Top Ten Behavioral Biases, Illustrated (mostly via popular culture)


“Life is the sum of all your choices,” Albert Camus (allegedly) informed us. Unfortunately, our decision-making is far from perfect, with too many outcomes weaned on bourbon and poor choices.

We choose poorly, far too often, on matters big and small, vital and prosaic, important and ordinary.

As the Nobel laureate Richard Thaler explained, these sorts of foibles “should be considered the rule rather than the exception.” We each like to think we’re “the only exception.”

But we aren’t.


“Not Waving But Drowning,” Timna Woollard

Sometimes, what we think we “see” is ambiguous or just plain hard to sort out. As the English poet Stevie Smith recognized, the same facts can be interpreted in diametrically opposed ways, with potentially disastrous consequences: “Not waving but drowning.” Ofttimes, we don’t perceive reality all that well.

Since we are drowning in popular culture today – amplified “to 11”…

…by the media, social and otherwise – this series will try to turn that reality on its head, mostly using popular culture to illustrate and, I hope, illuminate our behavioral and cognitive biases so that we might get (at least) glimpses of truth. We could learn much about our biases if we studied the character flaws and errors of Socrates’s interlocutors in Plato’s dialogues. The roots of behavioral finance date back to at least 1688. But I think memes, clips, and songs will have more impact.

I also hope and trust you’ll enjoy the ride.

Here is what’s coming:

  1. Believing is Seeing (Confirmation Bias)
  2. A Bird in the Hand (Loss Aversion)
  3. Welcome to Lake Wobegon (Overconfidence)
  4. Intentions and Outcomes (Self-Serving Bias)
  5. Everybody Loves a Winner (Herding)
  6. The Map is Not the Territory (the Narrative Fallacy)
  7. Planning is Guessing (the Planning Fallacy)
  8. I Knew It All Along (Hindsight Bias)
  9. Fighting the Last War (Recency Bias)
  10. Often Wrong but Never in Doubt (Bias Blindness)

Fixing a problem begins with understanding there is a problem. I trust this series of illustrations will provide at least a bit of illumination of the bias problems that so routinely beset all of us.

I want it to be fun, too. Don’t forget the fun.

Top Ten Behavioral Biases, Illustrated #1: Believing is Seeing (Confirmation Bias)

By this point, every investment professional has at least a passing knowledge of behavioral finance and its lead actor, confirmation bias, whereby we see what we want to see, accept these desires as truth, and act accordingly. What we “find” is often little more than Jesus on toast – what we wanted or expected to find all along. It explains why the average man claims to have slept with 14 women while the average woman says she has slept with seven men.

We like to think that we see the world as it truly is. The difficult and dangerous reality is that we tend to see the world as we truly are. As C.S. Lewis writes in The Magician’s Nephew, a children’s book that is much more than that, “What you see and what you hear depends a great deal on where you are standing. It also depends on what sort of person you are.” For all of us, far too often, believing is seeing.


Once we reach a conclusion, we aren’t likely to change their minds, even when new information shows our initial belief is likely wrong and clinging to that belief has real costs. “When we know something we stop thinking about it, don’t we?” a character in the Miriam Toews novel, Women Talking, recognizes, as she tries to develop the ability and willingness to change her mind. And once we start seeing confirmation bias, it’s hard not to see it everywhere.

Simon and Garfunkel got the concept by 1970, well before Tversky and Kahneman, when Simon wrote and they first sang The Boxer. “Still the man hears what he wants to hear and disregards the rest.”

We don’t readily see what we don’t expect, either. Australia released 46 million innovative, next-gen $50 bank notes with added security and…a glaring typo.


“Responsibility” was misspelled as “responsibilty” – three times! – and it took a radio station to point out the error…after six months (the notes remain in circulation).

We don’t readily see what we don’t expect in movies, either, which provide the opportunity for fan service “Easter eggs” as well as a cottage industry of mistakes and continuity errors. For example, in Alfred Hitchcock’s classic spy thriller, North by Northwest, a boy covers his ears moments before a gunshot rings out in the Mount Rushmore cafeteria. Look for him on the right of the screen as Eve (Eva Marie Saint) threatens Roger (Cary Grant).

Or, look how number 52 passes to himself in Above the Rim.

When we grab a glass of what we think is apple juice, only to take a sip and discover that it’s actually ginger ale, we react with disgust, even when we love the soda. We quite naturally try to jam the facts into our pre-conceived notions and commitments or simply miscomprehend reality such that we accept a view, no matter how implausible, that sees a different (“alternative”) set of alleged facts, “facts” that are used to support what we already believe.


