The Lindy Effect is a theory about the aging of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.
Component
Description
Definition
The Lindy Effect is a concept suggesting that the longer a non-perishable idea, technology, or cultural artifact survives, the longer its expected remaining lifespan. In other words, the longer something has been around, the longer it is likely to continue to exist.
Origin
The term “Lindy Effect” was popularized by author Nassim Nicholas Taleb in his book “Antifragile.” However, the idea has roots in various fields, including economics, technology, and cultural studies.
Implications
– The Lindy Effect challenges the notion that age implies fragility. – It suggests that older technologies, ideas, or cultural practices may possess inherent qualities that make them more robust and adaptable. – Investors and decision-makers may consider the age of assets or ideas when evaluating their potential longevity.
Examples
– Books: Classic literary works such as Shakespeare’s plays or ancient texts like the Bible have demonstrated the Lindy Effect by remaining relevant for centuries. – Technologies: Basic tools like the wheel or the printing press have persisted through the ages.
Applications
– Decision-Making: When making choices related to technology adoption, investment, or cultural preservation, understanding the Lindy Effect can influence long-term strategies. – Innovation: Innovators may draw inspiration from enduring ideas or technologies to create robust solutions.
Misinterpretations
– The Lindy Effect does not apply to perishable goods or technologies with built-in obsolescence. – It does not guarantee that an old idea or technology will remain relevant without adaptation. – Some older ideas or technologies may persist due to inertia rather than inherent value.
Practical Use
– Consider the Lindy Effect when planning long-term investments or strategies. – Evaluate the resilience and adaptability of older ideas or technologies. – Recognize that age alone does not guarantee quality or relevance.
You are waiting in line at the post office. In front of you, there are two people.
One is a young fellow of twenty years, and the other is an old folk, he seems to be about eighty years old. In your mind, there is no doubt. The old fellow will die way sooner than the young fellow.
Of course, we are thinking about probability. In other words, we know that there are way more chances that the old folk will die sooner than the young fellow.
While this reasoning works when we are in the domain of something perishable (things with a determined life expectancy); this kind of thinking becomes flawed when we switch to another area, the non-perishable.
In other words, As Nassim Taleb, author of Antifragile explains, when we get into the non-perishable domain the probability distribution of something happening, changes altogether.
In short, while the life expectancy of two people (humans fall into the perishable domain) follows a Gaussian distribution (also called normal distribution). When it comes to the non-perishable (such as the content you are about to create by pounding your fingertips on the keyboard), it follows a Power Law distribution.
What does that mean?
Practically speaking you are creating something that has the potential to live forever!
But how can we leverage on the Lindy Effect to create such content?
Ideas and technologies might age the same way
Over two thousand years ago, a man, from Cisalpine Gaul (a region that stretched throughout the Northern part of Italy) aspired to become a poet.
His name was Publius.
Publius was already quite famous in Rome. In fact, the Roman Emperor, Augustus, had commissioned him to write a poem.
Although Publius had spent the last years of his life, working and drafting that poem, it always seemed to him that something was missing.
The work never seemed to be ready for being published.
The years went by, and although Publius’ work had become encyclopedic, he didn’t feel ready. While visiting a town, called Megara, he got sick and not long after he died.
As the story goes before dying, Publius ordered his literary executors to burn his work. But Emperor Augustus ordered them to disregard Publius’ wish.
That was how the most influential poem in Western literature was born. Indeed, that man was Publius Vergilius Maro (better known as Virgil), and his work was the Aeneid!
What can we learn from this story?
Three basic but incredibly powerful principles!
Learning from Virgil
Arms and the man I sing, who first made way, predestined exile, from the Trojan shore to Italy, the blest Lavinian strand. Smitten of storms he was on land and sea by violence of Heaven, to satisfy stern Juno’s sleepless wrath; and much in war he suffered, seeking at the last to found the city, and bring o’er his fathers’ gods to safe abode in Latium; whence arose the Latin race, old Alba’s reverend lords, and from her hills wide-walled, imperial Rome.
A literary work, drafted by Vergil over two thousand years ago, still read and studied all over the world. We can not only expect this content to be relevant for another one-hundred-year. According to the Lindy Effect, we can look forward to Virgil’s work to be “alive” for another two thousand years.
