Why do we tend to hold on to losing investments?

What is the disposition effect?

The disposition effect refers to our tendency to prematurely sell assets that have made financial gains, while holding on to assets that are losing money. We are driven to sell our winning investments in order to ensure a profit, but are averse to selling losing investments in hopes of turning them into gains.

Why do we lose interest in an activity after we are rewarded for it?

What is the Overjustification Effect?

The overjustification effect effect describes our tendency to become less intrinsically motivated to partake in an activity that we used to enjoy when offered an external incentive such as money or a reward.

Why do we perform better when someone has high expectations of us?

What is the Pygmalion effect?

The Pygmalion effect describes situations where someone’s high expectations improves our behavior and therefore our performance in a given area. It suggests that we do better when more is expected of us.

Why we tend to rely heavily upon the first piece of information we receive

What is the Anchoring bias?

Anchoring bias is a cognitive bias that causes us to rely too heavily on the first piece of information we are given about a topic. When we are setting plans or making estimates about something, we interpret newer information from the reference point of our anchor, instead of seeing it objectively. This can skew our judgment, and prevent us from updating our plans or predictions as much as we should.

Anchoring Effect Bias

Why do we feel like we stand out more than we really do?

What is the Spotlight Effect?

The spotlight effect describes how people tend to believe that others are paying more attention to them than they actually are—in other words, our tendency to always feel like we are “in the spotlight.” This bias shows up frequently in our day-to-day lives, both in positive situations (like when we nail a presentation and overestimate how impressed all our co-workers must be) and in negative ones (like when we bomb the presentation and feel like everybody must be laughing about it behind our backs).

Why do we have a harder time choosing when we have more options?

What is Choice Overload?

Choice overload, also known as overchoice, choice paralysis, or the paradox of choice, describes how people get overwhelmed when they are presented with a large number of options to choose from. While we tend to assume that more choice is a good thing, in many cases, research has shown that we have a harder time choosing from a larger array of options.

Choice Overload

Why do we feel more strongly about one option after a third one is added?

What is the Decoy Effect?

The decoy effect describes how, when we are choosing between two alternatives, the addition of a third, less attractive option (the decoy) can influence our perception of the original two choices. Decoys are “asymmetrically dominated”: they are completely inferior to one option (the target) but only partially inferior to the other (the competitor). For this reason, the decoy effect is sometimes called the “asymmetric dominance effect.”

Why do our decisions depend on how options are presented to us?

What is the Framing Effect?

The framing effect is when our decisions are influenced by the way information is presented. Equivalent information can be more or less attractive depending on what features are highlighted.

Framing Effect

Why do we mispredict how much our emotions influence our behavior?

What is Empathy Gap?

The empathy gap describes our tendency to underestimate the influence of varying mental states on our own behavior and make decisions that only satisfy our current emotion, feeling, or state of being.