Cognitive biases are distortions from norm in our thinking and judgment. They reflect a subjective perception of the world, leading to deviations from logic (from a classical rational choice theory point of view) and erroneous decision-making in some situations.
Biases are due to several reasons: limited mental resources (in thought or memory), too much information to process, and the need to make fast decisions, leading to not processing all the possible options equivalently.
Over 200 biases have been identified, encompassing different areas from information hierarchy, mental charge, decision under pressure, etc. Below, we will examine two related biases: the decoy effect and the compromise effect.
Picture being offered the following options at a coffee shop. Which one would you buy?
Now, what if you had a choice between these three options instead?
In the first picture, you might have been tempted to choose the smallest size, then the largest in the second. If so, the availability of a third option (a medium-size coffee for 6€) could have changed your mind. But how?
Perhaps you found the large size too expensive at first. Yet seeing a medium-sized coffee for 6€ might have increased the large size’s appeal: all this extra coffee for just one more euro? Who doesn’t love a good deal, after all?
The medium size was introduced precisely to make the larger and more expensive option more tempting. This suboptimal third option introduced is called a decoy, a common tactic in marketing.
In contrast to the decoy effect, the compromise effect leads a consumer to buy the median option. Consider the same use case (buying a coffee) but with these three options:
In this case, the medium option looks more appealing, with a medium quantity of coffee for an average price. Compared to more extreme options, we don’t have to pay too much for coffee (7€) or buy what might be too little coffee.
The difference between the decoy effect (also called the attraction effect) and the compromise effect actually depends on the relative advantage between options.
The graph below explains the three-set case when the decoy effect drives choice:
In our example, attribute 1 would be quantity and attribute 2 price per unit. B is the targeted product (the largest coffee for 7€). As an initial setting, option B is more interesting than A (smallest size) in quantity but much less attractive in price as it is much more expensive. By introducing option C, less interesting than B in both attributes (price per unit and quantity), this elbow settlement switches the advantage to option B, making it look more attractive.
In the compromise use case, illustrated in the graph below, the targeted option is option B (medium quantity for 5€). Added option C (large coffee for 7€) is more advantageous in terms of quantity but less so in terms of price. Option B becomes a good compromise between two extreme options and is more likely to be chosen.
Short answer: no.
Longer answer:
Cognitive biases drive many of our choices. Still, how they impact our choices is itself controlled by different factors. The study from which the diagrams above are taken also shows that choosing to compromise depends on the context: time pressure, the product itself, and whether you buy it for yourself or for someone else, to name a few.
Moreover, when it comes to ambiguity, we are all different. The ambiguity effect is a well-known bias stating that human decision-makers are uncertainty-averse and would typically favor a more certain option over an uncertain one. Following this logic, one would choose a certain option over a risky one and a risky option over an ambiguous one. Yet studies have shown that younger people tend to be more ambiguity tolerant than older ones.
Experts in their fields can be biased as well. Doctors can be subject to confirmation bias: they might wrongly interpret diagnosis results based on their prior beliefs. In other words, they might focus on the information confirming their prior diagnosis and omit the rest.
Regarding cognitive biases, we are all vulnerable, even experts, especially when it comes to rapid, intuition-based choices. Knowing the heuristics and recognizing when these techniques are used is a first step to minimize bias. Reducing choice inconsistency requires further steps, such as:
In this article as more broadly in literature, these heuristics have been presented as cognitive biases, in the sense that they lead to non-optimal decisions from a rational point of view. However, are these mechanisms necessarily “bad” for our ability to choose? Do they necessarily lead to irrationality?
Some posit that absolute rationality might not be applicable to human decision-making, and that rationality itself can be defined in different ways. Perhaps human rationality can be defined as picking the best option, with “best” referring not to the optimal one, but to a sufficient option considering the circumstances that accompany it. This definition of rationality is known as bounded rationality.
Experts have long debated the concept of rationality. As explored in this article, psychologist Pascal Wegner-Egger has identified six different schools of thought, from “hard” irrationalists who consider these mechanisms as total deviation from rationalism to non-rationalists who believe that rationalism is not the adequate norm for evaluating human cognition.
Stay tuned for the third part of the article!
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