Behavioural Bias Checker

How much do you know about behavioural biases?

Being aware of potential biases can help you become a better decision-maker. Use this tool to improve your awareness of different behavioural biases or “blind spots” that may influence your decisions.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Choice overload Click to reveal definition of termTap to reveal definition of term

Choice overload

Choice overload occurs when we are overwhelmed by number of available choices. As a result, this can lead to inertia, where no choice is made. For example, a new investor may want to invest in a mutual fund, however, they may be faced with too many options. Overwhelmed by the number of choices, the potential investor may have difficulty choosing a mutual fund.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Mental accounting Click to reveal definition of termTap to reveal definition of term

Mental accounting

Mental accounting is the tendency to mentally separate our money into different “accounts”. For example, if you have mental accounts for purchasing groceries, tuition, or vacations, but don’t use money from one “account” for items in another. This can lead to treating money as less interchangeable than it actually is.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Overconfidence bias Click to reveal definition of termTap to reveal definition of term

Overconfidence bias

People are prone to being overconfident in their own abilities compared to actual reality, which can lead to higher levels of risk taking. For example, a driver who navigates to a new location may be overconfident in their navigation ability and not depend on a map.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Anchoring bias Click to reveal definition of termTap to reveal definition of term

Anchoring bias

Early information used as a reference point can irrationally influence later judgements. For example, if you first see a laptop that costs $5,000, and then see a second one that costs $2,000, you will likely see the second one as cheap. However, if you first see a laptop that costs $1,000, and then see a second one that costs $2,000, you will likely see the second one as expensive.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Sunk cost fallacy Click to reveal definition of termTap to reveal definition of term

Sunk cost fallacy

Feeling committed to a situation because of how much you’ve already invested in it (time, money, effort), even if staying with it will lead to poor outcomes than not. For example, attending an outdoor event because you’ve already paid money for it, even though it is raining.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Loss aversion Click to reveal definition of termTap to reveal definition of term

Loss aversion

This happens when people feel more pain from losses more strongly than the pleasure they feel from gains. It can lead to making decisions emotionally or placing more value on negative predictions than positive ones.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Disposition effect Click to reveal definition of termTap to reveal definition of term

Disposition effect

The tendency among investors to sell stock market winners too soon and hold on to losers too long.

Brush up on your biases

In this section you’ll be introduced to several behavioural biases and their meanings. Try to guess what you think it means based on the name, then click to reveal the description.

Status quo bias Click to reveal definition of termTap to reveal definition of term

Status quo bias

We tend to stick to what we know and choose the default choice because of the familiarity and new choices feel risky. For example, a new employee is more likely to enroll in health insurance if being enrolled is the default and opting out is a choice.

Match them up

You’ve learned the names of several behavioral biases and their meanings. Now, let’s see if you can match the names to their meanings.

Fill in the blanks by dragging the answer or clicking the arrow button in each answer box to select the right match.

Terms

Choice overload

Loss aversion

Mental accounting

Overconfidence bias

Anchoring bias

Sunk cost fallacy

Disposition effect

Status quo bias

Answer

Example

While travelling on a cross-country flight, you can’t decide whether to work on your laptop, watch a movie, play a game on your phone, or read the book you brought along.

Correct

Incorrect

You are unwilling to sell a stock that has lost 10% in value.

Correct

Incorrect

You have a set amount of money earmarked for groceries, clothing, and vacation expenses each month.

Correct

Incorrect

After your last few investment choices performed very well, you decide you know enough to choose your next one without checking too much detail.

Correct

Incorrect

The commute for your new job is 30 mins. It feels long because the commute for your old job was 10 mins.

Correct

Incorrect

You’re not enjoying the movie you’re watching, but you decide to finish it since you’re halfway through it anyway.

Correct

Incorrect

In the last year half of your stocks have declined in value and half have gone up. You only sell the ones that have gone up and keep the ones that have declined.

Correct

Incorrect

You’re unhappy with your haircuts lately, but you stick with the same hairdresser because they are the one you’ve been going to for years.

Correct

Incorrect

Bias Detective

Now’s your chance to use what you’ve learned and be a detective. In this final section you’ll be shown examples of everyday situations where a behavioural bias (or more than one) may affect the decision-making process.

Review each scenario and pick how you would respond based on the three choices provided.

There may be other possible ways to respond that are not shown but choose the closet match for yourself.

There is no wrong answer. Remember, we are all prone to behavioural biases. This tool will help you become more aware of your biases and offer tips on how to manage them when making financial decisions.

Scenario 1

You’re waiting in line at a café that’s new to you. The menu is large, and by the time you get to the cashier you still haven’t been able to read all of the choices. Are you more likely to (select the choice that fits best):

Question 1 Select the most appropriate option.

Click to see what this might mean:

In this example, Choice A is the most rational response – taking more time to weigh decisions can often lead to a better result. However, this isn’t always possible or easy to do, because of time constraints or distractions.
Choice B demonstrates choice overload leading to decision paralysis – making no choice at all. Making no choice can be better than making the wrong choice. The risk is that now you won’t get to enjoy a beverage of any kind.
If you lean towards Choice C, you’ve found a mental shortcut relying on the status quo – making a familiar choice that you can rely on based on past experience. This can also be better than making no choice at all. The risk is that something new might have been a tastier drink.

This is an example of a situation with choice overload.

Choice overload happens to us when we become overwhelmed by too many options, and struggle to choose one. Other examples of choice overload might happen when we scroll through tv channels to decide what to watch, or which cell phone to purchase.

Tip:

One way to avoid choice overload is to narrow your choices in advance. For example, giving yourself a spending limit. Would you have made a different café choice if you knew the limit was $3?

