12 Ways Your Mind Tricks You Every Day

Below I’ve outlined a list of impactful psychological tendencies that affect our daily decisions. Often, we do not even realize these cognitive behaviors, which developed over thousands of years, impact our modern lives. For an interesting read on human development, I’d highly recommend the book “Sapiens: A Brief History of Human Kind” by Yuval Noah Harari.

A cognitive bias is a systematic error in thinking that occurs when people are processing and interpreting information in the world around them and affects the decisions and judgments that they make.

Law of Diminishing Returns

The law of diminishing marginal returns is a theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output. this can be applied to a variety of lifestyle factors such as wealth, vacationing, consumption (food and objects), as well as many other factors. Once someone has exceeded the first few tiers of Maslow’s Hierarchy of Needs, marginal return for that habit slowly decreases. Consider income: if you make enough to cover your immediate needs such as food, shelter, and safety at a rate of $50,000 a year, each additional $10,000 you make over that will see a reduction in benefit for the individual as that money does not contribute to a proportionate increase in quality of life relative to the first $50,000.

Confirmation Bias

This type of bias refers to the tendency to seek out information that supports something you already believe, and is a particularly pernicious subset of cognitive bias—you remember the hits and forget the misses, which is a flaw in human reasoning. People will cue into things that matter to them, and dismiss the things that don’t, often leading to the “ostrich effect,” where a subject buries their head in the sand to avoid information that may disprove their original point.

Projecting

Projection is the process of displacing one’s feelings onto a different person, animal, or object. The term is most commonly used to describe defensive projection—attributing one’s own unacceptable urges to another. For example, if someone continuously bullies and ridicules a peer about his insecurities, the bully might be projecting his own struggle with self-esteemonto the other person.

The concept emerged from Sigmund Freud’s work on defense mechanismsand was further refined by his daughter, Anna Freud, and other prominent figures in psychology.

Bystander Effect

The most frequently cited real-life example of the bystander effect regards a young woman called Kitty Genovese, who was murdered in Queens, New York, in 1964, while several of her neighbors looked on. No one intervened until it was too late.

In 1970, Latané and Darley identified three different psychological processes that might prevent a bystander from helping a person in distress: (i) diffusion of responsibility; (ii) evaluation apprehension (fear of being publically judged); and (iii) pluralistic ignorance (the tendency to rely on the overt reactions of others when defining an ambiguous situation).

Dunbar’s Number

It's known as Dunbar's Number, and it signifies the cognitive limits on social groups. We can only keep track of all the relevant social information in a group of about 150 people. Any more than that and we start to lose key information. Our brains just aren't equipped to handle it. The reason for this is that humans are complex. Not only are they complex, but they interact with one another—an exponential increase in complexity. In order to grasp a social landscape, not only do we have to know the subtleties of an individual's personality, but we also have to know what that person thinks about the subtleties of everyone else's personality. We can do that well until a group's size exceeds 150 people.

Lifestyle Inflation (Golden Handcuffs)

Lifestyle inflation refers to an increase in spending when an individual's income goes up. Lifestyle inflation tends to become greater every time an individual gets a raise and can make it difficult to get out of debt, save for retirement, or meet other big-picture financial goals. Lifestyle inflation is what causes people to get stuck in a cycle of living paycheck to paycheck where they have just enough money to pay the bills every month.

Lifestyle inflation causes many people to live paycheck to paycheck, make the minimum payments on their credit cards, and lack cash resources to fall back on when an unforeseen setback like a medical bill or job loss occurs.

People tend to increase their spending when their income increases because they believe that the additional goods and services they can now buy will make them happier. Often those purchases don’t actually make them happier. A better option would be to work toward financial independence by saving more.

It's possible to avoid lifestyle inflation by consciously establishing spending and saving amounts. Setting up an automated savings plan can be a good way to ensure that savings goals are met and spending is capped. Avoiding lifestyle inflation can mean achieving financial independence at a younger age, having the financial flexibility to choose a dream job over a higher-paying option, and retiring early. Below are more strategies.

Dunning-Kruger Effect

This particular bias refers to how people perceive a concept or event to be simplistic just because their knowledge about it may be simple or lacking—the less you know about something, the less complicated it may appear. However, this form of bias limits curiosity—people don’t feel the need to further explore a concept, because it seems simplistic to them. This bias can also lead people to think they are smarter than they actually are, because they have reduced a complex idea to a simplistic understanding. This can be seen first hand when those relatively new to a field often believe they have a strong grasp of the subject matter. Still, someone who has been in the same field for years may experience more insecurity or even imposter syndrome related to their position since they have a greater understanding of the capacity and overall depth required to master the field of study. This harkens the quote often attributed to Einstein, “The more I learn, the more I realize how much I don't know.”

Self-serving Bias

A self-serving bias is an assumption that good things happen to us when we’ve done all the right things, but bad things happen to us because of circumstances outside our control or things other people purport. This bias results in a tendency to blame outside circumstances for bad situations rather than taking personal responsibility.

In-group bias

This type of bias refers to how people are more likely to support or believe someone within their own social group than an outsider. This bias tends to remove objectivity from any sort of selection or hiring process, as we tend to favor those we personally know and want to help.

Fundamental Attribution Error

This bias refers to the tendency to attribute someone’s particular behaviors to existing, unfounded stereotypes while attributing our own similar behavior to external factors. For instance, when someone on your team is late to an important meeting, you may assume that they are lazy or lacking motivation without considering internal and external factors like an illness or traffic accident that led to the tardiness. However, when you are running late because of a flat tire, you expect others to attribute the error to the external factor (flat tire) rather than your personal behavior.

Hindsight Bias

Hindsight bias, also known as the knew-it-all-along effect, is when people perceive events to be more predictable after they happen. With this bias, people overestimate their ability to predict an outcome beforehand, even though the information they had at the time would not have led them to the correct outcome. This type of bias happens often in sports and world affairs. Hindsight bias can lead to overconfidence in one’s ability to predict future outcomes.

The Halo Effect

This bias refers to the tendency to allow our impression of a person, company, or business in one domain influence our overall impression of the person or entity. For instance, a consumer who enjoys the performance of a microwave that they bought from a specific brand is more likely to buy other products from that brand because of their positive experience with the microwave.

Final Thoughts

The human brain is powerful but subject to limitations. Cognitive biases are often a result of your brain's attempt to simplify information processing. Biases often work as rules of thumb that help you make sense of the world and reach decisions with relative speed. While these are not all strict cognitive biases, they they fall under similar categories.