False Consensus Bias – On the same page with me?


False Consensus Bias – On the same page with me?
In psychology, the false-consensus effect or false-consensus bias is a cognitive bias whereby a person tends to overestimate how many people agree with him or her. There is a tendency for people to assume that their own opinions, beliefs, preferences, values and habits are ‘normal’ and that others also think the same way that they do. This cognitive bias tends to lead to the perception of a consensus that does not exist, a ‘false consensus’. This false consensus is significant because it increases self-esteem. The need to be “normal” and fit in with other people is underlined by a desire to conform and be liked by others in a social environment.
http://en.wikipedia.org/wiki/False-consensus_effect

This is basically our assumption and overestimation on how others agree with our views and beliefs.
This could be because we naturally get along with friends and others who share our views and opinions, and hence we assume that in all aspects they will agree with our views and beliefs.
This leads to predicting that others too will behave like us in a given situation and making decisions.

False Consensus Bias examples
1. In workplace we may have a good performer, but, he/she may overestimate their skills and get to believe that all others in the organization also agree to them and behave accordingly.
2. In a love relationship, people think they are a right match and in a given situation they expect each other to behave the same way and also share similar views.
3. You watch a movie with your friends and after the show is over, you say that it was a horrible movie and why you thought so etc., but, one or more of your friends may say the movie was great and why he thinks so etc.,
4. When you go out for a purchase, your friend calls you and asks for a chocolate bar for him. You will buy the one that you like the most – assuming that your friends will also like it.
5. You believe that most people in this world want to save the environment, because you want it that way.
6. Even in an official meeting room discussion, when you raise some points, you may be surprised or taken aback but several people talking against your views
7. When a company fixes a price for a product launch, an employee may feel that price is too high – because he/she feels that is a high price – but, may not be for the market.
8. We watch few advertisements on TV which we may not understand for the first few times, that is because the advertising company thought all audiences will understand it because they understood it.

Overcoming False Consensus Bias
1. Being cautious when looking for consensus with others
2. Never jump into conclusions about what others think or believe.
3. Try to understand with others – either by talking to them or getting information on how they think before you make your decision

My experience with False Consensus Bias
During the 2008-09 market melt-down, when the stocks started falling off the cliff in early 2008, I thought the market has provided an opportunity to buy, and I assumed everyone would feel the same and go on a buying spree, which would pull up the market.
Based on this assumption I started buying heaving in early 2008, but, I was wrong because the market was trying to find is way down more and started falling further. I was trying to catch a falling knife assuming that others will also think the same way.

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Filed under Behavioural Finance

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