Horoscope economics: A quick tour through cognitive bias


This is what my horoscope reads for today:

The excellent aspect between the moon in Virgo and Venus could have you rethinking your day. Sometimes the easiest options that require the least effort aren’t always the way to go. A little creative thinking will help you work out which way is best. (horoscope.com)

There is never a good time to deliver bad news, but you can be compassionate. (yahoo!)

Now is a good time to have a frank discussion with someone who's been upsetting you lately. Be honest, but try not to get too emotional... (Facebook)


Reading the horoscope is a very popular activity, even amongst people you'd think would know better. And if you are too quick to dismiss it all as being a load of bull, then you may be suffering from bias blind spot - the tendency not to compensate for one's cognitive biases.

To start with, reading the horoscope can compensate for the ambiguity effect — the avoidance of options for which missing information makes the probability seem "unknown". Advice such as 'now is a good time to have a frank discussion...' can work wonders for your status quo bias - the tendency for people to like things to stay relatively the same. And to cap it all, individuals tend to be risk-averse. This way, they attain suboptimal outcomes over long time periods (such as a lifetime). Reading the horoscope, and believing it is somewhat grounded on reality, means that the perceived risk of any course of action is now lower, leading to superior outcomes (a higher expected utility value).

But, I hear you say, what if my horoscope prescribes a course of action I know to be wrong? Well, horoscopes are hardly clear in their predictions and the advice they prescribe; and you need to remember that humans come with built-in selective perception — the tendency for expectations to affect perception - and confirmation bias — the tendency to search for or interpret information in a way that confirms one's preconceptions. The information you get from reading your horoscope will not fundamentally change your beliefs or make you do something you strongly believe you shouldn't; but this won't stop it from lessening the biases mentioned in the previous paragraph.

Of course, a requisite step is to actually believe in what you are reading - if you can't help but discard it out of hand it probably won't be much use. But next time you spot your partner browsing the net for this week's horoscope, be nicer: they are hard at work overcoming bias.

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