What Is Cognitive Bias? Types and Business Examples

Game of chess

We like to think we’re rational people making rational decisions.

We pore over the data in our analytics dashboards, looking for trends among our customers. We carefully weigh the pros and cons of our own purchase decisions, arriving neatly at a logical choice.

Right? Wrong.

The truth is, the human brain is incredibly complex, contextual, and emotional. For example, dozens and dozens of cognitive biases influence every decision you and your customers make.

What is cognitive bias?

Cognitive bias is a type of error in thinking that occurs when people allow their judgments to be influenced by their own personal preferences, emotions, or beliefs. Everyone is susceptible to cognitive bias, leading to inaccurate decisions and judgments. 

Why do cognitive biases matter, anyway?

We all suffer from multiple cognitive biases, often simultaneously.

In fact, the thought that you are less affected by cognitive biases than other people is a cognitive bias. It’s called the bias blind spot, a tricky little bias that makes it easier for you to detect biases in others (versus yourself).

Because the more you understand the inner workings of the human brain, the better you can market to and persuade potential customers. By being aware of the cognitive biases in your mind and the minds of your visitors, you can tap into an irrefutable sales machine.

History of cognitive bias in psychology

Cognitive bias is a phenomenon that has been studied extensively by psychologists and other researchers over the years. It refers to the tendency of people to base their judgments and decisions on inaccurate or incomplete information. 

One of the earliest studies of cognitive bias was conducted by psychologists Daniel Kahneman and Amos Tversky in the 1970s. They found that people tended to make judgments that were based not on logic or objective evidence, but rather on their own personal beliefs and biases. 

Since then, many other studies have been conducted on cognitive bias, and it has been shown to play a role in a wide variety of judgments and decisions, from everyday choices like what to wear or what to eat to more important decisions like whether to invest in a certain stock or vote for a particular candidate. 

Some cognitive biases, such as the sunk-cost fallacy, can be avoided by being aware of them and consciously trying to overcome them. Other biases, such as confirmation bias, may be more difficult to avoid. However, making decisions that are not based on one’s own biases is still possible by considering multiple viewpoints and collecting objective evidence.

Common cognitive biases

There are many different types of cognitive bias, but some of the most common include:

  • Confirmation bias. The tendency to search for, interpret, or remember information in a way that confirms one’s preconceptions or hypotheses. For example, if you believe that apples are unhealthy, you might only pay attention to news and studies that confirm that view and ignore any evidence to the contrary. This type of bias can lead people to make poor decisions, because they are not considering all of the available evidence.
  • The availability heuristic. The tendency to overestimate the likelihood of events that are easy to imagine. This bias is often responsible for people’s fear of flying, even though it is statistically much safer than driving. The availability bias can lead people to make irrational decisions based on feelings rather than facts.
  • Anchoring bias. The tendency to rely too heavily on the first piece of information when making a decision. For example, if you are trying to decide how much to spend on a new car, you might anchor your decision on the sticker price, without considering other factors like monthly payments or fuel efficiency. This bias can lead people to make poor decisions by not considering all the relevant information.
  • Overconfidence bias. The tendency to be overly confident in one’s own abilities or judgments. This bias can lead people to take unnecessary risks or make poor decisions based on their own overestimation of their abilities.
  • Hindsight bias. When people claim to have known something all along, after it has been proven true. For example, after attending a basketball game, claiming you knew who was going to win beforehand. 

Cognitive bias examples in business

There are new cognitive biases being added to the list every day. Like “the cheerleader effect,” coined by the character Barney on the TV show How I Met Your Mother. That is, the bias that makes us think individuals are more attractive when in a group.

But here are some basics mixed with a few “unfamiliar faces” to get you up to speed quickly.

1. Availability heuristic

Definition: The tendency to overestimate the likelihood of events with greater “availability” in memory, which can be influenced by how recent the memories are or how unusual or emotionally charged they may be.

The availability bias is a mental shortcut that relies on recent memory. If something can be recalled quickly, it must be important or, at least, more important than things that are not easily recalled.

According to this cognitive bias, use recent information to make decisions, making new opinions biased toward the latest news.

For example, after hearing about a string of burglaries on the news, you might be extra cautious about locking the doors at night.

How it applies to ecommerce: Use what’s happening in the world and on the news to sell more. For example, on the heels of Hillary Clinton’s loss in November 2016, the Women’s March in January and International Women’s Day in March, the makers of Cards Against Humanity released a “For Her” version of its game:

availability heuristic

The entire landing page highlights sexism, starting with the fact that it’s the same game in pink packaging, but it cost $5 more.

