<p>According to the reference cited, <strong>omission bias</strong> arises when the <strong>norm</strong> for a particular situation is <em>inaction</em> whereas <strong>action bias</strong> arises when the norm is <em>action</em>. Make sense?</p>

<p>An example of <strong>Action Bias</strong> in Finance would be the observation that managers often make unprofitable investments instead of the alternative (i.e. return money to investors either as dividends or share buybacks) [1] because for these managers the norm is to find and invest in new projects. </p>

<p>As far as <strong>Omission Bias</strong> goes, one of the most famous examples arises in this <a href="https://en.wikipedia.org/wiki/Trolley_problem" rel="nofollow">thought experiment</a>.</p>

<p>[1] An example of this is described by Michael C. Jensen in 'The Agency Costs of Free Cash Flow: Corporate Finance and Takeovers' [American Economic Review, Vol. 76, No. 2 (May, 1986)].</p>

CC BY-SA 3.0
2015-12-28T22:35:01.193Z
2015-12-28T22:35:01.193Z
Steve S
<p>This is a great question, you're not the only one confused. We just completed a working paper on this very topic: "<a href="https://www.researchgate.net/publication/320409218_What_is_action_what_is_inaction_A_review_of_action-inaction_biases_and_recommendations_for_term_use_and_typology" rel="nofollow noreferrer">What is action, what is inaction? A review of action-inaction biases and recommendations for term use and typology</a>" and we cover these two biases and many other action-inaction biases. </p>

<p>See page 5:</p>

<blockquote>
  <p>Building on the action-effect is the omission bias. The omission bias
  has been defined in many different ways, and is sometimes regarded to
  be the same as the action-effect. We view the two biases as different,
  with the omission bias extending the action-effect to focus on the
  choices made between action and inaction or about moral attributions
  to action and inaction, rather than the experience of negative
  emotions or regret as a consequence of action-inaction. In its
  broadest definition, the omission bias is the phenomenon that people
  prefer omissions to commission when there is the possibility of a
  negative outcome (Spranca, Minsk, &amp; Baron, 1991; Ritov &amp; Baron, 1990).
  Using this definition, if we consider the classic action-effect
  scenario, the two investors facing a risky situation and presented
  with the options of taking action and switching versus not taking
  action and sticking to the initial investment would prefer inaction to
  action. Linking with the action-effect, the bias could partly be
  explained as a strategy to minimize anticipated-regret (Anderson,
  2003; Wong &amp; Kwong, 2007; Zhang &amp; Fishbach, 2005), possibly further
  heightened by related biases such as loss aversion (Tversky &amp;
  Kahneman, 1991) and risk aversion (Kahneman &amp; Tversky, 1979; Tversky &amp;
  Kahneman, 1992).</p>
</blockquote>

<p>Briefly, the "action effect" is the tendency to regret actions more than inaction (negative outcomes) leading to a preference for omissions. In Bar-Eli's paper the action-effect is reversed to an inaction-effect (Zeelenberg etal. 2002) due to normality, the expectations for goal keepers to act. Therefore, the reconciliation is by using normality from norm theory (Kahneman &amp; Miller, 1986).</p>

<p>Hope that helps, we'd appreciate feedback if things aren't clear. </p>

CC BY-SA 3.0
2017-10-16T09:58:24.157Z
2017-10-16T09:58:24.157Z
Gilad
<p>Here are two examples that illustrate the potential difference to me:</p>

<blockquote>
  <p><strong>Example 1:</strong> You are a general and 200 of your troops are being held captive by an enemy. All friendly soldiers are equally valued by the general and all deaths below are friendly deaths. The general is indifferent about enemy deaths. He must pick one of the two options:</p>
  
  <ol>
  <li>Attack the enemy, resulting in 200 deaths with certainty.</li>
  <li>Do nothing, in which case the enemy will kill the 200 captured soldiers.</li>
  </ol>
</blockquote>

<p><em>Omission bias</em> might lead the general to prefer option 2. The fuzzy human <em>reasoning</em> might be that in choosing the first option, the general somehow causes 200 deaths, while in choosing the second option, it is the enemy that causes the deaths, so the general may prefer the second option even though he should be indifferent between them. This example can not be applied for <em>Action Bias</em> because there is no ambiguity, uncertainty or risk in the example.</p>

<blockquote>
  <p><strong>Example 2:</strong> There is an urn with 1 red ball and 1 blue ball inside. A ball is drawn randomly from the urn, and, if it matches your color, you win $100. Your options are as follows:</p>
  
  <ol>
  <li>Choose red as your color</li>
  <li>Choose blue as your color</li>
  <li>Do nothing and be randomly assigned a color</li>
  </ol>
</blockquote>

