Cognitive Bias

Back Contents COGNITIVE BIAS Contrast Effect Bias Published date:  24 March 2025   |  5-Min Read In a world saturated by comparisons, our judgments are rarely made in isolation. Contrast Effect Bias can lead investors to judge performance, valuations, and opportunities not on absolute merit, but relative to recent rounds — often distorting decision-making. The Psychology Behind the Contrast Effect in Investing The human brain is built for comparison. When presented with two options in succession, we tend to judge the second option in contrast to the first, rather than on [...]

Back Contents COGNITIVE BIAS Clustering Illusion Bias Published date:  17 March 2025   |  5-Min Read The Psychology Behind the Clustering Illusion in Investing Recognizing trends and patterns is essential, but sometimes, the patterns we see are actually illusions. The Clustering Illusion Bias leads investors to perceive patterns in random data, believing that short-term trends indicate larger, meaningful shifts. The human brain is wired to seek order in chaos. As such, investors instinctively look for signals amid market fluctuations, interpreting small clusters of data as evidence of a broader trend. This cognitive shortcut, [...]

Back Contents COGNITIVE BIAS Social Proof Bias Published date:  10 February 2025   |  5-Min Read Social Proof in Venture Capital: When Reputation Outweighs Fundamentals Europe’s venture capital (VC) and private equity (PE) sectors are evolving rapidly, with innovation hubs in Berlin, Stockholm, Paris, and London driving global attention. Success stories dominate headlines, creating a narrative focused on the continent’s ability to produce unicorns and transform the world. But what about the startups and scale-ups that never made it? Taking into account and understanding the lessons from failures is crucial for making [...]

Back Contents COGNITIVE BIAS Inability to Close Doors Bias Published date:  20 January 2025   |  5-Min Read The Growing Trend of VC Investments: More Money, More Problems? The past decade has seen a dramatic rise in VC investments across Europe. While an influx of capital has fueled innovation, it has also led to increased risk-taking and an unwillingness to abandon failing ventures. When funding is abundant, investors often feel less urgency to exit underperforming companies. But as markets tighten, the reality sets in overcommitting to struggling startups can drag down entire [...]

Back Contents COGNITIVE BIAS When the Extraordinary Returns to Normal Published date:  3 March 2025   |  5-Min Read The regression to mean cognitive bias In VC and PE, making data-driven, rational decisions is essential. However, a subtle cognitive pitfall: Regression to the Mean can lure investors into chasing extraordinary performance, mistakenly believing that such results will continue indefinitely.This bias leads to a dangerous misinterpretation: what appears to be a breakthrough is often a statistical fluke, destined to revert to normal levels. The Psychology Behind Regression to the Mean in Investing Regression [...]

Back Contents COGNITIVE BIAS Why the Most Obvious Choice Isn't Always the Best Published date:  17 February 2025   |  5-Min Read The Availability Bias In venture capital, investors strive to make rational, data-driven decisions. Yet, time and again, the availability bias skews judgment, leading investors to favor what is most recent, most talked about, or easiest to recall, rather than what is most relevant or fundamentally strong. This bias causes VCs to overvalue familiar markets, underestimate unseen risks, and overinvest in overexposed trends. The result? Capital flows toward high-visibility [...]

Back Contents COGNITIVE BIAS When Random Occurrences Are Mistaken for Strategy Published date:  24 February 2025   |  5-Min Read Coincidence Bias In the VC and PE landscape, making data-driven, rational decisions is essential. Yet, a subtle cognitive pitfall: Coincidence Bias, can lead investors to mistake random occurrences for meaningful patterns. This bias encourages the misinterpretation of luck as a strategic signal, distorting investment decisions. Berlin’s Startup Boom in the Mid-2010s A Case Study in Coincidence Bias During the mid-2010s, Berlin rapidly emerged as one of Europe’s most vibrant [...]

Back Contents COGNITIVE BIAS What Failures Can Teach Us About Smarter Investing Published date:  31 January 2025   |  5-Min Read Survivorship Bias Europe’s venture capital (VC) and private equity (PE) sectors are evolving rapidly, with innovation hubs in Berlin, Stockholm, Paris, and London driving global attention. Success stories dominate headlines, creating a narrative focused on the continent’s ability to produce unicorns and transform the world. But what about the startups and scale-ups that never made it? Taking into account and understanding the lessons from failures is crucial for making [...]

Back Contents COGNITIVE BIAS Why is a founder undervalued? Published date:  13 January 2025   |  5-Min Read In his book Atomic Habits Author James Clear emphasizes that small, consistent efforts compound into remarkable results over time. This principle can directly apply to undervalued founders. Their persistence and incremental progress, even when unrecognized, often build the foundation for future breakthroughs. Much like how habits shape long-term success, the small, consistent efforts of these founders refining their business models, learning from failures, and adapting to feedback compound into transformative outcomes. For example, [...]

Back Contents COGNITIVE BIAS Why do investors keep funding failing startups Published date:  6 January 2025   |  5-Min Read In his analysis of cost and schedule overruns, Bent Flyvbjerg argues that “Reverse Darwinism”rewards those who produce the most exaggerated claims, rather than those offering the most accurate or feasible solutions. This concept is highly relevant in venture capital, where the competition for funding often favors startups that present the most compelling vision, even if that vision is more fiction than fact. This cognitive and behavioral tendency involves founders deliberately exaggerating [...]