The great paradox of the whole story is the fact that Vigil did not want his work to be published. Once published it was a great success!
Time and survival
There is implicit learning that time applies to non-perishable things, which makes them cleaner of noise. That doesn’t mean there is no noise for things that have survived for a long time, but less noise, or at least they might have a stabilizing effect that we can’t know for sure, but it’s there.
Wrapping-up and Conclusions
The Lindy Effect teaches us that non-perishable things age in reverse. This means that things that have survived for a longer time might probably live longer.
Of course, this will highly depend upon the developed context.
Lindy Effect: Non-Perishable Things and Aging
Definition: The Lindy Effect is a concept introduced by author Nicholas Nassim Taleb that addresses the aging of non-perishable things such as technology, ideas, and cultural artifacts. It posits that the longer something has existed, the longer its life expectancy, creating a reverse relationship between age and remaining lifespan.
Perishable vs. Non-Perishable: The Lindy Effect draws a distinction between perishable and non-perishable entities. Perishable items, like living organisms, follow a Gaussian distribution in terms of age and life expectancy, where younger individuals are more likely to survive. In contrast, non-perishable things, which don’t have a natural life expectancy, adhere to a Power Law distribution. This distribution pattern suggests that the longer something has already survived, the longer it is likely to continue surviving.
Content Creation and Lindy Effect: When applied to content creation, the Lindy Effect implies that ideas, written works, and technologies that have stood the test of time are more likely to remain relevant and enduring in the future. The longer a piece of content has been around, the more credible it becomes as an enduring source of knowledge or value.
Virgil’s Aeneid Example: An illustrative example of the Lindy Effect is Virgil’s epic poem “Aeneid,” written over two thousand years ago. Despite its ancient origins, the Aeneid continues to be studied, analyzed, and appreciated by readers and scholars worldwide. According to the Lindy Effect, the Aeneid’s potential to remain alive and relevant is not diminished by its age; in fact, its longevity may indicate a likelihood of even greater persistence.
Time and Survival: The Lindy Effect suggests that non-perishable things, as they endure through time, become cleaner of extraneous noise. While this doesn’t imply that they are entirely free of noise or inaccuracies, the longer survival of these entities tends to contribute to a relative stability and relevance.
Implications and Practical Applications:
Content Strategy: Content creators can use the Lindy Effect to guide their content strategy. Instead of chasing fleeting trends, they can focus on producing content that has already demonstrated its relevance and longevity. This might involve revisiting classic ideas, historical examples, and well-established theories.
Risk Management: The Lindy Effect suggests that entities that have survived for a long time are likely to have already navigated various challenges and uncertainties. In the realm of business, adopting strategies, technologies, or ideas with a proven track record of survival can reduce risks associated with untested approaches.
Cultural Preservation: The Lindy Effect provides a rationale for the preservation and continued study of historical artifacts, literature, and art. Items that have persisted through centuries might carry intrinsic qualities that make them valuable sources of insight and knowledge.
Examples
Literature: Classic literary works like “The Iliad” and “The Odyssey” by Homer, or “War and Peace” by Leo Tolstoy, have been revered for centuries and continue to be studied, demonstrating the Lindy Effect in literature.
Religious Texts: Sacred texts like the Bible, Quran, and Bhagavad Gita have been passed down through generations and remain central to their respective religions, exemplifying the Lindy Effect’s influence in religious traditions.
Philosophy: Philosophical ideas from ancient Greek philosophers such as Plato and Aristotle are still widely discussed and debated in contemporary philosophy, showcasing the enduring nature of philosophical concepts.
Scientific Principles: Newton’s laws of motion, formulated in the 17th century, continue to be foundational principles in physics and engineering, illustrating the Lindy Effect in scientific theories.
Cultural Traditions: Traditional ceremonies, rituals, and practices that have persisted for centuries within cultures around the world exemplify the Lindy Effect in cultural traditions.
Language: Languages with long histories, like Latin, Greek, and Sanskrit, continue to influence modern languages and have enduring significance in linguistics.
Technology: The QWERTY keyboard layout, developed in the 19th century, remains the standard for typing on most devices, demonstrating the Lindy Effect in technology design.
