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7 psychological biases to watch out for

  • By Alan Knott-Craig
  • October 23, 2016



All of us have mental biases which can lead us to make stupid mistakes.


The trick is to be aware of our psychological weaknesses, so we can compensate for them in decision-making.


  1. Anchoring bias: You tend to rely too heavily, or “anchor,” on one trait or piece of information when making decisions. For example: Your business plan relies on product pricing that is static, without taking into account margin attrition due to exchange rate movements.


  1. Availability bias: You tend to overestimate the likelihood of events with greater “availability” in your memory. Availability can be influenced by how recent the memories are, or how unusual or emotionally charged they may be. For example: Dramatic news stories of shark attacks make you more scared of being attacked by a shark than by being struck by falling airplane parts, even though you are statistically more likely to be hit by an airplane part.


  1. Confirmation bias: You tend to search for, interpret, focus on and remember information in a way that confirms your preconceptions. For example: If you’ve already invested your savings in a business selling rocking chairs for moms, you will latch onto all news that mothers love rocking chairs.


  1. Optimism bias: You tend to be over-optimistic, overestimating favorable and pleasing outcomes. For example: You’re running out of runway. Instead of facing facts and cutting costs, you double down on the conviction that the big sale is around the corner.


  1. Planning fallacy bias: You tend to overestimate benefits and underestimate costs and task-completion times. The rule of thumb should be to double your estimated cost, and double the estimated time to your first sale.


  1. Sunk-cost or loss-aversion bias: You’ve spent a fortune in money, energy, time and reputation to get so far. You’ve long dreamed of the day of being successful. You press on in the hope of getting a return on their investment, even in the face of mounting evidence that to continue would be folly. What is done is done. Walk away if its going nowhere.


  1. Hindsight bias: You tend to look backwards in time and see events as more predictable than they were at the time a decision was made. This bias, also known as the “knew-it-all-along effect,” typically affects those annoying “I told you so” people who never really told you anything.