We make decisions every day with incomplete information. We don’t have the time, energy, or data to analyze everything we encounter carefully, so our brains rely on shortcuts to help us move quickly.
Most of the time, these shortcuts work just fine. They help us choose what to buy, who to trust, and what feels familiar or safe. But sometimes, they lead us to the wrong conclusions, especially when money is involved.
One of the most common shortcuts we use is judging something based on how closely it resembles a story we already know. If it looks like something good, successful, or trustworthy, we assume it probably is.
We make assumptions about things simply based on stereotypes instead of doing an objective assessment to determine if they match our assumptions.
In other words, we judge by resemblance instead of reality.
Psychology calls this the representativeness bias; our tendency to assume that something belongs in a category simply because it looks the part, even when the underlying facts don’t support that conclusion.
If it looks like a duck, and quacks like a duck, it must be a duck.
– You, probably
Let’s look at some examples of how this bias can show up in our day-to-day lives.
Products
Branding has been used for a long time to capitalize on this stereotyping bias that people exhibit. Companies tell stories to paint a picture of what their product is in our heads, whether true or not. They rely on us to make assumptions to fill in the gaps of what their product is supposed to be— of course, after they present us with certain qualities the product supposedly has.
Indomie and Milo
Indomie ran ads in the Nigerian media for decades, portraying their products as the choice breakfast given to children by loving moms.
Milo also featured kids being strong, athletic, energetic, and smart in school, all because they drank Milo before leaving for school.
Our brains immediately classified these products as healthy and beneficial for children.
However, a simple look at the package information or even basic research into the product shows that they are not necessarily healthy for children. Indomie contains high sodium and MSG, low fiber, and refined carbohydrates, while Milo, despite containing some nutrients, is outweighed by its high sugar and calorie content. Yet families across Nigeria have served their children these products for years simply because of how these companies presented their products to the public.
Fooled By Packaging
I once saw a relative taking a particular honey & ginger tea. She invited me to come drink it, telling me it’s sugar-free. When I tasted it, it was sweet, and I wondered how the drink might have been sugar-free. I checked the ingredient list on the packet and saw: fructose, lactose, maltose, and honey. That was so funny. The drink claimed “no sugar added”, yet it tasted sweet.
They might not have added classic white granulated sugars, but it was full of naturally occurring alternative sugars. I was shocked to learn that ‘no sugar added’ is often a legal loophole. As long as they don’t dump in raw white sugar, they can use as much liquid fructose or honey as they want while keeping the label ‘sugar-free.’ So people assume labels like no sugar added on packets mean exactly what it tells them.
At some point in our lives, we’ve probably also seen products or experiences that are packaged and priced as luxury, but didn’t live up to the promise. The luxury branding hijacked our decision center and made us believers.
Take stock of your important purchases and ask: Am I trusting these products because of:
- their packaging
- because my favorite celeb is their brand ambassador
- Or because of the facts?
Do your own research and never accept facts that are presented by a business at face value.
Business Owners
Looks can be deceiving. Picture a man in a suit sitting in front of several computer monitors with stock charts, and we automatically assume he is a genius stockbroker or forex trader, whether true or not.
We judge businesses so much by how much the founder looks like our mental image of a successful founder. We decide by how much we like them, their presentation, and their confidence. They might dress a certain way, talk about vision, scaling, ecosystem, and appear on podcasts and panels.
This is why a lot of company CEOs use words like AI, machine learning, or powered by blockchain all over their marketing copy. Even if what they are selling has little to no relevance to the words. They are trying to portray themselves as innovative, advanced, and futuristic.
We assume this person knows what they are doing, even when:
- We don’t understand their business model
- Their revenue is weak
- Reviews are bad
- We’ve not seen or done any research on the business.
Posturing
Elizabeth Holmes of Theranos fame used to dress like Steve Jobs (in a black turtle neck). She did it to portray the image of a young, ambitious founder, and people bought the act, yet she was a fraud all along.
We’ve seen forex and crypto gurus sell courses, show off nice cars, and flashy lifestyles. Whether the lifestyle is fake or real, our brain fills in the gap in the story. We think they must have money and know what they are doing. If they are making money, we think it must be from forex or crypto. And maybe we can learn from them too and buy their courses. We judge them based on how much they resemble our idea of a successful person, not based on evidence or numbers.
We also often assume that someone competent in one domain will automatically make sound decisions in another. For instance, a well-known entrepreneur and startup advisor in Nigeria who has a track record of building and advising successful businesses once publicly revealed that they had lost a large portion of their wealth in speculative investments. It was surprising to many because people assumed that success in business translates to wise investment choices. That’s the classic case of representativeness bias, where we judge competence in one area as evidence of competence in another.
