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Recency bias is the tendency to give more importance to recent events or information over older ones, often leading to skewed decision-making and judgment. This cognitive bias can significantly impact financial investments, historical analysis, and personal relationships by overshadowing the value of long-term data and experiences.
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Cognitive bias refers to systematic patterns of deviation from norm or rationality in judgment, where individuals create their own 'subjective reality' from their perception of the input. These biases often result from the brain's attempt to simplify information processing, leading to errors in decision-making and judgment.
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Behavioral economics integrates insights from psychology into economic models to better understand how people make decisions, often challenging the assumption of rationality in traditional economics. It explores how cognitive biases, emotions, and social factors influence economic behavior, leading to more realistic predictions of human actions in markets and policy-making.
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The anchoring effect is a cognitive bias where an individual's decisions or estimates are heavily influenced by an initial piece of information or 'anchor', even if it is irrelevant. This phenomenon can significantly impact decision-making in various contexts, such as negotiations, pricing, and forecasting, often leading individuals to rely too heavily on the first piece of information they encounter.
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The availability heuristic is a cognitive bias where individuals rely on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision. This often leads to overestimating the likelihood of events based on the ease with which they can be recalled, rather than on actual statistical probability.
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Temporal discounting refers to the tendency of individuals to devalue rewards and benefits that are set to occur in the future compared to those that are immediate. This cognitive bias can influence decision-making, leading to preferences for smaller, sooner rewards over larger, later ones, impacting areas like personal finance, health, and environmental policy.
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Hindsight bias is the psychological phenomenon where people perceive past events as having been more predictable than they actually were, often leading them to believe they 'knew it all along.' This cognitive bias can distort memory and affect decision-making, as individuals may overestimate their ability to predict outcomes based on hindsight knowledge.
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Confirmation bias is the tendency to search for, interpret, and remember information in a way that confirms one's preexisting beliefs or hypotheses. This cognitive bias can lead individuals to give more weight to evidence that supports their beliefs and undervalue evidence that contradicts them, thus reinforcing existing views and potentially leading to poor decision-making.
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The overconfidence effect is a cognitive bias where an individual's subjective confidence in their judgments is greater than the objective accuracy of those judgments. This bias can lead to poor decision-making and is prevalent in various domains such as finance, medicine, and personal relationships.
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Temporal decay refers to the diminishing influence or relevance of data, signals, or information over time, often necessitating adjustments in models or systems to maintain accuracy and relevance. This concept is crucial in fields like machine learning, where older data may not accurately represent current trends or conditions, requiring mechanisms to prioritize recent information.
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Investment psychology explores how emotions and cognitive biases influence financial decisions, often leading investors to make irrational choices that deviate from logical, profit-maximizing strategies. Understanding this field can help individuals recognize and mitigate the impact of psychological factors on their investment behaviors.
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