Recognition Heuristic In A Nutshell

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.

Aspect	Explanation
Recognition Heuristic	– The recognition heuristic is a mental shortcut or decision-making strategy that individuals often use when faced with choices. It is based on the idea that if one of two options is recognized (known) and the other is not, people tend to favor the recognized option as the better choice, even when they have little or no other information about the options.
Nobel Prize Inspiration	– The concept of the recognition heuristic was introduced by psychologists Daniel Kahneman and Amos Tversky, who won the Nobel Prize in Economics for their work on behavioral economics and decision-making. It is a key insight in understanding how people make judgments and choices.
Efficiency and Speed	– The recognition heuristic is considered a heuristic of intuition because it operates quickly and efficiently. Rather than engaging in in-depth analysis or gathering extensive information, individuals rely on the simplicity of recognition to make decisions.
Domain Dependence	– The effectiveness of the recognition heuristic is domain-dependent. It works well in situations where recognition is a valid indicator of quality or relevance. For example, in everyday life, people may choose a recognized brand of a product over an unknown one. However, in complex or specialized domains, it may not be reliable.
Biases and Errors	– While the recognition heuristic can be a useful decision-making tool, it can also lead to biases and errors. People may make suboptimal decisions when relying solely on recognition, especially if the recognized option is not necessarily the best choice.
Availability Heuristic	– The recognition heuristic is related to the availability heuristic, another mental shortcut where people judge the likelihood of an event based on how easily they can recall examples or instances of it. Both heuristics simplify decision-making by using readily available information.
Marketing and Branding	– In marketing and branding, the recognition heuristic plays a significant role. Companies invest in building brand recognition to influence consumer choices. Consumers may choose a recognized brand simply because they are familiar with it, even if other brands may offer better value.
Overcoming Bias	– Recognizing the potential biases associated with the recognition heuristic, individuals and decision-makers can take steps to mitigate its impact. This may involve seeking additional information, considering other factors, or being aware of situations where recognition alone may not be a reliable guide.
Real-World Examples	– Real-world examples of the recognition heuristic include choosing a book to read based on its cover, selecting a restaurant based on its name, or opting for a known product brand at the grocery store. In these cases, recognition often serves as a quick and practical decision aid.
Conclusion	– The recognition heuristic is a cognitive shortcut that relies on the familiarity of options to make quick decisions. While it can be efficient, it is not foolproof and can lead to biases. Understanding its role in decision-making helps individuals and businesses make more informed choices and marketing strategies.

Table of Contents

Understanding the recognition heuristic

The heuristic makes inferences about a criterion not directly accessible to the decision-maker. Accessibility is reliant upon the ability to retrieve stored information from memory – provided that such information has relevance to an object (or alternative object) in question.

Indeed, for two alternative objects, Goldstein and Gigerenzer stated that:

“If one of two objects is recognized and the other is not, then infer that the recognized object has the higher value with respect to the criterion.”

The original recognition heuristic experiment

To demonstrate this heuristic, the researchers quizzed German and U.S. students on the populations of various German and U.S. cities. Students were given the names of two cities and asked to choose which city had a higher population.

Results showed that 92% of choices were based on city recognition and not on specific knowledge of population size.

Interestingly, German students fared better on U.S cities while U.S. students scored better on German cities. The results were attributed to the fact that cities with larger populations were more recognizable than cities with smaller populations.

This is also an example of the less-is-more effect because student decisions were more accurate in domains where they had little knowledge.

The recognition heuristic in marketing

In marketing and consumer psychology, the recognition heuristic is strongly linked to branding.

Businesses spend vast amounts of money advertising their products to increase brand awareness and ensure that their products remain top-of-mind for consumers.

The mechanisms for a consumer choosing one product over another are much the same as the original study on population size.

Consider these scenarios:

Publicly listed companies with recognizable names are more likely to attract shareholder investment than those companies that are less well known.
A brand of breakfast cereal with a catchy slogan and memorable mascot is likely to be purchased more often than a no-name supermarket brand with plain packaging.

Limitations to the recognition heuristic

Many researchers argue that purchasing decisions are often based on more than recognition alone. This contradicts the notion that the recognition heuristic is a non-compensatory model based on one cue even if other cues are available.

In a mechanism called “recognition plus evaluation”, the consumer may consider a range of cues such as:

The average review rating or the number of stars.
Perceived product desirability. For example, how much of a product is available on the shelf compared to a competitor product?
Negative association, where an individual may recognize a product but for the wrong reasons. For example, the product may be associated with animal cruelty or the business itself has a history of subverting consumer law.

