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Dunning Kruger Effect

Overestimating one’s knowledge due to a lack of understanding about the complexity of a subject.

Dunning Kruger Effect

Mason had always been a fan of technology, so when he heard about the booming world of cryptocurrency, he was eager to get involved. After a few hours of reading articles and watching YouTube videos, he felt confident. “How hard can it be?” he thought. Armed with a basic understanding of blockchain and a few buzzwords he picked up, he created an account on a trading platform and started buying cryptocurrencies based on trending recommendations.

At first, things seemed to be going well. His investments rose a bit, and Mason felt vindicated. “I’m a natural at this,” he thought, feeling proud of his ability to navigate the digital currency world with ease. He started sharing his “expert” opinions on social media, advising friends and family to get involved too.

However, as the weeks passed, Mason’s confidence began to falter. His portfolio, once profitable, began to dip. He realized that he didn’t truly understand the fluctuations of the market, the technical analysis, or the risks involved in cryptocurrency investments. His initial research was far from comprehensive, and the market’s complexity became painfully clear to him.

Yet, despite this realization, Mason still couldn’t see how much more he needed to learn. He blamed the market for being unpredictable rather than recognizing that his understanding of it was superficial. In his mind, he was still just as capable as he had been at the start, unable to fully grasp how much expertise was required to succeed.

The Dunning-Kruger effect suggests that when people with limited knowledge or experience in a subject overestimate their understanding, it leads them to make decisions that underestimate the complexities involved.

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Tendency to value limited or scarce resources more highly than those that are abundantly available.

Small Win Bias – Gratification Bias

Tendency to prioritizes or value short-term rewards over long-term benefits.

The Cheating Bias

Dishonest behavior by getting influenced to do so when observing others, leading to unethical practices.

Sisyphus Effect

Tendency to give up when there is no gratification or visible meaning / output to efforts.

The IKEA Effect

People tend to value an object more if they contribute to its creation.

Decoy Option Effect

Influences preferences by introducing a less attractive intermediate option, subtly steering choices towards more profitable alternatives.

Confirmation Bias

The tendency to search for, interpret, favor and recall information in a way that confirms or supports one’s prior beliefs or values.

Spotlight Effect

The tendency to believe that we are being noticed more than we really are.

Anchoring Bias

People rely heavily on the first piece of information (the “anchor”), even if it’s irrelevant.

Current Mood Bias

It is a distortion in cognition and decision making due to the present emotional state.

Prestige Bias

The tendency to favor the opinions of individuals or groups with higher social status or authority even when not in the same field.

Social Desirability Bias

Tendency to respond to or behave in a way that is socially acceptable or desirable, rather than expressing their true opinions or behaviors.

Recency Bias

The tendency to better recall recent information and events while ignoring older information.

Restraint Bias

The tendency to overestimate the level of control we have over our impulsive behaviors.

Survivorship Bias

The tendency to focus on the individuals or things that have “survived” or succeeded, while overlooking data from those that have not.

Response Bias

Tendency to provide inaccurate or false answers during surveys or interviews.

First impression Bias

The tendency to form lasting opinions based on initial experiences.

Omission Bias

Tendency to avoid taking action due to fear or uncertainty, even when not taking action could be more harmful.

Bundling Bias

The tendency of buying things that are sold together, even if we don’t need everything in the bundle. Think of this as the “package deal effect.”

Distinction Bias

In decision making, we tend to overvalue the minor differences between two almost similar options when we examine them together.

Projection Bias

Individuals overestimate the prevalence of their own thoughts, beliefs, preferences, and knowledge in others.

Salience Bias

Our tendency to focus on items or information that are more noteworthy while ignoring those that do not grab our attention.

Diversification Bias

Spreading our resources thinly across numerous options instead of concentrating on a few.

Pessimism Bias

A tendency to believe things will go wrong even when there is no evidence to support it.

Optimism Bias

Tendency to overestimate the likelihood of positive outcomes and underestimate the negative ones.

Bandwagon Effect

It refers to our habit of adopting certain behaviors or beliefs because many other people do the same.

Framing Bias

Equivalent information can be more or less attractive depending on how it is presented, influencing our decisions.

Recall Bias

Individuals do not accurately remember past events or experiences or leave out details while reporting about them.

Group Think Bias

A group of individuals reaches a consensus without critical reasoning or evaluation of the consequences or alternatives, simply doing or agreeing because everyone else is.