4 Cognitive Traps Even the Smartest People Fall Into

It's hard to come up with elegant solutions to complex problems. That's why we businesspeople are able to get the big bucks. However, most of us are making suboptimal decisions due to a lack of knowledge of the cognitive traps that all of us share. Here are four that are affecting you on a daily basis:

1. Self-Serving Bias: We tend to see situations in ways that make ourselves look good.

All of us want to have positive assessments of ourselves. We want high self esteem. Our minds make sure this is the case by pushing us to be overly kind to ourselves by looking for the "good" in every situation that involves us. This means that we'll cling to the positive things said about us in a quarterly review, even if the negatives happen to vastly outweigh the positives. But our failures are great sources of feedback and can help us, and our work, grow. Take a hard look at your work and ask yourself: "Honestly, what is suboptimal that I can improve on?" Force yourself to find three things you can improve.

2. Sunk Cost Fallacy: We let past costs affect our current decisions, even though they have no rational impact on the present situation.

In a perfect world, all of our decisions would be made according to the reality in front of us. If you're trying to sell a car, you should look at the prices in the market and try to sell for a price that is near the top of that distribution. However, let's say that you spent $4000 more than what people are offering, and are thus reluctant to sell at that low of a price. In that case, you might end up not selling, or waiting too long to sell, your car (at which point the price has plummeted). This is the sunk cost fallacy. We let past costs affect our current decision when we really should just be concerned with our current situation and current options.

3. Mere Exposure Effect: The more familiar we are with something, the more we like it--even if it doesn't have any particular merit.

We're all familiar with the saying "familiarity breeds contempt", but the psychological literature suggests that the exact opposite is true. Our brains like things that are easy to think about, and the more familiar we are with a particular thing the easier it is for our brains to recall and process it. This applies to people, ideas, offices--you name it. If you find yourself unusually attracted to a certain idea or proposal, make sure that your feelings aren't just a byproduct of repeated contact and are, instead, due to the elegance and merits of the idea itself. Go out of your way to give the less popular ideas some attention. Take a second or third look at them. Give them a fair chance.

4. Hindsight Bias: Everything looks obvious in hindsight. We assume that solutions will look equally obvious when we encounter them in the future.

All of us think that we understand the world better than we do, and that we'll be able to make accurate assessments of opportunities and choices when we encounter them. One of the primary reasons this is the case is "hindsight bias." Facebook, Google, and Twitter look like obvious, inevitable ideas, and we're sure that we would have instantly recognized their merits if we had the opportunity to invest in them in their early days.

However, Facebook was rejected by dozens of investors and had a hard time raising capital in its early days. Even these trained good-idea hunters didn't see the value of this future world changing company at the time. The world is a complicated, messy place, and determining the value of the different choices in front of us is a rigorous art. Be sure to come back to the hard decisions you've made and look at the results. Did things turn out the way you thought? If not, why not? Get feedback on your judgment. Next time you hear about a critical decision that someone made, don't just assume that you would have "of course" made the same decision as them. The world is a tricky and ever-shifting thing.

Jason Hreha