THEME: COGNITIVE BIASES

CHAPTER 1 INTRODUCTION

Cognitive biases are human thinkings that are based on flawed reasoning processes instead of rationality. They lead to
(1) irrational judgments and beliefs and (2) wrong choices in decision making.

Cognitive biases are:

- systematic: They occur every time we have to deal with the same situation
- intuitive: They are not based on rationality
- subconscious : We are not aware of them
- universal : They affect all human beings (even if all of us don’t experience the same level of biases).
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There are more than 200 different cognitive biases. They can be classified according to their origin:
- Wrong selection of external information. Our environment is so full of information that we have to select just
a few of them. In this selection process, we may pick up the inaccurate ones, leading to skewed conclusions.
- Wrong interpretations of information : Due to our brain limitations, we may misinterpret facts by wrong
reasoning processes.
- Limited memory capacities leading to data loss
- Limited time to make decision: In our modern word, we are asked to build our opinions and choices always
faster. Due to this pressure, we may not consider all the datas necessary to make accurate decision and instead
produce too simplistic choices.
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Many psychologists have always looked for a global theory that could explain all human behaviours. In the 50’s, the
dominant model was the rationnal choice theory which relies on two postulates:
- Humans always act selfishly, choosing behaviours (actions or beliefs) that are more favorable for them.
- Every choice is made after a cost/benefit analysis of the different options.
This theoretical, 100% rationale, human being was called Homo economicus.

In the 70’s, this global model was seriously questioned. Indeed, many behaviors showed to be irrational because of
cognitive biases operating in many situations. To reconcile rational choice theory and cognitive biases, a new model was
proposed: Human beings would behave depending on 2 antagonist cognitive systems:
- System 1 would act as described by the rational choice theory, that is using evidence supported arguments and
cost/benefit analysis to produce rational behaviors.
- System 2 would be submitted to cognitive biases, producing non rational behaviors
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Comparison of the 2 cognitive systems
Type of system SYSTEM 1 SYSTEM 2
Moving force rationality, analysis intuition, emotions, irrationality
cost/benefit analyses and cognitive biases
Reasoning mechanisms
evidence supported arguments and shortcuts
Energy consumption high low
Reasoning speed slow fast
Level of consciousness conscious subconscious
Type of decisions complex daily and simple
Reliability high low
Self-assesment underconfident overconfident
Relative contribution to
5% 95%
judgments and choices

In most of the cases (95%), sytem 1 and 2 interactions result in system 2 overtake because this system is sure to be
right and requires less energy and time.
Due to this imbalance between the two systems, choices and beliefs of a real Homo sapiens (as opposed to Homo
economicus) can be finally explained by bounded rationality that is limited rationality.

Key concepts: Cognitive bias, origin of cognitive biases, rational choice theory, Homo economicus, the 2 cognitive
systems, bounded rationality