Quiz Questions

Heuristics describes the way we make everyday decisions and form judgments, using simple rules for the sake of efficiency. Think of it as the mental shortcuts we sometimes take to help us make choices or come up with solutions, that don’t necessarily take all factors into account.

These rules, or heuristics, are ingrained in us and work fine in most situations. However, there are times when it can lead to undesirable outcomes, and in psychology these errors are referred to as “cognitive biases”. Emotional biases, meanwhile, are the result of social influences and life experiences.

Have you ever made an educated guess? We all have, and that’s one example of how heuristics influence our decision-making process. By its very nature, behavioural finance suggests irrational behaviour is common, and almost expected, even though we would like to think of ourselves as logical beings.

It provided much of the basis for the research conducted by Daniel Kahneman and Amos Tversky (and one-time Collaborator and Psychology Professor, Paul Slovic) who established a cognitive basis for common human errors that arise from heuristics and biases.

The first step to overcoming your inherent biases and making better choices is to recognise them and then actively work to overcome them, or at the very least acknowledge them in the decision-making process.

As an interesting exercise, below are some “simple” quiz questions that could help highlight the biases you may not be aware of.