Topic 4 - Chapter 2

Rethinking our Thinking

The Psychology of Bad Bets: From Sunk Costs to Overconfidence

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Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Learning Goals

Recognize the sunk cost fallacy and escalation of commitment

Understand how framing and loss aversion influence decision-making

Analyze how assumptions about others affect strategic thinking

Describe the three forms of overconfidence bias

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Outline

Learning Goals

Framing, Loss Aversion, and Sunk Costs

Overconfidence and Neglecting Others

Activities

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Framing, Loss Aversion, and Sunk Costs

Every decision you make is influenced not just by facts, but by how those facts are presented and how your brain reacts to potential losses. Framing can flip your choices even when the numbers are identical. Loss aversion makes losing feel twice as painful as winning feels rewarding. And the sunk cost fallacy keeps you tied to bad investments,whether it’s finishing a boring movie or pouring money into a failing project,just because you’ve already paid. In this video, you’ll discover how these hidden forces shape your decisions and how to spot them before they lead you astray.

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Did you know...

70%

of people choose the risky option when outcomes are framed as losses, compared to only 30% when the same outcomes are framed as gains?

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Videos

The videos will allow you to explore the topics covered in this module in greater depth. Feel free to keep a notepad handy to jot down key points of interest to share during live sessions.

Go

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Framing, Loss Aversion, and Sunk Costs

Before watching the video, check the introduction in the Resource HUB. File 4.3 Introduction to Video “Framing, Loss Aversion, Sunk Costs”.pdf

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Test yourself!

Quick exercise on the video you've just seen.

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

1/2

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

2/2

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Overconfidence and Neglecting Others

Confidence is powerful but when it turns into overconfidence, it can distort your decisions. From overestimating your abilities, to ranking yourself above others, to being overly certain you’re right, these biases make us more confident than accurate. Add to that another common blind spot: forgetting that other people have their own thoughts, emotions, and strategies. Whether in games, negotiations, or daily choices, neglecting others can lead to costly mistakes. In this video, you’ll learn how overconfidence and the failure to consider others shape your judgments and how to guard against them.

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Did you know...

90%

of drivers believe they are above average—something that is mathematically impossible?

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Overconfidence & Neglecting Others

Before watching the video, check the introduction in the Resource HUB. 4.4 Introduction to Video “Overconfidence Neglecting Others”.pdf

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Test yourself!

Quick exercise on the video you've just seen.

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

1/3

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

2/3

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

3/3

Topic 4.2 The Psychology of Bad Bets: From Sunk Costs to Overconfidence

Chapter completed!

Let's move on to Individual Activityby pressing Exit Activity.

System 1

System 2

1. Intuitive

2. Deliberate

3. Fast

4. Spreadsheet

5. Automatic

6. Analytical

Correct answer