Examples of the recognition heuristic in everyday life

Brand Recognition in Consumer Goods: When shopping for groceries, a consumer might choose a well-known brand of peanut butter over an unfamiliar brand because they recognize the logo and packaging, assuming it must be of higher quality or better tasting.
Celebrity Endorsements: In the world of advertising, companies often use celebrity endorsements to promote their products. The recognition heuristic comes into play here, as consumers may be more inclined to trust and buy products endorsed by famous individuals simply because they recognize them.
Political Campaigns: During elections, voters may use the recognition heuristic to make decisions about candidates they are more familiar with, such as those who have been in the public eye or have a strong media presence.
Choosing Tourist Destinations: When planning a vacation, travelers might opt for well-known tourist destinations that they have heard about or seen in movies, assuming they will have a better experience than in lesser-known places.
Investment Decisions: In the financial realm, investors may be more inclined to invest in well-known companies they recognize, even if they have limited knowledge of the industry or financials, as opposed to investing in lesser-known companies.
Social Media Influencers: In the age of social media, influencers play a significant role in promoting products. Consumers may be influenced to purchase items recommended by influencers they recognize and follow online.
Media Consumption: When choosing movies, TV shows, or books, people may rely on the recognition heuristic, selecting titles that are well-known or have won awards, assuming they are of higher quality.
Job Applications: In the hiring process, employers may be more likely to consider candidates whose names or qualifications they recognize from previous experiences or recommendations.
Product Packaging: Catchy and recognizable packaging designs can influence consumer choices, as people tend to gravitate towards products they easily recognize on store shelves.
Restaurant Selection: When dining out, customers may choose a restaurant with a familiar name or logo rather than exploring less-known eateries, assuming that recognizable ones are more likely to offer a satisfactory dining experience.
Tech Industry:
- Many consumers might choose an iPhone (by Apple) over a phone from a lesser-known brand, even if the latter has better specifications, due to Apple’s strong brand recognition.
Automotive Industry:
- A person looking for a reliable car might be inclined to choose a Toyota or Honda over lesser-known brands, because of their well-recognized reputation for reliability.
Clothing Brands:
- Shoppers might choose Nike or Adidas sportswear over a lesser-known brand, assuming the quality and comfort are superior due to the brands’ recognition.
Fast Food:
- Travelers in a foreign country might opt to eat at McDonald’s or Starbucks because they recognize the brand, even if local delicacies are available.
E-commerce:
- Online shoppers might feel more comfortable making purchases from Amazon or eBay rather than a less recognizable online retailer due to trust in these well-established platforms.
Software:
- Businesses might prefer to use Microsoft Office tools like Word or Excel over open-source alternatives because they are familiar with the Microsoft brand.
Airlines:
- Travelers might choose to fly with airlines like Delta or Emirates over lesser-known airlines, believing they’ll receive better service or have a safer flight.
Streaming Services:
- Consumers might opt for Netflix or Disney+ for their entertainment needs due to the platforms’ strong brand recognition, even if there are cheaper alternatives available.
Skincare and Cosmetics:
- Individuals might be inclined to buy products from brands like Estée Lauder or L’Oréal over lesser-known brands, assuming they offer higher quality products.
Beverages:
- At a supermarket, a shopper might choose Coca-Cola or Pepsi over a generic soda brand due to their established brand recognition.

Key takeaways

The recognition heuristic argues that recognized objects that satisfy certain criteria have more value than unrecognized objects that do not.
The recognition heuristic has significant implications for brand marketing and awareness. Consumers choose products from brands they are more familiar with.
Some argue that the non-compensatory nature of the recognition heuristic is false. While recognition is an important factor in consumer choice, other cues such as the star rating of a product are assessed before a decision is made.

Key Highlights

Recognition Heuristic: The recognition heuristic is a psychological model of judgment and decision making proposed by Daniel Goldstein and Gerd Gigerenzer. It suggests that inferences are made about an object based on whether it is recognized or not.
Heuristic Inferences: The recognition heuristic makes inferences about a criterion not directly accessible to the decision-maker, relying on the ability to retrieve relevant information from memory.
Original Experiment: In an experiment on city populations, participants often chose the city they recognized more as having a higher population, showing that recognition played a significant role in decision making.
Marketing and Branding: The recognition heuristic has implications in marketing, as consumers are more likely to choose products from familiar and recognizable brands.
Limitations: Some researchers argue that decision making is not solely based on recognition. Consumers may also consider other cues like product reviews, availability, and negative associations before making a choice.
Recognition Plus Evaluation: The “recognition plus evaluation” mechanism suggests that recognition is an essential factor, but other cues are also considered in the decision-making process.

