List of Human Error

FRAMING BIAS
Exactly how an issue is framed can affect how we think about it. Compare, for example, the two questions “Should Britain adopt the euro?” and “Should Britain abolish the pound?” Under perfect rationally, this framing should not matter.

REPRESENTATIVENESS
People have a bad habit of drawing big conclusions from very small and biased sample. For example, we might talk to three friends in the office, each of whom has coincidently had a bad day, and conclude that the company is falling apart.

AVAILABILITY BIAS
People tend to make decisions based on data that is easily available as opposed to finding the data that is really needed to make a good decision. This is, in effect, “looking for your lost keys under the lamppost” because that is where the light is best.

DIFFICULTIES JUDGING RISK
Most people have a tough time reasoning with probabilities and assessing risks. In October 2000, a train crashed in Hatfeild, England, tragically killing four people and injuring 34. In response, the British government proposed to invest an additional $3 billion in rail safety. However, as The Economist newspaper pointed out, the real probability of dying in a train crash is quite low compared with other forms of transportation, and this expenditure would mean spending 150 times as much per expected life saved traveling by railway versus what is spent on road safety.

SUPERSTITIOUS REASONING
We tend to only look for the most proximate causes of things and often confuse random chance with cause and effect. Examples range from sports stars wearing their “lucky socks” to governments trying to reduce unemployment by simply making it more difficult to fire people.

MENTAL ACCOUNTING
Traditional Economics treats all money the same. However, people tend to put money into different mental compartments. For example, many people make a monthly contribution to a retirement plan even if they have outstanding credit card balances. This is not economically rational, because the return on investment in the retirement account (Even after tax savings) will likely be less than the credit-card interest. Nevertheless, people often view their retirement contribution as sacred and wall it off from current spending. This mental compartmentalizing of different types of expenditures is deeply rooted—an anthropologist has even found this kind of behavior among Luo tribespeople in Africa.

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