The Dangers of Categorical Thinking

Bart de Langhe and Philip Fernbach

Types of Categorical Thinking

  1. Compression
  2. Amplification
  3. Discrimination
  4. Fossilization

Two Types of Missteps


  • Missing or ignoring critical information
  • Over-emphasizing differences


  • Acting on arbitrary distinctions
  • Focusing excessively on a threshold

Case Study:

  • Divides people into groups based on age cohorts
  • Often correlates with certain attitudes and beliefs
  • Does not determine every factor of a person
    • Leads to oversimplifications in marketing strategy
  • Solution: combine with other classifications

Case Study:
Belgian Bailouts

  • After the 2008 financial crisis, the Belgian government bailed out BNP Paribas
  • Retained stock as prices climed
  • Resolved to sell at a threshold price
    • The price got within cents of the threshold, but never got there
    • The government still holds these shares
  • Solution: take "staged" actions instead of binary actions

Mitigating Categorical Thinking

  • Be aware of it
  • Analyze data continuously
  • Audit your beliefs
  • Chose staged plans

The Dangers of Categorical Thinking