2. Backfire effect

Definition: The reaction to disconfirming evidence by strengthening one's previous beliefs.

This is also known as confirmation bias. Essentially, when people are provided with cold, hard evidence against their beliefs, they often reject the evidence and believe even more strongly in their original position.

In addition, we have the tendency to search for, interpret, favor, and recall information in a way that confirms our preexisting beliefs.

Anyone who has had a heated debate about politics or religion, for example, might recognize this cognitive bias.

People believe what they believe and it’s very difficult to unseat those beliefs.

How it applies to ecommerce: Do the research to really understand what those long-held beliefs are for your audience and focus on emotional appeals to change them.

For example, there’s a rising number of climate-change deniers coming forward right now. If they were to land on the WWF store, they would be met with an emotional appeal to save animals affected by climate change:

wwf store

This is much more effective and persuasive than, say, a list of facts proving climate change exists.

3. Barnum effect

Definition: The observation that individuals will give high accuracy ratings to descriptions of their personality that supposedly are tailored specifically for them, but are in fact vague and general enough to apply to a wide range of people.

This explains how horoscopes, fortune telling, and personality tests can seem so accurate.

This cognitive bias gets its name from American circus entertainer, P.T. Barnum, who some believe said, “There’s a sucker born every minute.”

How it applies to ecommerce: You can make visitors feel like you’re talking to them one-on-one, even though you’re speaking to thousands. All it takes is some voice of customer research. 

4. Benjamin Franklin effect

Definition: A person who has performed a favor for someone is more likely to do another favor for that person than they would be if they had received a favor from that person.

Wait, what? The proposed reason for this psychological phenomenon is that you performed the favor because you like the person.

This is actually the cognitive bias that explains long-held grudges and rivalries because the opposite is true as well: you come to hate those you do wrong.

The writer and inventor Benjamin Franklin quoted an “old maxim” in his autobiography, which is how the bias became named after him: “He that has done you a kindness will be more ready to do you another, than he whom you yourself have obliged.”

How it applies to ecommerce: Get a small commitment, financial or otherwise, out of visitors and then ask for a larger commitment later on. For example, Ghostly encourages the small commitment of 99¢ for a single song:

ghosts homepage

After someone has, quite literally, bought into the smaller commitment, they’re much more likely to buy into the larger commitment (i.e., buying the entire album).

5. Decoy effect

Definition: Preferences for either option A or B change in favor of option B when option C is presented, which is similar to option B but in no way better.

In other words, option C is completely inferior to A, but on par with B (inferior in some ways, superior in some ways). When C is present, it makes A more attractive than if the options were merely A and B.

For example, let’s say you’re buying a new iPhone. Option A is $500 for 30 gigabytes and option B is $400 for 20 gigabytes. Some of you reading this will prefer A, some B. It just depends on how you feel about price and storage.

But now Apple has released another option, option C. At $550, it’s more expensive than both A and B, but has slightly less storage (25 gigabytes versus 30 gigabytes) than A.

No one is going to choose C, but it causes A to be chosen more often than if only A and B were present.

How it applies to ecommerce: Add a third bundle as a decoy to increase purchases of the bundle you actually want people to buy.

6. Framing effect

Definition: Depending on how that information is presented, drawing different conclusions from the same information.

This cognitive bias states that people react to a choice in different ways, depending on how it’s presented (i.e., framed). For example, it could be framed as a loss or as a gain. We tend to avoid risk when a positive frame is presented, but seek risk when a negative frame is presented.

Amos Tversky and Daniel Kahneman put this to the test back in 1981. Participants were asked to choose between two treatments for 600 people infected with a deadly disease. Treatment A would result in 400 deaths. Treatment B had a 33% chance that no one would die, but a 66% chance that everyone would die.

Each treatment was presented in a positive and negative frame. For example, for treatment A:

  • Positive: Save 200 lives.
  • Negative: 400 people will die.

Treatment A was chosen by 72% of participants when framed positively, dropping to only 22% when framed negatively.

How it applies to ecommerce: Be careful about how you present the value of your products. You’ll often want to use a positive frame, but sometimes a negative one can be persuasive, too.

For example, Leesa uses a lighthearted negative frame really well:

customer review

7. Hyperbolic discounting

Definition: Discounting is the tendency for people to have a stronger preference for more immediate payoffs relative to later payoffs.

