The familiarity bias is a phenomenon in which people tend to prefer familiar options over unfamiliar ones, even when the unfamiliar options may be better. This bias is often explained in terms of cognitive ease, which is the feeling of fluency or ease that people experience when they are processing familiar information. When people encounter familiar options, they are more likely to experience cognitive ease, which can make those options seem more appealing. On the other hand, unfamiliar options may be perceived as more difficult to process, which can make them less appealing. To avoid the familiarity bias, it is important to carefully evaluate all options, including unfamiliar ones, and to consider their relative merits rather than relying solely on familiarity.
What is an example of familiarity bias?
Suppose a person is trying to choose between two brands of soda, and they have tried both before. They may choose the brand they are more familiar with, even if they don’t have a strong preference for it or if the other brand may be objectively better. This is because the person is more comfortable and familiar with the brand they have tried before.
Similarly, a person may be more likely to choose a candidate for a job or a political candidate simply because they are familiar with their name and have seen it before, rather than based on their qualifications or policies.
Familiarity bias can lead to biased decision-making, missed opportunities, and limited diversity of thought or experience. It is important to be aware of this bias and to try to base decisions on objective criteria, rather than simply relying on familiarity or comfort.
What is familiarity bias in behavioral finance?
For example, an investor may choose to invest in a company that they are familiar with or have a personal connection to, rather than considering other investment opportunities with better potential returns or lower risk. This could lead to an over-concentration of their portfolio in certain stocks or sectors, and a missed opportunity to diversify their investments.
Familiarity bias can also lead to overconfidence in one’s investment decisions, as investors may feel more comfortable and confident investing in stocks or securities that they are familiar with, regardless of their actual financial performance.
To reduce the impact of familiarity bias in investing, it is important for investors to diversify their portfolio across different sectors and asset classes, and to base their investment decisions on objective criteria such as financial performance and market trends, rather than personal familiarity or comfort. Additionally, seeking professional financial advice and conducting thorough research before making investment decisions can also help to reduce the impact of familiarity bias.
Is familiarity a cognitive bias?
For example, the mere exposure effect, which is a type of cognitive bias, describes how people tend to develop a preference for things simply because they are familiar with them. This bias can lead to decision-making based on familiarity rather than objective criteria.
Additionally, familiarity can contribute to other cognitive biases such as the confirmation bias, where people seek out and interpret information in a way that confirms their pre-existing beliefs or expectations, and the halo effect, where people generalize positive or negative impressions of a person or thing based on a single characteristic or trait.
So while familiarity is not a cognitive bias in itself, it can certainly contribute to various cognitive biases that can influence our perceptions and decision-making.
How do you overcome familiarity bias?
Diversify your experiences
Expanding your experiences and exposure to different things can help to reduce the influence of familiarity bias. By exposing yourself to new and unfamiliar things, you can broaden your perspective and challenge your assumptions.
Being aware of your biases and actively working to counteract them can help to reduce their impact. Mindfulness practices, such as meditation or self-reflection, can help you to become more aware of your biases and make more deliberate and objective decisions.
Seek out diverse perspectives
Surrounding yourself with people who have different backgrounds, experiences, and perspectives can help to reduce the impact of familiarity bias. By seeking out diverse perspectives, you can gain a more complete understanding of a situation or issue.
Use objective criteria
Making decisions based on objective criteria, such as data and evidence, can help to reduce the influence of familiarity bias. By relying on objective criteria, you can make more informed and rational decisions.
Consider alternative options
When making a decision, take the time to consider alternative options, even if they are unfamiliar or outside of your comfort zone. By exploring alternative options, you can challenge your assumptions and reduce the impact of familiarity bias.