For more tips download our checklist at the end.

Bias Detective

Review each scenario and pick how you would respond based on the three choices provided.

There may be other possible ways to respond that are not shown but choose the closet match for yourself.

Scenario 2

You meet with your financial advisor to review your portfolio. You discover that an investment you’ve held for a few years has continued to decline. How would you respond in this situation (select the choice that fits best)?

Question 2 Select the most appropriate option.

Click to see what this might mean:

Choice A is an example of rationale decision making. Selecting this choice shows that you’re willing to admit your losses. You haven’t let fear of losses overwhelm your decision-making.
Choice B is an example of the disposition effect, which happens when we sell investments that have made gains while holding onto investments that have made losses, because we dislike losing much more than we enjoy winning. This behaviour typically leads to lower returns over time.
Choice C is an example of the sunk cost fallacy, which happens when we refuse to sell an investment because we have invested heavily in it, even when selling would be more beneficial in the long run. This behaviour deprives us of potential future gains from making a change.

The way we respond to a loss in investment value can reveal a lot about our biases. All investing carries the risk of loss and the potential of gain.

Tip:

One way to respond to sunk cost fallacy or the disposition effect is to remind yourself of your long term goals.

For more tips download our checklist at the end.

Bias Detective

Review each scenario and pick how you would respond based on the three choices provided.

There may be other possible ways to respond that are not shown but choose the closet match for yourself.

Scenario 3

You’ve spent the last 2 years saving for your dream vacation. Congratulations! You’ve followed a budget and by the end of your fun-filled vacation week you discover your budget still has $200 left over. Your friend gives you some suggestions for several different vacation activities you could spend it on, ranging from an extra outdoor adventure day trip to a room upgrade for your last night there.

Question 3 Would you:

Click to see what this might mean:

In this example, Choice A shows mental accounting at work. You’ve spent the money on part of your vacation, which is what you saved it for.
Choice B shows a rational response. You’ve made a choice that will allow ‘future you’ to benefit from the money, and you’ve put it aside in a secure place.
Choice C could be an example of avoiding a decision due to choice overload. Making no choice at all will reduce the chance that you’ll make the wrong one.

This is an example of mental accounting. We practice mental accounting when we assign specific labels to our money and have a hard time changing those labels when the situation changes.

Mental accounting can be helpful – it is a part of making a budget or savings plan. But it can also be limiting, if it prevents us from taking a fresh look at our choices.

Tip:

You can avoid unhelpful mental accounting by reminding yourself that money is fluid. It can be spent, saved, earned, invested, in many different ways.

For more tips download our checklist at the end.

Bias Detective

Review each scenario and pick how you would respond based on the three choices provided.

There may be other possible ways to respond that are not shown but choose the closet match for yourself.

Scenario 4

A year ago, the stock GSAM that was priced at $50/share. Today, the share price is $100/share. You have been watching GSAM periodically over the last year, so you think you know GSAM well. However, there is also news from credible sources that indicate GSAM has more room to grow. You have some capital to invest.

Question 4 What would you do?

Click to see what this might mean:

Choice A could be an example of anchoring bias, which happens when we set previous information as a benchmark to compare new information. This can skew our response to what happens next. In investing, we can view an investment as expensive if our anchor is cheaper than the investment, or we can view an investment as cheaper if our anchor is more expensive than the investment.
Choice B shows a potential example of overconfidence bias. We may be overconfident in our judgment when we believe we know more than we actually know. Overconfidence in investing can lead to making decisions that are too risky or poorly informed.
Choice C is an example of rational decision-making. You have received new information and taken it into consideration when judging how to proceed.

Often, we rely on past information or past experiences to make decisions in the present.

Tip:

Anchoring bias and overconfidence bias can be hard to avoid, but can be reduced. In both cases, being aware that you are prone to this kind of bias can help you to avoid it.

For more tips download our checklist at the end.

What’s the next step?

Congratulations! You’ve completed all activities.

We hope this tool has helped raise your awareness of how your financial decisions can be influenced by behavioural biases.

Download Your Take Action Checklist PDF

Tips based on your selections

Additional Take Action Checklists

Manage choice overload:

Narrow your choices in advance. For example, giving yourself a spending limit. At the café, would you have made a different beverage choice if you could only spend $3?
Remember your goals. If you’re choosing between investments, remind yourself of the time horizon you’re working with and whether that narrow your choices.
Allow yourself time to choose. Set aside time in your calendar to meet with an advisor or do the research you need to do.

Make mental accounting work for you:

Review your budget on a recurring basis. Make sure the plans you have for your money are still the right ones. If you don’t need the same takeout budget you’ve had for the last year, put that money towards something else.
Remember that money is fluid. It can be spent, saved, earned, invested, in many different ways.

Counter over-confidence bias:

Get a second (or third) opinion. Be open to others’ opinions and try not to be entrenched in your own.
Look at your past. Visualize some of the investment decisions you’ve made on your own and consider how well or poorly they worked out.

Counter loss aversion or sunk cost fallacy:

Compare potential losses and gains. Re-frame the decision to compare what you could lose or what you could gain. This will help you to consider other alternatives.
Diversify your portfolio.

Manage anchoring bias:

Being aware that you are prone to this kind of bias can help you avoid it.
Consider alternative choices when making decisions, for example if you would make a different choice if you relied on different information.

Manage status quo bias:

Weigh the pros and cons of the decision. Critical thinking can often help you consider alternatives and make an informed decision in the end.
Check your motivations. Will your decision help you reach your goals, or is it simply the easiest choice to make right now?
Set immediately, attainable goals.

Back to Tools