Given two similar rewards, we show a preference for the one that arrives sooner. Our brains discount the value of the reward that arrives later.

When asked if they would prefer a dollar today or three dollars tomorrow, many people will take the lesser amount today. When asked if they would prefer a dollar in a year or three dollars in a year and a day, many people are happy to wait for the three dollars.

This is known as present bias.

Basically, hyperbolic discounting creates temporary preference for small rewards now over large rewards later.

How it applies to ecommerce: Always offer speedy shipping options, even if they cost more. Also, use limited-time offers to activate that present bias. For example, Bob & Lush offer free, next day delivery if you order before 4 p.m.:

bob and lush

8. Post-purchase rationalization

Definition: The tendency to persuade oneself through rational argument that a purchase was good value.

This is also known as choice-supportive bias.

We want to make the right choice so much that we tend to retroactively assign positive attributes to an option we’ve selected.

For example, if you choose option A over option B, you are likely to downplay the faults of option A and highlight the faults of option B. You are likely to highlight the advantages of option A and downplay the advantages of option B as well.

How it applies to ecommerce: Most people feel buyer’s remorse “often” or “sometimes.” Post-purchase rationalization kicks in to help get rid of that remorse. Use positive language in confirmation pages and emails. 

For example, Tait Ischia sends this email when you buy her copywriting book:

post purchase language use

A nice congratulations-style opening to confirm the customer made the right decision, followed by frequently asked questions to set their mind at ease.

9. Rhyme as reason effect

Definition: Rhyming statements are perceived as more truthful.

We’re all familiar with the famous line from the O.J. Simpson trial, right? “If it doesn’t fit, then you must acquit.”

In experiments, people consistently judge variations of expressions that rhyme as more truthful. For example, “What sobriety conceals, alcohol reveals” was judged as more truthful than “What sobriety conceals, alcohol unmasks.”

Likely, this is because rhymes are easier to process.

How it applies to ecommerce: Use rhyme where you can, whether that’s in product descriptions, product titles, on-site banners, etc. For example, BarkBox uses rhyme to reinforce trust in the quality of items within each monthly shipment:

barkbox rhyme

10. Halo effect

Definition: The tendency for a person’s positive or negative traits to “spill over” from one personality area to another in others’ perceptions of them.

This cognitive bias explains why customers develop bias toward certain products because of positive experiences with other products made by the same company.

For example, you might buy an Apple Watch, despite a disinterest in watches, because of positive experiences with your iPhone and MacBook.

You might also be familiar with this concept applied to physical appearance. It’s the same reason we tend to consider people we see as physically attractive to be smart, charming, selfless, etc.

The devil effect is the opposite of the halo effect. It’s when people allow an undesirable trait or experience to influence their evaluation and decision.

How it applies to ecommerce: Audit your store’s traits and figure out what your strongest suit is. Maybe you have a great personality, maybe you produced a similar product in the past that people loved, etc.

Highlight whatever that positive trait might be to create a halo around your current product. For example, Chubbies has a big, relatable personality that creates a halo effect on its shorts:

chubbies bias

11. Ingroup bias

Definition: The tendency for people to give preferential treatment to others they perceive to be members of their own groups.

These groups can be formed based on trivial, observable traits (e.g., having tattoos) and meaningful, hidden traits (e.g., political views).

This cognitive bias has been kicking around since 1906, when William Sumner, a sociologist, suggested that humans are a species joined together in groups by nature. He also stated that humans have an innate tendency to favor their own group over others.

How it applies to ecommerce: Your store has to fit in with the group you’re marketing to. You need to walk, talk, and act like your target demographic. For example, here’s how Death Wish Coffee speaks its audience’s language:

death wish coffee

12. Humor effect

Definition:That humorous items are more easily remembered than non-humorous ones, which might be explained by the distinctiveness of humor, the increased cognitive processing time to understand the humor, or the emotional persuasion caused by the humor.

If you can make someone laugh, you can make them remember you.

  • “The funniest thing happened to me yesterday.”
  • “There’s this hilarious car commercial on TV.”
  • “You’ll never guess what my two-year-old blurted out at the grocery store.”

Not only are we likely to recall funny memories, but we’re likely to share them as well. Why? Likely for a few different reasons:

  1. The element of surprise.
  2. Humor distracts the brain from the fact that it’s being sold to.
  3. Laughing makes us pretty freakin’ happy.

