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The power of defaults -

Default options have an enormous influence on decision-making. For example, when searching for something online, we start typing our query in the address bar, rather than going to a search engine. It shows us that one would avoid cumbersome steps and procedures when an easier option is available.

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The power of defaults -

Similarly, many people stick with default settings on apps, phones, or even retirement plans simply because changing them requires effort. If a choice is preselected, whether it’s a phone setting or an opt-in for a company pension, we tend to stick with it because it's easier.

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Loss aversion -

We fear losses more than we value gains. Imagine you're offered a gamble: a 50/50 chance to win US$100 or lose $100. Most people reject it, even though the expected value is zero, simply because losing $100 feels worse than winning the same sum.

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Loss aversion -

We hate losing more than we enjoy winning, even if the outcome is the same. This tendency can make us cling to investments that are dropping in value, or hesitate to switch jobs even when better opportunities arise.

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Framing effects -

The way choices are presented can significantly impact decisions. For instance, telling patients a surgery has a 90% survival rate sounds more reassuring than saying it has a 10% death rate.

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Framing effects -

Both options are true, but the way it's framed changes your perception. Framing effect, also known as framing bias, becomes apparent when people make decisions based on how the facts are presented. Political polls, product descriptions, and medical advice often exploit framing to shape perception.

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Present bias -

We naturally prioritize immediate rewards over future benefits. That’s why people often spend now and save later, or delay exercising despite knowing the long-term health advantages.

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Present bias -

This is true especially when the gain is smaller in the present, compared to the greater benefits in the future. It is often difficult to understand the value that is rewarding only in the future. This bias also explains procrastination and difficulty sticking to long-term goals, like learning a new skill or maintaining a diet.

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Anchoring effect -

Anchoring effects describe how our decisions are influenced in the presence of a reference or an anchor. This strategy is often used by brands to ‘sweeten’ the deal. For example, if a TV is initially priced at US$1,200 but marked down to $800, it seems like a bargain because of the higher reference point.

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Anchoring effect -

This is why it’s difficult to resist a sale. The perceived value of a product increases when the before and after prices are mentioned. The anchoring effect has come to dominate every aspect of our lives, from grocery shopping to investing in stocks.

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Sunk cost fallacy -

Once we've invested time, money, or effort into something, we irrationally feel we must continue with it. Think about people who continue to watch a movie they’re not enjoying, or stick with a career from which they do not derive any fulfilment.

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Sunk cost fallacy -

Together with defaults, sunk cost fallacy creates a perception of losing out on value if one has already invested, monetarily or emotionally, in things. This fallacy can lead to poor decisions in business, relationships, and everyday life.

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Mental accounting -

We assign different values to money based on how it makes us feel. For example, a US$500 bonus might feel like ‘fun money’ for splurging, while $500 from a paycheck feels like it should go toward bills.

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Mental accounting -

That’s mental accounting, where we treat money differently depending on its source or purpose. Often, we create labels and categories of money, even though the objective value remains the same. This can lead to inconsistent financial behavior that doesn’t always align with long-term goals.

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Social proof -

When unsure, we often look to others to guide our behavior. A crowded restaurant appears more trustworthy than an empty one. A product with numerous reviews appears more worthy of buying than one with fewer reviews.

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Social proof -

This principle powers online reviews, testimonial marketing, and viral trends. According to research, close to 75% of people accept that social proof impacts their buying behavior. Social proof can lead us to great discoveries, but it can also encourage misinformation.

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Overconfidence bias -

We tend to overestimate our abilities or knowledge. Most drivers, for instance, believe they're better than average. Similar bias can cause people to make overly risky investments, underestimate timelines, or ignore expert advice, believing they know better.

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Overconfidence bias -

According to psychologists, overconfidence is a psychological impulse to boost self-confidence and avoid feeling anxious. For some, it becomes a core part of their individuality, and often becomes impossible to detect and overcome.

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Choice overload -

Too many options can be paralyzing. In a famous study, customers were more likely to buy jam when offered six flavors than when presented with 24. This may seem counterintuitive, since we are supposed to make better and well-informed decisions when offered more choices, but there you have it.

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Choice overload -

Too much choice makes decisions harder and increases the likelihood of dissatisfaction, even after a decision is made. Furthermore, when we are unsure of what we are looking for, having an array of options only increases our uncertainty and confusion.

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Endowment effect -

We place a higher value on things we own simply because we own them. For example, one may sell their product at a price higher than the current market value just because the product belongs to them. This bias affects everything from real estate to the collectibles market.

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Endowment effect -

Free trials exploit the endowment effect to influence buyers. It makes one feel that they own the product even before possessing it. Eventually, individuals who try the product are more likely to buy the product than those who don’t.

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Nudging -

Nudges are gentle prompts that guide people toward making a decision. They can be used to push customers to opt for one product over the other, make an impulse purchase, or even choose better alternatives.

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Nudging -

For example, placing fresh and healthy items at eye level in cafeterias can influence people to pick them over packaged food kept on lower shelves. Texts, notifications, and reminders work on the same principle. They appeal to the emotional, unconscious, and automatic decision-making centers of our brain.

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Reciprocity principle -

When someone does something for us, we feel compelled to return the favor. It’s why we may feel guilty walking away from a free sample stand at a grocery store without buying anything. Likewise, receiving a small, unexpected gift from a charity may suddenly make you consider donating.

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Reciprocity principle -

Marketers and fundraisers understand this well, and they often use it to build goodwill and encourage action. The idea isn’t just to give, but to spark a sense of mutual exchange. Reciprocity works because it taps into our desire to be fair and balanced in our relationships and in everyday life.

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Confirmation bias -

We favor information that confirms what we already believe. Someone who supports a specific political view may only read news from outlets that reinforce their perspective. This bias affects our openness to new ideas and deepens polarization in society.

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Confirmation bias -

Brands and companies know too well how to leverage this bias to sell more. When you buy a product, marketers send follow-up content like newsletters, success stories, or social media posts. All these validate that you have made the correct choice. This strategy of reinforcing your belief about the brand strengthens brand loyalty and makes customers more likely to purchase again.

Sources: (The Decision Lab) (The University of Chicago) (Harvard Business Review) (Psychology Today)

See also: The bystander effect—the psychology behind a social phenomenon

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