Overview
Our predictions of risk tend to be biased and inaccurate. This makes perfect sense from an evolutionary perspective.
Types
| Name | Description | Sources |
|---|---|---|
| Ambiguity Effect | The tendency to avoid options for which the probability of a favorable outcome is unknown. | [1] [2] |
| Zero-Risk Bias | Preference for reducing a small risk to zero over a greater reduction in a larger risk. | [1] |
| Pseudocertainty Effect | The tendency to make risk-averse choices if the expected outcome is positive, but make risk-seeking choices to avoid negative outcomes. | [1] [3] |
| Loss Aversion | The perceived disutility of giving up an object is greater than the utility associated with acquiring it. | [1] [4] |
Practical Perspectives
- Understanding our default aversion to risk can support our adapting this risk tolerance to more fully attain available rewards.
- Through practice, with the support of external systems, we can improve the accuracy of our risk predictions.
References & Acknowledgements
[1] Wikipedia contributors. "List of cognitive biases." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 14 Jul. 2020. Web. 23 Jul. 2020. link
[2] Baron J (1994). Thinking and deciding (2nd ed.). Cambridge University Press. ISBN 978-0-521-43732-5.
[3] Hardman D (2009). Judgment and decision making: psychological perspectives. Wiley-Blackwell. ISBN 978-1-4051-2398-3.
[4] Kahneman D, Knetsch JL, Thaler RH (1991). "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias" (PDF). The Journal of Economic Perspectives. 5 (1): 193–206. doi:10.1257/jep.5.1.193. Archived from the original (PDF) on November 24, 2012.
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