Confirmation Bias

Oct 19, 2011 • Innovation, Labor, Regulation, Thinking Economically • 112 Views    No Comments

You might be suffering from probability neglect. Explained by Obama advisor Cass Sunstein, probability neglect means you favored your emotions over the statistics. For homeland security, that even when there is a 1 in  a million chance that a bridge will be blown up, everyone assume the event is likely.

A related disease is confirmation bias. Here, you start with your opinion. Then, you gather and recall all facts that prove you are right. Looking back, you confrim inevitabilty although it never really existed. Looking forward, you predict more of the same. Then, when new facts emerge, you only select those that vconfrim your bias. So, as a stock analyst, if you predicted poor earnings, then higher numbers are explained as temporary.Then, looking forward, you bas your predictions on your  ignored the statistic chance that something might happen

overconfidence bias?http://online.wsj.com/article/SB10001424052970203633104576625071820638808.html

overconfidence the engine of capitalism

http://online.wsj.com/article/SB10001424052702303341904575576550877154216.html

http://www.newyorker.com/archive/2005/12/05/051205crbo_books1

“diminishing predictive marginal returns”

explained for political judgement relates to finance

inverse relationship between confidence and accuracy

“We fall in love with our hunches, and we really hate to be wrong.

knowing too much–have enough facts to support your side

more critical of contradictory info than substantiating facts

“Plausible detail” willing to pay more for hospitalization for all diseases and accidents then hospitalization

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