<p>Note that <em>Omission bias</em> is inapplicable here as there are no <em>harmful</em> actions, and there are really no morality issues at play. On the other hand, <em>Action bias</em> might imply that agents are more likely to pick the first or second options here than they are to choose the third option, even though <em>homo economicus</em> would be indifferent across the three.</p>

<p>To conclude, the key difference, as I see it, is that <em>Action bias</em> is really only relevant in situations with risk or ambiguity. I think technically speaking there is no ambiguity here, since the rules of the game and the balls in the urn are known to the player, but you could easily transform it into a game with ambiguity by saying the player doesn't know the contents of the urn and instead has some belief. <em>Omission bias</em>, on the other hand, is more related to morality.  If a bad thing is going to happen, we'd rather it happen because of something that we didn't do than something that we did.</p>

CC BY-SA 3.0
2015-12-28T15:24:44.917Z
2015-12-28T15:24:44.917Z
Shane
<p>I'm having trouble reconciling these two biases. They seem to be the exact opposite of each other. Yet humans are allegedly pre-disposed to both. </p>

<p>How can they be reconciled?</p>

<hr>

<p><a href="https://en.wikipedia.org/wiki/Omission_bias" rel="nofollow">Omission Bias</a>: </p>

<blockquote>
  <p>The omission bias is an alleged type of cognitive bias. It is the tendency to judge harmful actions as worse, or less moral than equally harmful omissions (inactions) because actions are more obvious than inactions.</p>
</blockquote>

<p><a href="http://ambiguityadvantage.blogspot.com/2008/02/action-bias-in-decision-making-problem.html" rel="nofollow">Action Bias</a> (academic source: <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.335.9458&amp;rep=rep1&amp;type=pdf" rel="nofollow">Bar-Eli et al., 2007</a>) </p>

<blockquote>
  <p>Simply put this means that just about everyone, when faced with ambiguous situations, especially those circumstances associated with risk, gets the feeling that they need to take some action regardless of whether this is a good idea or not.</p>
</blockquote>

CC BY-SA 3.0
2015-12-27T19:22:59.493Z
Please define the biases and their use in you context.
BB King
CC BY-SA 3.0
2015-12-28T05:52:48.450Z
I don't think there is anything to reconcile here at all. These biases don't really relate to economics, but to morality, so I am not sure where your confusion comes from.
rocinante
CC BY-SA 3.0
2015-12-28T07:20:38.460Z
@rocinante Please tell that to Bar-Eli et al. Their paper was in the Journal of ***Economic*** Psychology. Also, this is a question about ***Behavioral*** Economics. Google it if it's unfamiliar to you.
thanks_in_advance
CC BY-SA 3.0
2015-12-28T15:36:56.520Z
@user1883050 While I tend to agree with your last comment, it's also a tad rude. In my mind, these observed biases exist in the realm of psychology until a behavioral economist comes along, loosens one of the *homo economicus* assumptions, thereby "rationalizing'' the behavior (the quotation marks being critical, as weakening those assumptions is a departure from rationality). So while I think it's a fine question for this forum, don't be surprised by a little backlash. Many economists, myself included, think most behavioral economics is deeply flawed.
Shane
CC BY-SA 3.0
2015-12-28T15:42:24.017Z
... To give you a flavor of the issues with behavioral economics, many papers weaken assumptions or come up with some poorly motivated model that can explain a particular observed behavior. But, if the model is totally counter-intuitive and explains only one phenomenon, then, in constructing the model, you've basically just assumed the result you were trying to show. Better behavioral papers have intuitive/plausible models and explain several observed behavioral phenomena.
Shane
CC BY-SA 3.0
2015-12-29T03:43:52.403Z
@user1883050 While "omission bias" is a term in economic psychology, there is no evidence to suggest that "action bias" also belongs to that category. It seems to me that you're trying to reconcile one term from economic psychology to another term from general psychology. That leaves a huge gap which can't be reconciled by logic alone, no matter how hard you try to strain yourself, as people who have attempted to answer your question demonstrate.
rocinante
<behavioral-economics>
"omission bias" vs "action bias" -- how can they be reconciled?
thanks_in_advance
# "omission bias" vs "action bias" -- how can they be reconciled?

(Asked by: username_0 on 2015-12-27)

I'm having trouble reconciling these two biases. They seem to be the exact opposite of each other. Yet humans are allegedly pre-disposed to both.

How can they be reconciled?

---

[Omission Bias](https://en.wikipedia.org/wiki/Omission_bias):

> The omission bias is an alleged type of cognitive bias. It is the tendency to judge harmful actions as worse, or less moral than equally harmful omissions (inactions) because actions are more obvious than inactions.