Business Practices: Time-tested business strategies, such as the principles outlined in Sun Tzu’s “The Art of War,” are still applied in modern corporate strategy, showcasing the Lindy Effect in business.
Historical Artifacts: Ancient artifacts, like the Rosetta Stone, continue to provide valuable historical insights and are actively preserved, reflecting the Lindy Effect in historical preservation.
Mathematical Concepts: Mathematical theorems and concepts, such as Pythagoras’ theorem or Euclidean geometry, have maintained their relevance in mathematics education for centuries.
Musical Compositions: Classical music compositions by composers like Mozart and Beethoven are frequently performed and recorded, emphasizing the Lindy Effect’s presence in the world of music.
Legal Principles: Legal frameworks and principles established in ancient legal codes, like the Code of Hammurabi, have influenced modern legal systems and remain relevant in jurisprudence.
Educational Pedagogy: Educational methods and teaching approaches developed by historical educators like John Dewey or Maria Montessori continue to shape contemporary education practices.
Cooking Recipes: Traditional recipes passed down through generations within families and cultures exemplify the Lindy Effect in culinary traditions.
Political Ideologies: Philosophical and political ideologies such as democracy, socialism, and conservatism have persisted over time and continue to shape political discourse globally.
Key Takeaways:
The Lindy Effect emphasizes the reverse relationship between age and life expectancy for non-perishable entities like ideas, technologies, and cultural works.
It guides content creators, businesses, and cultural preservation efforts to value and prioritize enduring concepts and creations that have withstood the test of time.
Key Highlights
Definition: The Lindy Effect is a concept introduced by author Nicholas Nassim Taleb that addresses the aging of non-perishable things such as technology, ideas, and cultural artifacts. It posits that the longer something has existed, the longer its life expectancy, creating a reverse relationship between age and remaining lifespan.
Perishable vs. Non-Perishable: The Lindy Effect draws a distinction between perishable and non-perishable entities. Perishable items, like living organisms, follow a Gaussian distribution in terms of age and life expectancy, where younger individuals are more likely to survive. In contrast, non-perishable things, which don’t have a natural life expectancy, adhere to a Power Law distribution. This distribution pattern suggests that the longer something has already survived, the longer it is likely to continue surviving.
Content Creation and Lindy Effect: When applied to content creation, the Lindy Effect implies that ideas, written works, and technologies that have stood the test of time are more likely to remain relevant and enduring in the future. The longer a piece of content has been around, the more credible it becomes as an enduring source of knowledge or value.
Virgil’s Aeneid Example: An illustrative example of the Lindy Effect is Virgil’s epic poem “Aeneid,” written over two thousand years ago. Despite its ancient origins, the Aeneid continues to be studied, analyzed, and appreciated by readers and scholars worldwide. According to the Lindy Effect, the Aeneid’s potential to remain alive and relevant is not diminished by its age; in fact, its longevity may indicate a likelihood of even greater persistence.
Time and Survival: The Lindy Effect suggests that non-perishable things, as they endure through time, become cleaner of extraneous noise. While this doesn’t imply that they are entirely free of noise or inaccuracies, the longer survival of these entities tends to contribute to a relative stability and relevance.
Implications and Practical Applications:
Content Strategy: Content creators can use the Lindy Effect to guide their content strategy. Instead of chasing fleeting trends, they can focus on producing content that has already demonstrated its relevance and longevity. This might involve revisiting classic ideas, historical examples, and well-established theories.
Risk Management: The Lindy Effect suggests that entities that have survived for a long time are likely to have already navigated various challenges and uncertainties. In the realm of business, adopting strategies, technologies, or ideas with a proven track record of survival can reduce risks associated with untested approaches.
Cultural Preservation: The Lindy Effect provides a rationale for the preservation and continued study of historical artifacts, literature, and art. Items that have persisted through centuries might carry intrinsic qualities that make them valuable sources of insight and knowledge.
Related Framework
Description
When to Apply
Lindy Effect
The Lindy Effect is a concept that suggests the future lifespan of a non-perishable item, such as an idea, technology, or book, is proportional to its current age. According to this principle, the longer an item has been around, the longer it is likely to survive into the future. The Lindy Effect implies that the value or relevance of non-perishable items tends to increase over time rather than decrease, as they have already withstood the test of time. This concept has implications for decision-making, suggesting that older and time-tested ideas, technologies, or cultural artifacts are more likely to remain relevant and valuable in the long run.
