What is the Ostrich Effect?

Years ago, I had this conversation with a friend of mine.

Friend: Kaya ako, ayoko ng nagpapa- check-up.
Me: Bakit?
Friend: E, baka malaman ko pa kung may sakit ako.” 

This is an example of the Ostrich Effect, also known as Ostrich Problem. It is a cognitive bias where people tend to “bury their head in the sand” and avoid potentially negative but useful information to avoid psychological discomfort.

Before I proceed with the discussion of this cognitive bias, let me just correct this false legend. Ostriches are the largest living birds and despite their small heads, they have managed to survive as a species, which may already be a proof that they do not irrationally bury their heads in the sand to ignore danger or pretend it does not exist. On the contrary, they “bury their heads” to listen for sound waves to determine the direction of danger. Moreover, they also look like they bury their heads when they make nests for their eggs. 

Okay, now that we’ve straightened that out, let us proceed to the topic for today.

Ostrich Effect/Problem was first coined in Behavioral Economics in a 2006 article by researchers Dan Galai and Orly Sade when they the used the term to describe people who avoid knowing the risk of some financial decisions or situations. (To read their paper, click "The Ostrich Effect" and the Relationship between the Liquidity and the Yields of Financial Assets)

Why do people like my friend avoid knowing the truth, no matter how useful it is? Any guess? Well, because they believe that ignorance is bliss! 

After splurging on something, one may opt not to check his bank balance to avoid the discomfort of seeing it depleted. In handling regular expenses, one may opt not to list down each and every item to avoid seeing clearly that his income is way less than his regular expenses. In investing, one may opt not to check how it is doing when the market is going down.

Our human brain (our emotional Emong side) has the tendency to ignore negative information at times of risks or danger, hoping that everything will be ok. It tends to look for the information that will strengthen and confirm our original view. Add to that the “Pinoy Bahala na” attitude and we