You’d be forgiven for thinking that these biases of reasoning only apply to those situations where we’re blinded by excitement and the anticipation of potentially striking lucky. But that isn’t the case.
Billionaire philanthropist Bill Gates famously fell prey to similar faults in his reasoning when his foundation donated $1.7bn to support small schools.
The reason for doing so? Well, studies had shown that schools with less pupils were among the highest performing in the US.
However, what Mr Gates had overlooked is the fact that small schools were also among the worst performing schools in the US.
The smaller sample sizes in these schools just meant that they were far more prone to having their place in the rankings swayed one way or the other. Meanwhile the bigger schools gave a larger sample size to allow probability to even itself out.
And while we’re on the topic of wealthy entrepreneurs…
Have you ever had a winning business idea? One that you know could work? One that has the potential to catapult you into wealth?
Well it turns out a lot of people think they do, at some point in their life at least. The issue that most face in this situation is the very common bias of overconfidence. Most business ideas fail due to extreme overconfidence.
Overconfidence can lead us to encountering failure and disappointment in many different areas of our lives. Business, relationships, exams, sports, hobbies. So how do we counteract it?