Investing
Celebrity Endorsements.
Don’t make assumptions
– 3rd principle from The Four Agreements
We’ve seen a lot of celebrities endorse a lot of products. Brands often use celebrities because they hope that you will transfer some of the love you have for the celeb to their products. They hope the celeb’s influence can rub off on their product.
The stakes are lower when a celeb is endorsing harmless products. However, when a celeb is endorsing investments, that warrants a closer look.
Never assume that a celebrity you like endorsing an investment means the investment is solid.
Know that:
- The celeb could have created the investment to cash out on a trend
- They are likely getting paid to promote.
- The celeb likely doesn’t have the expertise to know if an investment is worth endorsing or not.
- If it’s a scam, the celeb could be in on it, or totally oblivious. Either way, it’s bad news.
Davido
In May 2024, Nigerian music star Davido launched a celebrity‑branded memecoin called $DAVIDO on the Solana blockchain. Initially, it surged in value because of Davido’s popularity and social media promotion. The coin reached a multi‑million dollar market cap in just a few hours. But soon after the launch, the price crashed sharply. Most of the early profits were made by the first few wallets linked to the token’s origination. Many later investors suffered heavy losses when the token’s value crashed.
Some analysts described this pattern as a classic pump‑and‑dump scheme. Even the Nigerian Securities and Exchange Commission (SEC) issued a public advisory warning that meme coins like $DAVIDO are not recognized investment products and investing in them is done at the buyer’s risk, because they generally lack real underlying value.
FTX
Before its collapse, the cryptocurrency exchange, FTX, heavily used celebrity endorsements to build credibility. Big names like Tom Brady, Stephen Curry, Naomi Osaka, Larry David, and Shaquille O’Neal were featured in FTX advertising campaigns. They even had equity stakes in FTX as part of their sponsorship deals.
After FTX crashed in late 2022, many investors lost significant funds, and several celebrity endorsers found themselves named in lawsuits. They were accused of failing to do enough due diligence on FTX.
Don’t assume that when famous or successful people back a product, it’s safe or legitimate.
Past Winners as a Prediction
Past performance is not an indicator of future returns
– Investing Principle
Never assume an investment will keep performing well just because it’s done well in the past. Stocks that have done well in the past go bankrupt all the time or delist entirely from the equity market, e.g., Lehman Brothers, Sears, Oceanic Bank, etc.
Ask the average Nigerian to select a good investment, and they will probably pick the known stock winners of today (eg, MTN, DangCem, Nestle, etc.). They assume there is safety in that. But the past performance of an investment does not guarantee future returns. while completely neglecting to do any research on whether the stock is actually worth buying.
Going Forward
Rather than list endless examples of this bias in action, it’s more useful to know how to recognize this bias in your thinking in real time.
Here are some ways to tell when the representativeness bias is driving your decisions:
- If you find yourself trying to buy a product or investment because you like the founder, the advertising, or the narrative.
- When you struggle to explain how an investment works, then you’re probably being driven by this bias.
- You trust surface-level claims without research.
- If you are using popularity alone as the metric for trusting a founder, investment, or product, e.g., “so many people are talking about this,” “This person sounds like they know what they are doing.”
- When you assume that because:
- A business looks successful (big offices, advertisements, and celebrity endorsements), it’s legit.
- A product looks premium, and it pitches buzzwords (like AI, scaling, blockchain), it must mean it’s good enough to purchase or invest in.
- If you’re skipping the boring questions like:
- How does this investment really work?
- How much risk is involved in this investment?
- Where does the profit come from?
- When you find yourself using a smart/famous/successful person as a shortcut to believing a product/investment is legit, rather than doing your own research.
Anytime a financial choice is driven mainly by stories, personalities, confidence, celebrity endorsements, or the feeling that “this looks like something successful I’ve seen before,” that’s your sign to pause.
Packaging can be persuasive, but it is not evidence. Liking someone, trusting their image, or believing a compelling narrative is not the same thing as understanding the fundamentals.
Final Notes
At the end of the day, not every decision in life needs that level of scrutiny. If you’re choosing a phone case or sneakers to buy, it’s not the end of the world if bias sneaks in. The stakes are low.
Money is different.
When it comes to your finances: your savings, business decisions, investments, and high-stakes purchases (eg, property), the cost of being wrong is much higher.
You don’t need to assume everything is a scam. But you also shouldn’t accept surface-level claims at face value. Ask:
- where the value comes from.
- How the investment actually works
- What could go wrong?
Do some research. Look for facts, not vibes.
Bias is human. You’ll never eliminate it. The goal isn’t perfection, but awareness is a great start.
When the stakes are high, awareness can be the difference between a harmless mistake and a very expensive one.