Perhaps that’s why 20% of all ads and 50% of TV ads are based on humor.

How it applies to ecommerce: If it feels authentic (no one wants to force humor where it doesn’t belong), add some humor to your store. For example, Poo-Pourri dials up the funny on-site as well as in its (now) iconic YouTube videos:

poo pouri bias usage

13. Peak-end rule

Definition: That people seem to perceive not the sum of an experience but the average of how it was at its peak (e.g., pleasant or unpleasant) and how it ended.

This is the cognitive bias that disregards the total sum or average of the experience. Instead, it forces us to judge an experience based on how we felt at its peak (i.e., the most intense moment) and its end.

The rest of the information isn’t lost, it’s just … not used.

Kahneman and Ziv Carmon conducted a study to explore the peak-end rule. They found that participants who were very dissatisfied during most of the experience, but were satisfied in the last few seconds described the experience as positive.

In an earlier study, Kahneman and a few other psychologists found that participants were willing to suffer longer in the name of the peak-end rule. Participants had two options:

  1. Submerge their hand in 14 degree water for 60 seconds.
  2. Submerge their hand in 14 degree water for 60 seconds plus an additional 30 seconds with the water temperature raised to 15 degrees.

Most people opted for option two. They would suffer longer, but the ending was more pleasant, creating a more positive memory.

How it applies to ecommerce: Your product arriving promptly and working as promised is your grand finale, so be sure you have invested in a quality product and vetted your shipping options. 

Your peak will likely be your checkout process, so make sure it’s as seamless as possible. Don’t ask for more information than you need, don’t require a login, allow the use of digital wallets, etc. 

Tattly gets it right, for example:

tattly

What causes cognitive bias

Social pressure

Social pressure is one of the leading causes of cognitive bias. It can be difficult to think objectively when we feel like we need to conform to the beliefs of those around us. This pressure can come from family, friends, co-workers, or society as a whole.

Heuristics and biases

Cognitive biases result from mental shortcuts, which humans use to simplify decision-making. These shortcuts, or heuristics, lead to judgment errors and can significantly impact our ability to make sound decisions.

When we're under social pressure, we're more likely to rely on heuristics, instead of taking the time to think through our decisions carefully. This can lead to errors in judgment and suboptimal decision-making.

Individual motivations

Individual motivations can have a significant impact on cognitive bias. For example, people may display confirmation bias if they stand to gain something from it (such as money or power). 

Likewise, self-serving bias leads people to make decisions that are not in their best interests, simply because they want to believe that they are smarter or more capable than they are.

Individual motivations are not all bad, of course. If someone cares about the outcome of a decision, they may be more likely to seek out new info. It is important to be aware of our motivations when making decisions, as they can frequently lead us astray.

How to reduce cognitive bias

There are a few key things that you can do to prevent cognitive bias: 

  1. Be aware of your own biases. We all have them, and they can distort our thinking. By being aware of your own biases, you can take steps to avoid them. 
  2. Try to get information from multiple sources. When you’re considering a decision, get input from people who have different perspectives from you. 
  3. Consider multiple explanations for past events. Don’t just assume that your first explanation is correct when something happens. Consider other possibilities. 
  4. Be willing to change your mind. If new evidence comes to light that contradicts your existing beliefs, be open to changing your mind. 
  5. Be aware of groupthink. People in a group may start to conform to the group’s beliefs, even if those beliefs are inaccurate. Be aware of this phenomenon and make an effort to think for yourself. 

Tapping into human thinking

The reasons people buy and don’t buy are complex and contextual. That’s why allowing yourself to think about persuasion outside the price and product box is liberating.

None of this is black and white, especially since we’re talking cognitive psychology online.

But even being aware of some cognitive biases at play puts you in a good position. While all of your competitors are stuck appealing to logic and reason, you can start experimenting with the many other forms of persuasion.

Cognitive bias FAQ

What is a cognitive bias example?

A cognitive bias is a type of error in thinking that occurs when people allow their judgments to be influenced by their own personal preferences, beliefs, or feelings. For example, someone might judge a new product to be better than it is because they want it to be successful.

What are the 6 cognitive biases?

The 6 cognitive biases are: confirmation bias, sunk cost fallacy, survivorship bias, availability heuristic, self-serving bias, and fundamental attribution error.

What causes cognitive bias?

  • Social pressure
  • Heuristics
  • Individual motivations 
  • External factors
  • Unconscious bias
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