Cognitive bias is a systematic pattern of deviation from norm or rationality in judgment. Individuals create their own “subjective reality” from their perception of the input.
An individual’s construction of reality, not the objective input, may dictate their behavior in the world. Thus, cognitive biases may sometimes lead to perceptual distortion, inaccurate judgment, illogical interpretation, or what is broadly called irrationality.
Although it may seem like such misperceptions would be aberrations, biases can help humans find commonalities and shortcuts to assist in the navigation of common situations in life.
Some cognitive biases are presumably adaptive. Cognitive biases may lead to more effective actions in a given context. Furthermore, allowing cognitive biases enables faster decisions which can be desirable when timeliness is more valuable than accuracy, as illustrated in heuristics.
Other cognitive biases are a “by-product” of human processing limitations, resulting from a lack of appropriate mental mechanisms (bounded rationality), impact of individual’s constitution and biological state, or simply from a limited capacity for information processing.
Many social institutions rely on individuals to make rational judgments.
The securities regulation regime largely assumes that all investors act as perfectly rational persons. In truth, actual investors face cognitive limitations from biases, heuristics, and framing effects.
A fair jury trial, for example, requires that the jury ignore irrelevant features of the case, weigh the relevant features appropriately, consider different possibilities open-mindedness and resist fallacies such as appeal to emotion.
The various biases demonstrated in these psychological experiments suggest that people will frequently fail to do all these things. However, they fail to do so in systematic, directional ways that are predictable.
Cognitive biases are also related to the persistence of theory-of-everything thinking, to large social issues such as prejudice, and they also work as a hindrance in the acceptance of scientific non-intuitive knowledge by the public.
Because they cause systematic errors, cognitive biases cannot be compensated for using a wisdom of the crowd technique of averaging answers from several people.
Debiasing is the reduction of biases in judgment and decision-making through incentives, nudges, and training. Cognitive bias mitigation and cognitive bias modification are forms of debiasing specifically applicable to cognitive biases and their effects. Reference class forecasting is a method for systematically debiasing estimates and decisions, based on what Daniel Kahneman has dubbed the outside view.
A continually evolving list of cognitive biases has been identified over the last six decades of research on human judgment and decision-making in cognitive science, social psychology, and behavioral economics. Daniel Kahneman and Tversky (1996) argue that cognitive biases have efficient practical implications for areas including clinical judgment, entrepreneurship, finance, and management.