When considering the longevity and relevance of ideas, technologies, or cultural artifacts, applying the Lindy Effect to assess the potential lifespan and enduring value of non-perishable items, thus guiding decision-making and resource allocation towards ideas, technologies, or cultural artifacts that have stood the test of time and are more likely to remain relevant and valuable in the future.
Pareto Principle (80/20 Rule)
The Pareto Principle, also known as the 80/20 Rule, suggests that roughly 80% of effects come from 20% of causes. In various contexts, this principle implies that a significant portion of outcomes is driven by a small fraction of inputs. For example, in business, it may suggest that 80% of sales come from 20% of customers or that 80% of problems stem from 20% of causes. Understanding the Pareto Principle can help prioritize efforts and resources by focusing on the most impactful factors or areas that yield the greatest results.
When prioritizing tasks, resources, or efforts, applying the Pareto Principle to identify the most significant factors or areas that contribute to outcomes, thus optimizing resource allocation and maximizing efficiency by focusing on high-impact activities or addressing root causes that drive the majority of results.
Black Swan Theory
The Black Swan Theory, introduced by Nassim Nicholas Taleb, refers to highly improbable events with significant impact and unpredictability. These events are characterized by their extreme rarity, unforeseen nature, and profound consequences. The term “black swan” originated from the belief that all swans were white until the discovery of black swans in Australia, challenging previously held assumptions. In various domains, such as finance, economics, and risk management, the Black Swan Theory underscores the limitations of predictive models and the need to account for rare but impactful events. Understanding the Black Swan Theory encourages resilience, adaptability, and preparedness for unforeseen circumstances.
When assessing risks, planning strategies, or making decisions, considering the potential impact of black swan events and their likelihood, thus incorporating resilience, adaptability, and preparedness measures to mitigate the effects of highly improbable but consequential events.
Diffusion of Innovations
The Diffusion of Innovations theory, proposed by Everett Rogers, describes how new ideas, products, or technologies spread and are adopted within a population over time. According to this theory, the adoption process follows a predictable pattern, with individuals categorized into different groups based on their readiness to adopt innovations: innovators, early adopters, early majority, late majority, and laggards. Factors influencing adoption include the perceived benefits of the innovation, compatibility with existing practices, ease of use, observability, and social influence. Understanding the Diffusion of Innovations can inform strategies for promoting adoption and accelerating the diffusion process by targeting influential individuals or groups and addressing barriers to adoption.
When introducing new ideas, products, or technologies, applying the Diffusion of Innovations theory to understand the adoption process, identify key adopter groups, and tailor strategies to promote adoption and accelerate diffusion by addressing perceived benefits, compatibility, ease of use, observability, and social influence factors that influence adoption decisions across different segments of the population.
Disruptive Innovation
Disruptive Innovation, coined by Clayton Christensen, refers to innovations that create new markets or significantly alter existing markets by introducing simpler, more convenient, or more affordable alternatives that challenge established products or services. Unlike sustaining innovations, which improve existing products for established customers, disruptive innovations often target underserved or non-consumption segments with novel value propositions. Disruptive innovations initially may not meet the performance standards of incumbent solutions but gradually improve to outperform them, leading to market disruption. Understanding disruptive innovation can help organizations anticipate market shifts, identify emerging opportunities, and respond proactively to competitive threats.
When analyzing industry dynamics, identifying growth opportunities, or responding to market changes, considering the potential impact of disruptive innovation and its implications for existing business models, thus fostering innovation, agility, and competitiveness by proactively adapting strategies to leverage emerging trends or disrupt traditional markets with novel value propositions and business models.
Bystander Effect
The Bystander Effect is a social phenomenon where individuals are less likely to intervene in emergency situations when others are present. The presence of bystanders can lead to diffusion of responsibility, where individuals assume others will take action, resulting in reduced likelihood of helping behavior. Factors contributing to the Bystander Effect include ambiguity of the situation, social influence, and diffusion of responsibility. Understanding the Bystander Effect can inform interventions to promote bystander intervention by raising awareness, providing bystander training, and fostering a sense of responsibility to overcome diffusion of responsibility and increase prosocial behavior in emergency situations.