David O. Russell’s American Hustle began as a script by writer and producer Eric Singer entitled “American Bulls**t.” Its major theme is expressed by a stripper from the American southwest turned would-be English aristocrat, played by Amy Adams.

Truth is irrelevant to “get[ting] over on all these guys” because “people believe what they want to believe.”

Confirmation is common – routine. Yet it is highly desired, sought-after even. We preach to the choir and ignore the needy heathen. If you tell people what they want to hear, you can be wrong indefinitely. You can spout nonsense virtually undeterred and unchecked. You can even tell people that if they give them money, God will make them rich, and lots of people will give you money.

As Oxford’s Teppo Felin points out, “what people are looking for – rather than what people are merely looking at – determines what is obvious.”

The Music Man, perhaps America’s greatest musical, features Harold Hill, a traveling con man who poses as a boys’ band leader who sells band instruments and uniforms to naïve Midwestern townsfolk, promising to train the members of the new band. As he has done many times before, his intention is to flee as soon as he receives the money.

Librarian Marian Paroo suspects Harold is a fraud, but holds her tongue since her moody little brother, Winthrop, is excited about the band. As Harold falls for Marian, he “gets his foot caught in the door.” In the final scene, Harold is asked to prove his legitimacy by having the band play. They’re terrible, but (of course) their parents are enraptured by their children’s “talent” and all ends well.

Parents thinking their children are far better than reality allows? That’s common, because believing is seeing. All turning out well? Not so much.

Forecasting Follies 2020

Note: A version hereof will appear in my ninth annual Investment Outlook. Watch this space.

2020 Outlook 01

We are all natural-born and equal opportunity extremists who want to live in exceptional times. That is why, for example, in the financial world, we regularly overpay both for insurance and for lottery tickets (literal and figurative). We are pulled toward extremism by our inherent biases, including tribalism, herding, excessive certainty, and overconfidence. The problems caused by these biases are compounded by our ideological nature, our propensity for confirming what we already believe, and our general inability to see that which disconfirms it. The sad truth is that none of us is as good as we think we are. We postulate apocalyptic conclusions irrespective of whether there is good support for them.

Evidence of this obsession abounds. Continue reading

Not Stupid Wins

As a kid, among my first sports memories is coming home from church to see Jim Brown running roughshod over the rest of the NFL.

Brown was only the sixth pick in the 1957 draft, which means that five teams passed on the greatest player of all-time (in two different sports). There have been many bigger draft misses. For example, Tom Brady was the 199th pick of the 2000 draft, selected after the likes of quarterbacks Giovanni Carmazzi, Chris Redman, and Spergon Wynn, drafted by the Browns.

Of course, Spergon is far from the Browns’ worst QB draft disaster. The failed quarterbacks taken by the Browns in the first round alone is a long list (* number one overall): Harry Agganis, *Bobby Garrett, Mike Phipps, *Tim Couch, Brady Quinn, Brandon Weeden, and Johnny Manziel. The most recent top (overall) pick, Baker Mayfield, remains promising, but there are no first-round successes to date.

Spoiler alert: Drafting NFL players is wildly difficult and inexact.

The Browns are likely to pick in the middle of the upcoming 2020 draft, perhaps 14th. Suppose you are the GM of the Browns and you’re preparing for the draft and you own that 14th pick. You look at a player the scouting consensus says is the 24th best player and think he’s better than that — perhaps the 4th best player. By contrast, the NFL consensus on another player is that he’s the 14th best player but you think he’s only the 28th best. If you’re right about these players, what does that gain you when the draft is held? Continue reading

Black Monday

1987 CrashIt was on a Monday, almost exactly 32 years ago, that the stock market suffered its worst day ever. I was still practicing law then, and I was working in my firm office. As the news filtered out (somebody had been out and heard the news on a car radio), the attorneys began to talk about what was going on. As the day progressed and the news got worse, we talked less and less. A senior partner brought out a tiny black and white television to watch the network news coverage, which had broken in to the day’s typical programming of reruns, game shows, and soap operas. We huddled around it and watched.

It was Black Monday: October 19, 1987. Coverage by The Wall Street Journal the next day began simply and powerfully. “The stock market crashed yesterday.” Continue reading

Getting Better All the Time

The Slate advice columnist, Dear Prudence, received the following sad, poignant, and probably futile letter, desperately seeking help.

“I keep making terrible decisions and can’t seem to stop.

“Last year I left my home, my family, my friends, a 20-year secure (if uninspired) career, to move 2,000 miles away to be with my first love. I’m 50 and I was his first love as well. He’s married and his wife invited me to their home. We decided to share him, although his wife and I were not interested in one another like that.

