We use bias without any negative connotation. We've chosen this term mainly because many of the human behaviors we discuss under this topic are technically known as biases, and also because the normal meaning of “bias” refers to our noticing these sorts of behavior in someone else. When a behavioral economist says that people in general have some specified bias, he is saying that people tend to behave in a way that is wrong according to the theory of the field. Normally, when we say that someone is biased, we mean that they tend to act in a particular way (when all right-thinking people know better.) In other words, a bias is an unacceptable truth about how people actually act.
We believe that both kinds of biases are a natural consequence of The Way Things Work. Physics, brain structure and evolution have all conspired to design humans so that we frustrate each other's desires and expectations.
Understanding demands us to reconceptualize biases as rules to live by. What is a rule? A rule is a structured basis for behavior with two parts: the action (what to do) and the conditions (when to do it):
If rain is predicted, take an umbrella.
Some rules are constraints on behavior:
Never park there on Sunday.
Constraints have the form of an ordinary rule: what to do (park there) and when (not on Sunday), but they modify behavior by constraining other rules rather than generating behavior.
These rules are precise, with unambiguous conditions and action. It is easy to get carried away with the beauty of rule-based behavior and to argue that intelligent behavior is (or should be) based on clear rules. Our concern here is with broad vague rules like:
If everyone else is doing X, do X.
A philosophical digression: we are not interested in discussing whether human behavior is really based on rules, only in pointing out that people act as though they do. These rules are a sort of Story describing common behavior patterns.
There is a huge literature on cognitive bias, including a list of a over a hundred biases that are substantiated by research. This is the motherlode of puzzling evidence! Unfortunately when interpretation is given, it is often with the misguided intention of explaining why people behave in this obviously wrong “biased” way, rather than understanding that these rules normally serve us well. If humans are seen to behave in a certain way over and over again, in many different situations, then instead of wailing and wringing our hands, we should consider that there may be a good reason why people do that.
After you've drunk a few gallons of our special kool-aid the question “Why do we have biases?” will sound as meaningless as “Why is blue?”, but for the moment we'll humor you by offering some explanations on behalf of those misguided humans.
In a world that is pathologically unpredictable, where reliable information with clear implications is a thing of rare beauty, we can do no better. Much of the research on cognitive biases, especially in behavioral economics, involves artificial situations that have been contrived to be clear. This is so rare in everyday life that the frequent failure of our rules goes unnoticed, and we attribute the occasional lucky success to our own cleverness.
We quote from Gut Feelings:
With this book, I invite you on a journey into a largely unknown land of rationality, populated by people just like us, who are partially ignorant, whose time is limited and whose future is uncertain. This land is not one many scholars write about. They prefer to describe a land where the sun of enlightenment shines down in beams of logic and probability, whereas the land we are visiting is shrouded in a mist of dim uncertainty. In my story, what seem to be “limitations” of the mind can actually be its strengths.
We highly recommend this book, which goes on to convincingly argue that numerous cognitive biases are normally highly effective rules for living.
Even when reliable information is available, and (for some odd reason) the consequences of our actions are predictable, it may be that we just aren't smart enough to make that decision optimally. Perhaps it is just too much work to make all of our decisions in a “rational” way. We have to make many, many decisions, and we can't spend much time deciding whether to go out for Chinese or Mexican. Instead we use fast_and_frugal rules (otherwise known as cognitive biases.)
It just so happens that our brains were put together to work in this way. In particular, we come from a long line of ancestors who, while undeniably successful in life, were not so bright. Mice and cockroaches can make decisions just fine without even knowing what “rational” means. Consciousness is a bag on the side of a brain plan that was established a hundred million years ago.
It may be that we are behaving in this way for a good reason, but we don't know the reason because it is instinctive human behavior that can only be understood from an evolutionary perspective (see Intentional Design.) It could be only that we don't have a “need to know”, but sometimes it seems important that we not know (see Intentional Opacity and Positive Illusions.)
In this section of the wiki we discuss in detail a number of biases for which we have particularly interesting interpretations.