When designing interventions to promote prosocial behavior, addressing the Bystander Effect by raising awareness, providing bystander training, and fostering a sense of responsibility to overcome diffusion of responsibility and increase bystander intervention in emergency situations, thus enhancing community safety and well-being through proactive help-seeking and support provision.
Confirmation Bias
Confirmation Bias is a cognitive bias where individuals tend to favor information that confirms their existing beliefs or hypotheses while disregarding or interpreting contrary evidence. This bias can lead to selective perception, distorted interpretation of information, and reinforcement of preconceived notions. Confirmation Bias influences decision-making, problem-solving, and information processing across various domains, including politics, science, and everyday judgments. Understanding Confirmation Bias can help individuals recognize and mitigate its effects by actively seeking diverse perspectives, challenging assumptions, and critically evaluating evidence to make more objective and informed decisions.
When evaluating information, making decisions, or engaging in critical thinking, being mindful of Confirmation Bias and its influence on perception and judgment, thus actively seeking diverse perspectives, challenging assumptions, and critically evaluating evidence to mitigate bias and make more objective and informed decisions across different contexts.
Dunning-Kruger Effect
The Dunning-Kruger Effect is a cognitive bias where individuals with low ability or knowledge tend to overestimate their competence, while those with higher ability may underestimate their competence. This bias arises from a lack of metacognitive skills to accurately assess one’s own abilities and performance. Individuals with limited expertise may lack the knowledge to recognize their deficiencies, leading to overconfidence, while those with greater expertise may underestimate their abilities due to assuming others possess similar competence levels. Understanding the Dunning-Kruger Effect highlights the importance of self-awareness, feedback, and continuous learning to develop accurate self-assessment and competence evaluation skills.
When assessing one’s own abilities or evaluating others’ performance, considering the potential influence of the Dunning-Kruger Effect on self-perception and judgment, thus fostering self-awareness, seeking feedback, and promoting continuous learning to develop accurate self-assessment and competence evaluation skills, leading to improved performance and decision-making.
Hawthorne Effect
The Hawthorne Effect refers to the phenomenon where individuals modify their behavior or performance in response to being observed or knowing they are part of an experiment. This effect was observed during the Hawthorne studies, where changes in lighting conditions led to improvements in worker productivity, regardless of actual illumination levels. The Hawthorne Effect highlights the impact of social and psychological factors on behavior and performance, suggesting that individuals’ awareness of being studied can influence their actions, motivations, and productivity. Understanding the Hawthorne Effect can inform research design, organizational interventions, and performance management strategies by considering the potential influence of observation and awareness on outcomes.
When designing experiments, implementing interventions, or managing performance, considering the potential influence of the Hawthorne Effect on behavior and productivity, thus accounting for social and psychological factors that may affect outcomes and implementing measures to mitigate biases introduced by observation or awareness, ensuring more accurate assessments and effective interventions.
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.
The Lindy Effect is a theory about the ageing of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.
Antifragility was first coined as a term by author, and options trader Nassim Nicholas Taleb. Antifragility is a characteristic of systems that thrive as a result of stressors, volatility, and randomness. Therefore, Antifragile is the opposite of fragile. Where a fragile thing breaks up to volatility; a robust thing resists volatility. An antifragile thing gets stronger from volatility (provided the level of stressors and randomness doesn’t pass a certain threshold).
Ergodicity is one of the most important concepts in statistics. Ergodicity is a mathematical concept suggesting that a point of a moving system will eventually visit all parts of the space the system moves in. On the opposite side, non-ergodic means that a system doesn’t visit all the possible parts, as there are absorbing barriers
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.
Metaphorical thinking describes a mental process in which comparisons are made between qualities of objects usually considered to be separate classifications. Metaphorical thinking is a mental process connecting two different universes of meaning and is the result of the mind looking for similarities.
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).
The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.
The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.
The Google effect is a tendency for individuals to forget information that is readily available through search engines. During the Google effect – sometimes called digital amnesia – individuals have an excessive reliance on digital information as a form of memory recall.
The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.
