The gap between perfectly rational Homo economicus and not-so-rational me and you is vast. Real people, unlike textbook economic actors, are by turns shortsighted, impulsive, fearful, overconfident, and easily distracted. Now, two economists have done us the favor of building a taxonomy of what they call “behavioral biases,” numbering 17. And they’ve figured out which kinds of people make which kinds of mistakes.
“Biases are more rule than exception. The median consumer exhibits 10 of 17,” says the paper by Victor Stango of the University of California-Davis Graduate School of Management and Jonathan Zinman of Dartmouth College. Their study, based on a nationally representative online survey, found that it’s hard to predict how many biases a person will have based on demographic characteristics or the amount of education. It did find that people with strong cognitive skills tend to be low in most of the biases but high in two of them: loss aversion and ambiguity aversion.