fertiliser companies, but they didn’t know exactly what to do and if Exxon was doing it, it was good enough for Mobil, and vice versa. I think they’re all gone now, but it was a total disaster.”

08 Charm pricing

Human reaction to numbers is riddled with quirks. Richard Shotton’s new book The Choice Factory examines the ability of businesses to harness these biases to influence consumers. For example, tweaking prices by a fraction can boost sales. Discount stores use charm pricing, knocking a penny off to end in “99”. Shotton says: “I surveyed 650 consumers about their value perception of six different products. Half saw prices ending in 99p, while the remainder saw prices a penny or two higher. Charm prices were 9 per cent more likely to be seen as good value than the rounded prices. A disproportionately large improvement for a 1 per cent price drop.”

09 Overconfidence bias

Sure, we all know about Dunning-Kruger: the idea that dim people overestimate their skills, while bright people doubt their abilities. But could it be that even experts are overconfident? Alas yes, especially when forecasting. Economist Philip Tetlock spent 20 years studying forecasts by experts about the economy, stock markets, wars and other issues. He found the average expert did as well as random guessing or as he put it “as a dart-throwing chimpanzee”. Tetlock believes forecasting can be valid, but only when done with a long list of conditions, including humility, rigorous use of data and a ruthless vigilance for biases of all types. “I believe it is possible to see into the future, at least in some situations and to some extent, and that any intelligent, open-minded and hardworking person can cultivate the requisite skills,” he said. It’s a challenge at the heart of the risk industry.

Cognitive Bias and the Entrepreneurial Spirit

Entrepreneurs have chosen to function daily in conditions that would make less risk-tolerant humans queasy. There’s a lot of rewiring that goes into successful entrepreneurship, but our brains are tricksy and spend a lot of time looking for patterns and then feeding us flawed info.

A cognitive bias is usually built out of our minds’ desire to find processing shortcuts and influences from our environment. In everyday situations these kinds of hot key shortcuts can help us. We don’t have to figure out how to drive from scratch every morning, we have little trouble recognizing a dog for a dog, and we can pretty successfully get our pants on and choose dinner.

The problem is that these shortcuts masquerade as rationality, logic, and inspired thinking. They aren’t any of those things. They serve an adaptive purpose, allowing us to respond to threatening situations quickly, but they also open us to errors of judgement.

Like the infographic above shows, there are dozens of specific cognitive biases. There are a few that entrepreneurs fall prey to frequently, though, and it’s a worthwhile exercise to see if you’re using any of them.

Today, let’s talk about the Self-Attribution Bias. Are you great? Of course you’re great! You’ve built a company and even when you’re worried or times are hard you’re steering a course toward success. You are the reason all the good things happen, right? Well, no. You’re up in front, so it’s easy to think that when a deal goes well or a windfall of clients appears you’ve done something very right. That stuff feels like it’s all because of your actions. However, it’s easy to forget market trends, the choices made by your competitors, the support of your team, or blind luck. When things go wrong, though, it’s both comforting and simple to blame forces outside your person.

You’re suffering from the Self-Attribution Bias if you’re responsible for all the good and none of the bad. The truth is much more nuanced than that and it’s your job to go looking for it. Self-confidence is good, self-attribution is blind.

Image Via: Visual Capitalist

by Cora Allen