Why do we think we understand the world more than we actually do?

What is illusion of explanatory depth?

The illusion of explanatory depth (IOED) describes our belief that we understand more about the world than we actually do. It is often not until we are asked to actually explain a concept that we come face to face with our limited understanding of it.

Why do we use similarity to gauge statistical probability?

What is the representativeness heuristic?

The representativeness heuristic is a mental shortcut that we use when making judgments about the probability. Specifically, when we are trying to assess how likely it is that an event or object A belongs to class B, we tend to make this judgment based on how closely A resembles B (or how representative we believe A is for B).

Why do we rely on our current emotions when making quick decisions?

What is the Affect Heuristic?

Heuristics are mental shortcuts we use to make problem-solving and decision-making easier. One type of heuristic is the affect heuristic, which specifically refers to how we can rely on our emotions when making decisions, which allows us to reach a conclusion quickly and without much effortful thought.

Why do we think we’re more likely to win at the big casino versus the small one?

What is Category Size Bias?

Category size bias describes our tendency to believe outcomes are more likely to occur if they are part of a large category rather than part of a small category, even if each outcome is equally likely. While the bias is based on experimental studies that have been successfully replicated, the interpretation of the evidence remains mixed.

Why does paying without physical cash increase the likelihood that we purchase something?

What is the Cashless Effect?

The cashless effect describes our tendency to be more willing to pay when there is no physical money involved in a transaction. It means that we are more likely to purchase something on a credit card than if we have to pay for it with cash.1

Why do we transfer negative emotions about being broke on items that we purchase?

What is the Bottom-Dollar Effect?

The bottom dollar effect describes our tendency to dislike products and services that exhaust our remaining budget. We are less satisfied with our purchases if they cause a strain on our finances.

Why do we value items purchased in a bundle less than those purchased individually?

What is Bundling Bias?

The bundling bias describes our tendency not to use up all the experiences that are bought as a group, which means that we don’t get the full value of a bundle compared to an individual purchase.

Why do we think a random event is more or less likely to occur if it happened several times in the past?

What is the Gambler’s fallacy?

The gambler’s fallacy describes our belief that the probability of a random event occurring in the future is influenced by previous instances of that type of event.

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Why do positive impressions produced in one area positively influence our opinions in another area?

What is the Halo Effect?

The halo effect is a cognitive bias that claims that positive impressions of people, brands, and products in one area positively influence our feelings in another area.“Halo Effect