Related Framework	Description	When to Apply
Recognition Heuristic	The Recognition Heuristic is a mental shortcut where decisions are made based on recognition or familiarity. When faced with multiple options, individuals tend to choose the one they recognize or are familiar with, assuming that familiarity is a cue for quality or value. While often efficient, this heuristic can lead to biased decisions, especially in complex or unfamiliar situations. Understanding the recognition heuristic can help identify situations where familiarity might influence decision-making and mitigate its potential biases.	When evaluating options or making decisions, recognizing the Recognition Heuristic can highlight biases and inform decision-making processes by raising awareness of familiarity-based judgments, thus encouraging critical evaluation and consideration of alternative criteria in consumer choices, investment decisions, or risk assessments, ultimately reducing reliance on familiarity and promoting informed decision-making through conscious reflection and evaluation of evidence.
Availability Heuristic	The Availability Heuristic is a mental shortcut where judgments about the frequency or probability of events are based on how easily instances or examples come to mind. Events that are more readily available in memory, whether due to recent exposure, vividness, or emotional salience, are perceived as more common or likely. While often useful, this heuristic can lead to biases, such as overestimating the likelihood of dramatic or memorable events. Understanding the availability heuristic can help recognize situations where judgments may be influenced by ease of recall and encourage more balanced decision-making processes.	When assessing risks or estimating probabilities, considering the Availability Heuristic can highlight cognitive biases and inform risk assessments by examining recall patterns and evaluating the reliability of available information, thus encouraging caution and reducing overestimation in financial planning, healthcare decisions, or public policy, ultimately improving risk management and promoting rational decision-making through awareness of cognitive shortcuts and critical evaluation of available evidence.
Representativeness Heuristic	The Representativeness Heuristic is a mental shortcut where judgments or decisions about the likelihood of events are based on how closely they resemble prototypes or stereotypes. Individuals may assess the probability of an event by its similarity to a typical example or category, rather than considering relevant statistical information. While efficient in many cases, this heuristic can lead to biases, such as neglecting base rates or overlooking variability. Understanding the representativeness heuristic can help identify situations where judgments may be influenced by stereotypical thinking and encourage more nuanced decision-making processes.	When making predictions or assessing probabilities, recognizing the Representativeness Heuristic can highlight biases and inform decision-making by examining prototype-based judgments and evaluating statistical relevance, thus encouraging consideration of base rates and probability distributions in diagnostic reasoning, investment strategies, or legal judgments, ultimately improving accuracy and reducing stereotypical thinking through conscious reflection and evidence-based reasoning.
Anchoring and Adjustment	Anchoring and Adjustment is a cognitive bias where individuals rely heavily on initial information (the anchor) when making judgments or estimates, adjusting insufficiently from that starting point. The initial anchor can significantly influence subsequent decisions, leading to systematic errors in judgment. Awareness of anchoring and adjustment can help mitigate its effects by encouraging individuals to critically evaluate initial information and consider alternative reference points.	When negotiating or setting reference points, acknowledging Anchoring and Adjustment can mitigate biases and improve decision-making by questioning initial anchors and considering alternative perspectives, thus encouraging flexibility and promoting fairness in price negotiations, performance evaluations, or project planning, ultimately reducing susceptibility to anchoring effects and enhancing decision accuracy through critical thinking and conscious adjustment.
Confirmation Bias	Confirmation Bias is a cognitive bias where individuals tend to seek out, interpret, or remember information that confirms their pre-existing beliefs or hypotheses, while ignoring or discounting contradictory evidence. This bias can lead to overconfidence in one’s opinions, selective exposure to information, and resistance to changing one’s mind. Recognizing confirmation bias can help individuals approach information more objectively and critically evaluate evidence that challenges their assumptions.	When evaluating evidence or forming opinions, identifying Confirmation Bias can improve critical thinking and reduce biases by encouraging open-mindedness and consideration of alternative viewpoints, thus facilitating evidence-based decision-making and enhancing intellectual humility in research, debate, or policy analysis, ultimately fostering constructive dialogue and promoting intellectual growth through awareness of cognitive biases and vigilance against confirmation tendencies.
Sunk Cost Fallacy	The Sunk Cost Fallacy is a cognitive bias where individuals continue to invest resources (time, money, effort) into a project or decision based on past investments, even when the expected return is unlikely or negative. Rather than considering future costs and benefits, individuals focus on recouping past losses, leading to irrational decision-making. Recognizing the sunk cost fallacy can help individuals avoid persisting in unproductive endeavors and make decisions based on current circumstances and future prospects.	When assessing investment decisions or evaluating project viability, acknowledging the Sunk Cost Fallacy can prevent irrational decision-making and improve resource allocation by focusing on future costs and expected benefits, thus minimizing loss aversion and promoting efficiency in business investments, personal finances, or strategic planning, ultimately maximizing returns and minimizing wasteful spending through rational decision-making and conscious evaluation of costs and benefits.
Loss Aversion	Loss Aversion is a cognitive bias where individuals prefer avoiding losses over acquiring equivalent gains, leading to a disproportionate aversion to risk. Loss aversion can manifest in decision-making contexts, where individuals may prioritize avoiding potential losses, even at the expense of potential gains. Understanding loss aversion can help individuals recognize and mitigate its influence, enabling more balanced risk-taking and decision-making processes.	When evaluating risks or making decisions under uncertainty, acknowledging Loss Aversion can mitigate risk aversion and improve decision outcomes by balancing risk perceptions and encouraging rational risk-taking, thus facilitating innovation and promoting growth in entrepreneurship, investment strategies, or strategic planning, ultimately maximizing opportunities and fostering resilience through awareness of cognitive biases and deliberate risk management.
Overconfidence Bias	Overconfidence Bias is a cognitive bias where individuals overestimate their abilities, knowledge, or the accuracy of their judgments. It can lead to unwarranted certainty in one’s beliefs, excessive risk-taking, and failure to consider alternative perspectives. Recognizing overconfidence bias can help individuals adopt a more realistic self-assessment and approach decision-making with greater humility and caution.	When assessing performance or making predictions, acknowledging Overconfidence Bias can improve decision-making and reduce errors by encouraging humility and critical self-assessment, thus mitigating unwarranted risk and promoting intellectual honesty in project management, investment strategies, or strategic planning, ultimately enhancing accuracy and minimizing costly mistakes through awareness of cognitive biases and vigilance against overestimation tendencies.
Endowment Effect	The Endowment Effect is a cognitive bias where individuals assign higher value to items they own or possess compared to identical items they do not own. This bias can lead to irrational valuation and reluctance to part with possessions, even when objectively similar alternatives are available. Understanding the endowment effect can help individuals recognize biases in their valuation processes and make more rational decisions about ownership and exchange.	When negotiating or making purchase decisions, recognizing the Endowment Effect can improve fairness and enhance decision-making by challenging biased valuation and encouraging objective assessment, thus facilitating equitable exchanges and promoting efficient resource allocation in market transactions, asset valuation, or property rights, ultimately minimizing inefficiencies and fostering rational economic behavior through awareness of cognitive biases and conscious effort to overcome ownership-related biases.
Framing Effect	The Framing Effect is a cognitive bias where individuals’ decisions are influenced by how information is presented or framed, rather than its content. The framing of options, emphasizing gains or losses, can significantly alter preferences and choices, even when the underlying outcomes are the same. Recognizing the framing effect can help individuals critically evaluate how information is presented to them and make more informed decisions based on substance rather than presentation.	When communicating options or presenting information, acknowledging the Framing Effect can improve message effectiveness and enhance decision outcomes by considering alternative perspectives and balancing information presentation, thus facilitating objective evaluation and minimizing undue influence in marketing campaigns, policy proposals, or public communications, ultimately maximizing message impact and fostering informed decision-making through conscious framing choices and awareness of cognitive biases.

