Cognitive Bias

Back Contents COGNITIVE BIAS Avoiding Outcome Bias Published date:  4 November 2024   |  5-Min Read In investing, it’s easy to equate a good outcome with a good decision. After all, if an investment pays off, doesn’t that mean the decision-making process was sound from the start? This seemingly logical thinking is actually a cognitive trap called Outcome Bias—where we judge a decision based on its result rather than the quality of the decision-making process itself. In investing, outcome bias can be particularly misleading, often leading to misplaced confidence, an underestimation of [...]

Back Contents COGNITIVE BIAS The Scarcity Error in Venture Capital Published date:  11 November 2024   |  5-Min Read In venture capital, the pressure to seize opportunities before they disappear often leads to irrational decision-making. With limited access to high-potential startups, a phenomenon known as the Scarcity Error emerges—where the mere perception of limited availability skews decision-making processes, often resulting in rushed or poorly vetted investments. This cognitive bias is particularly dangerous when high stakes, intense competition, and the allure of “the next big thing” dominate. Scarcity Error not only distorts the evaluation [...]

Back Contents COGNITIVE BIAS What is Groupthink in venture capital? Published date:  18 November 2024   |  5-Min Read In venture capital and investing, the desire for alignment and consensus can often come at the cost of innovation and sound decision-making. Groupthink a cognitive bias where the drive for harmony within a group overrides individual judgment poses significant risks to strategic investment decisions. Particularly in high-stakes environments, where uncertainty and competition dominate, groupthink can lead to poor evaluations, inflated valuations, and missed opportunities. Groupthink occurs when individuals prioritize consensus over critical analysis, [...]

Back Contents COGNITIVE BIAS The Action Bias in Alternative Asset Investing Published date:  25 November 2024   |  5-Min Read What is Action Bias? Action Bias is the human tendency to favor action over inaction, even in situations where doing nothing might yield better results. It’s a psychological comfort zone, being busy feels better than appearing idle. But busyness isn’t the same as effectiveness. In venture capital, where the stakes are high and the margins for error are slim, Action Bias can lead to avoidable mistakes that waste resources, erode strategic [...]

Back Contents COGNITIVE BIAS How Envy Bias Can Skew Your Venture Capital Decisions Published date:  2 December 2024   |  5-Min Read Picture this: you’re at a venture capital conference, and the buzz around a competitor’s portfolio company is impossible to ignore. The startup just announced a $200 million Series B and is being touted as the next unicorn. The founder is charismatic, the headlines are glowing, and you can’t help but wonder: “Did I miss the deal of the decade?” The Anatomy of Envy Bias Envy Bias thrives in environments [...]

Back Contents COGNITIVE BIAS How To Understand The Cherry Picking Bias Published date:  9 December 2024   |  5-Min Read One of the most insidious influences on human decision-making is the Cherry Picking Bias, the tendency to selectively use data or evidence that supports our preconceived point of view while ignoring information that contradicts it. This cognitive bias often masquerades as rational analysis but can lead to misguided conclusions with long-term effects and consequences. At its core, the cherry-picking bias is about filtering information to confirm what we already believe or want [...]

Back Contents COGNITIVE BIAS What is the Neomania Bias? Published date:  16 December 2024   |  5-Min Read Imagine the thrill of discovering an idea so fresh, so groundbreaking, it promises to change everything. It’s disruptive, exciting, and has the potential to reshape entire industries. Headlines proclaim it the next big thing. Investors scramble to get in early, convinced they’ve found the future. The narrative of innovation is irresistible it feels like being part of something truly historic. But then, the cracks begin to show. The once-revolutionary concept struggles with scalability, unable [...]

Back Contents COGNITIVE BIAS The Cost of Overthinking Published date:  27 December 2024   |  5-Min Read Imagine you’re a VC staring at a startup pitch deck that could be the next Snapchat or just another fleeting trend. Do you act quickly or dive into endless analysis, dissecting every metric? Welcome to the world of overthinking bias a silent killer of decision-making in high-stakes industries. What is the Overthinking Bias? Overthinking bias can be defined as the tendency to get trapped in endless loops of analysis, where excessive deliberation prevents decisive [...]

Back Contents COGNITIVE BIAS Why Do We Follow Celebrity Investors? Published date:  30 October 2024   |  5-Min Read The venture capital landscape has evolved with a new breed of investors—celebrities from entertainment and sports. High-profile figures like Snoop Dogg, Ashton Kutcher, and Gerard Piqué are transforming how startups approach funding by bringing not only capital but also immense social influence and networks. Star Power in Venture Capital For startups, celebrity involvement can create brand visibility that traditional VC firms often cannot match.However, this influence is a double-edged sword, as high valuations [...]

Back Contents COGNITIVE BIAS Why do investors keep funding failing companies? Published date:  21 October 2024   |  5-Min Read Before Apple’s iPhone revolutionized the smartphone industry, BlackBerry was a dominant force, seemingly invincible in both corporate and consumer markets. As competition intensified and touchscreens became the norm, BlackBerry's leadership fell into the trap of believing their struggles were a temporary part of the natural ebb and flow of business. This "It’ll-Get-Worse-Before-It-Gets-Better" mentality led them to hold onto outdated strategies for too long, ultimately resulting in their downfall. Investors face similar [...]