“My job here fell through. My dog died. The romance flopped spectacularly. I still love him desperately. And when he told me that it was over and that he didn’t love me and never had, I begged him to reconsider, only to have his wife come in and start screaming at me to keep my f***ing hands off her f***ing husband.

“I snapped. I tried to kill myself. I ended up in a coma and then went to the psych ward. I have been out for only a week. I’m back at work. I’m freshly diagnosed as Bipolar I. I’m on new meds I don’t think are helping. Of course, I had to move out and I’m living a very lonely life. I do not feel stable and I cry for hours every night. The loneliness is killing me. I have psychiatric follow-up and intend to do what I can to survive and thrive.

“My former boyfriend is now making noises about wanting to be ‘friends with benefits’ with me once I am ‘well again,’ which sounds more like he wants a self-supporting mistress that he can come and have sex with and then leave at will. I still love him but I realize this is a gross affront to my worth as a human being. I just don’t trust myself to say ‘no.’ Counselling may help but I still don’t trust myself to make good, healthy decisions. Everything I do blows up in my face.

“Any advice?”

We humans are shockingly prone to bad ideas, ideas that escalate to terrible decisions, and then metastasize into actions that undermine, damage, or even ruin our lives and futures. We’d all like to think that we’re a lot better off than the letter-writer above, and most of us probably are (if not nearly so self-aware), but vanishingly few of us have a consistently good track record of decision-making and none of us is as good as we think we are. Even when we’re on the straight and narrow path to success, we are prone to wander. None of us is unbroken, unscathed, or unhurt.

The idea that we act in our own rational self-interest with any degree of regularity is, quite obviously, ludicrous and is falsified every single day by our choices and our lives. Worst of all, we readily recognize such self-destructive behavior in others – such as the above correspondent – but consistently and tragically lack the ability to see it in ourselves.

We can’t seem to help it.

The ever-practical Abraham Lincoln asked, “It is not ‘can any of us imagine better?’ but, ‘can we all do better?’”

I say we can. In fact, we are getting better, a little better all the time.

With the right outlook, approach, and effort, we can expand upon that success. Continue reading

Birthday Luck

I had been fitfully and uncomfortably sleeping, dreaming of a small dog licking my leg and stealing my snack. I awoke to find an escaped boxer with a cute face avoiding my eyes and licking her lips. Once the flight attendant found her rightful owner, who was not nearly as embarrassed as she should have been, I reassess my situation.

Fredonia House

My Childhood Home

I’m still more than an hour behind schedule and said to be losing even more ground on account of intense headwinds. I’m still scrunched into a long metal tube with the seat-back in front of me compressing my kneecaps into my hips while hurtling cross-country, still several hours from arrival home in San Diego. I’m still tired from lots of planes and being away from home for too long. I’m not in the most conducive spot I can imagine for counting my blessings.

But count them I shall, as part of this birthday reflection. “Birthday luck” describes a nuclear explosion of luck that is supposed to happen inside you on that day, giving you the ability to do anything. I don’t really have birthday luck, of course, but my luck is so good that it’s hard to tell the difference.  Continue reading

First-Rate Intelligence

I was introduced to behavioral finance by the classic “Gorillas in Our Midst” experiment. You have almost surely seen it. If not, have a look.

When I first saw the video, like roughly half of viewers busy counting passes, I never saw the gorilla and was dumbfounded by what I had missed. In his book, Thinking, Fast and Slow, the Nobel laureate Daniel Kahneman highlights this experiment and argues that it reveals that humans are “blind to the obvious, and that we also are blind to our blindness.” Some use this experiment, among others, to claim that we’re generally hopeless.

In that context, the arrogant moniker we have given ourselves – homo sapiens (Latin: wise man) – seems ironic at best. Traditional economic theory insists that we humans are rational actors making rational decisions amidst uncertainty in order to maximize our marginal utility. Yet the idea that we’re essentially rational creatures is a myth, and a very seductive one at that, especially as and when we relate the concept to ourselves. We tend to think that we’re almost superhuman in our ability to invoke reason to our advantage.


Despite our bluster about alleged rationality, we are biased through and through. There is an exceedingly long list of cognitive and behavioral biases to which we are prone that make it difficult for us to reason effectively. Here’s just one example from an exceedingly long list. Continue reading

Go for It

Based upon irrefutable mathematics, football teams should be much more aggressive on 4th down – they punt and kick field goals far too often. As far back as 2002, University of California Berkeley economist David Romer expressed his hope that coaches would begin maximizing their odds of victory when the related data became more widely available.

As if.

Football Outsiders introduced an Aggressiveness Index back in Pro Football Prospectus 2006. Over the years, the index has consistently found that “no NFL coach is as aggressive as the data suggests he should be.” Simply put, teams and coaches “don’t maximize.” Continue reading