Connected Thinking Frameworks

Convergent vs. Divergent Thinking

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.

Critical Thinking

Critical thinking involves analyzing observations, facts, evidence, and arguments to form a judgment about what someone reads, hears, says, or writes.

Biases

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

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

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

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.

Dunning-Kruger Effect

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

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.

Lindy Effect

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

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

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

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

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

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

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).

Peter Principle

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.

Straw Man Fallacy

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.

Google Effect

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.

Streisand Effect

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.

Compromise 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.

Butterfly Effect

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.

IKEA Effect

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.

Ringelmann Effect

The Ringelmann effect describes the tendency for individuals within a group to become less productive as the group size increases.

The Overview Effect

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.

House Money Effect

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.

Heuristic

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.

Recognition Heuristic

Representativeness Heuristic

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.

Take-The-Best Heuristic

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.

Bundling Bias

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.

Barnum Effect

The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

Anchoring Effect

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.

Decoy Effect

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 competitor product and a decoy product, which is primarily used to nudge the customer toward the target product.

Commitment Bias

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

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.

Ladder Of Inference

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

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.

Six Thinking Hats Model

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.

Mandela Effect

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.

Crowding-Out Effect

The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

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

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

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

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.

Bye-Now Effect

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

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.

Stereotyping

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

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.”

Law of Unintended Consequences

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

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

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

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.

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