Sources of our biases

The human brain is a fascinating but unusual organ that faces a barrage of decisions every day. Two key parts that play a crucial role in decision-making are the limbic system and the neocortex.

The limbic brain is closely linked to rapid automatic thinking – known as System 1. In contrast, the neocortex is key to slower, rational information processing, i.e. System 2. 

System 2 is slower, thinks rationally, and requires more time and energy to analyze inputs. We activate it when we need to make logical decisions based on facts, knowledge, and deeper thinking. However, this way of thinking causes cognitive overload and requires more concentration.

"When we are under pressure or tired — for example, during market downturns —System 1 takes over."

Therefore, when we find ourselves in a crisis situation such as "fight or flight" and don't have time to think, we need an immediate, instinctive response (System 1). It makes decisions automatically, intuitively, often based on emotions, experiences, or ingrained beliefs and our prejudices.

This process has an evolutionary advantage, but it comes at the expense of accuracy and can lead to various distortions.

The first type of bias is heuristics—quick ways for the brain to process information. They often work well, but sometimes they can lead to errors (cognitive biases), which cause inaccurateinterpretations of reality. 

In addition to cognitive bias, there is also emotional bias, where strong emotions influence our perception and decision-making to such an extent that we deviate from rational judgment, and social bias, where we act more according to the expectations of others than our own judgment.