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Simplification

The brain uses shortcuts to reduce the complexity of analyzing information. At any point in time, your eyes see a multitude of colors and shapes. The brain filters out most of this information so that you do not even notice it. Instead, the brain focuses on the information that is pertinent to your interest. In order to decrease the level of information analyzed, the brain filters some out and uses shortcuts to decrease the complexity of other information. Throughout the day, you are continually faced with making decisions. What should I wear? What should I have for breakfast? What task should I begin first? We make these decisions without fully investigating all of the alternatives. I don't examine all of my clean clothes before making a decision about what to wear. The shortcuts we use allow our brain to generate an estimate of the answer before fully digesting all the available information. In other words, our judgment is affected by the fact that we have limited time, memory, and attention. In order to make a decision or judgment under these limited resources, the brain simplifies the environment and the analysis.

For example, the brain makes the assumption that things that share similar qualities are quite alike. Representativeness is judgment based on stereotypes. This shortcut makes it hard for you to correctly analyze new information and can lead to inaccurate conclusions. The representativeness bias causes you to buy stocks that represent qualities you desire. One quality investors prefer is an increase in the stock's price. Because of the representative bias, investors expect an increase in a stock's price after witnessing the price increase in the past. That is, people tend to project the previous trend into the future.


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