Single-attribute choices – such as choosing the apartment with the lowest rent – are relatively simple. However, most of the decisions consumers make are based on multiple attributes which complicate the decision-making process. The compromise effect states that a consumer is more likely to choose the middle option of a set of products over more extreme options.
In business, the butterfly effect describes the phenomenon where the simplest actions yield the largest rewards. The butterfly effect was coined by meteorologist Edward Lorenz in 1960 and as a result, it is most often associated with weather in pop culture. Lorenz noted that the small action of a butterfly fluttering its wings had the potential to cause progressively larger actions resulting in a typhoon.
The IKEA effect is a cognitive bias that describes consumers’ tendency to value something more if they have made it themselves. That is why brands often use the IKEA effect to have customizations for final products, as they help the consumer relate to it more and therefore appending to it more value.
The overview effect is a cognitive shift reported by some astronauts when they look back at the Earth from space. The shift occurs because of the impressive visual spectacle of the Earth and tends to be characterized by a state of awe and increased self-transcendence.
The house money effect was first described by researchers Richard Thaler and Eric Johnson in a 1990 study entitled Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice. The house money effect is a cognitive bias where investors take higher risks on reinvested capital than they would on an initial investment.
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
The anchoring effect describes the human tendency to rely on an initial piece of information (the “anchor”) to make subsequent judgments or decisions. Price anchoring, then, is the process of establishing a price point that customers can reference when making a buying decision.
The decoy effect is a psychological phenomenon where inferior – or decoy – options influence consumer preferences. Businesses use the decoy effect to nudge potential customers toward the desired target product. The decoy effect is staged by placing a competitorproduct and a decoy product, which is primarily used to nudge the customer toward the target product.
Commitment bias describes the tendency of an individual to remain committed to past behaviors – even if they result in undesirable outcomes. The bias is particularly pronounced when such behaviors are performed publicly. Commitment bias is also known as escalation of commitment.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.
Goodhart’s Law is named after British monetary policy theorist and economist Charles Goodhart. Speaking at a conference in Sydney in 1975, Goodhart said that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart’s Law states that when a measure becomes a target, it ceases to be a good measure.
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.
Moore’s law states that the number of transistors on a microchip doubles approximately every two years. This observation was made by Intel co-founder Gordon Moore in 1965 and it become a guiding principle for the semiconductor industry and has had far-reaching implications for technology as a whole.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.
Groupthink occurs when well-intentioned individuals make non-optimal or irrational decisions based on a belief that dissent is impossible or on a motivation to conform. Groupthink occurs when members of a group reach a consensus without critical reasoning or evaluation of the alternatives and their consequences.
A stereotype is a fixed and over-generalized belief about a particular group or class of people. These beliefs are based on the false assumption that certain characteristics are common to every individual residing in that group. Many stereotypes have a long and sometimes controversial history and are a direct consequence of various political, social, or economic events. Stereotyping is the process of making assumptions about a person or group of people based on various attributes, including gender, race, religion, or physical traits.
Murphy’s Law states that if anything can go wrong, it will go wrong. Murphy’s Law was named after aerospace engineer Edward A. Murphy. During his time working at Edwards Air Force Base in 1949, Murphy cursed a technician who had improperly wired an electrical component and said, “If there is any way to do it wrong, he’ll find it.”
The law of unintended consequences was first mentioned by British philosopher John Locke when writing to parliament about the unintended effects of interest rate rises. However, it was popularized in 1936 by American sociologist Robert K. Merton who looked at unexpected, unanticipated, and unintended consequences and their impact on society.
Fundamental attribution error is a bias people display when judging the behavior of others. The tendency is to over-emphasize personal characteristics and under-emphasize environmental and situational factors.
Outcome bias describes a tendency to evaluate a decision based on its outcome and not on the process by which the decision was reached. In other words, the quality of a decision is only determined once the outcome is known. Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.
Hindsight bias is the tendency for people to perceive past events as more predictable than they actually were. The result of a presidential election, for example, seems more obvious when the winner is announced. The same can also be said for the avid sports fan who predicted the correct outcome of a match regardless of whether their team won or lost. Hindsight bias, therefore, is the tendency for an individual to convince themselves that they accurately predicted an event before it happened.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