[Action Bias](http://ambiguityadvantage.blogspot.com/2008/02/action-bias-in-decision-making-problem.html) (academic source: [Bar-Eli et al., 2007](http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.335.9458&rep=rep1&type=pdf))

> Simply put this means that just about everyone, when faced with ambiguous situations, especially those circumstances associated with risk, gets the feeling that they need to take some action regardless of whether this is a good idea or not.

**Tags:** behavioral-economics
> **Comments:**
> **username_1**: Please define the biases and their use in you context.  
> **username_2**: I don't think there is anything to reconcile here at all. These biases don't really relate to economics, but to morality, so I am not sure where your confusion comes from.  
> **username_0**: @rocinante Please tell that to Bar-Eli et al. Their paper was in the Journal of ***Economic*** Psychology. Also, this is a question about ***Behavioral*** Economics. Google it if it's unfamiliar to you.  
> **username_3**: @user1883050 While I tend to agree with your last comment, it's also a tad rude. In my mind, these observed biases exist in the realm of psychology until a behavioral economist comes along, loosens one of the *homo economicus* assumptions, thereby "rationalizing'' the behavior (the quotation marks being critical, as weakening those assumptions is a departure from rationality). So while I think it's a fine question for this forum, don't be surprised by a little backlash. Many economists, myself included, think most behavioral economics is deeply flawed.  
> **username_3**: ... To give you a flavor of the issues with behavioral economics, many papers weaken assumptions or come up with some poorly motivated model that can explain a particular observed behavior. But, if the model is totally counter-intuitive and explains only one phenomenon, then, in constructing the model, you've basically just assumed the result you were trying to show. Better behavioral papers have intuitive/plausible models and explain several observed behavioral phenomena.  
> **username_2**: @user1883050 While "omission bias" is a term in economic psychology, there is no evidence to suggest that "action bias" also belongs to that category. It seems to me that you're trying to reconcile one term from economic psychology to another term from general psychology. That leaves a huge gap which can't be reconciled by logic alone, no matter how hard you try to strain yourself, as people who have attempted to answer your question demonstrate.  

---

## 3 answers

### Answer by username_4 on 2015-12-28. Score: 1 | Accepted answer

According to the reference cited, **omission bias** arises when the **norm** for a particular situation is *inaction* whereas **action bias** arises when the norm is *action*. Make sense?

An example of **Action Bias** in Finance would be the observation that managers often make unprofitable investments instead of the alternative (i.e. return money to investors either as dividends or share buybacks) [1] because for these managers the norm is to find and invest in new projects.

As far as **Omission Bias** goes, one of the most famous examples arises in this [thought experiment](https://en.wikipedia.org/wiki/Trolley_problem).

[1] An example of this is described by Michael C. Jensen in 'The Agency Costs of Free Cash Flow: Corporate Finance and Takeovers' [American Economic Review, Vol. 76, No. 2 (May, 1986)].


---

### Answer by username_5 on 2017-10-16. Score: 3

This is a great question, you're not the only one confused. We just completed a working paper on this very topic: "[What is action, what is inaction? A review of action-inaction biases and recommendations for term use and typology](https://www.researchgate.net/publication/320409218_What_is_action_what_is_inaction_A_review_of_action-inaction_biases_and_recommendations_for_term_use_and_typology)" and we cover these two biases and many other action-inaction biases.

See page 5:

> Building on the action-effect is the omission bias. The omission bias
> has been defined in many different ways, and is sometimes regarded to
> be the same as the action-effect. We view the two biases as different,
> with the omission bias extending the action-effect to focus on the
> choices made between action and inaction or about moral attributions
> to action and inaction, rather than the experience of negative
> emotions or regret as a consequence of action-inaction. In its
> broadest definition, the omission bias is the phenomenon that people
> prefer omissions to commission when there is the possibility of a
> negative outcome (Spranca, Minsk, & Baron, 1991; Ritov & Baron, 1990).
> Using this definition, if we consider the classic action-effect
> scenario, the two investors facing a risky situation and presented
> with the options of taking action and switching versus not taking
> action and sticking to the initial investment would prefer inaction to
> action. Linking with the action-effect, the bias could partly be
> explained as a strategy to minimize anticipated-regret (Anderson,
> 2003; Wong & Kwong, 2007; Zhang & Fishbach, 2005), possibly further
> heightened by related biases such as loss aversion (Tversky &
> Kahneman, 1991) and risk aversion (Kahneman & Tversky, 1979; Tversky &
> Kahneman, 1992).

Briefly, the "action effect" is the tendency to regret actions more than inaction (negative outcomes) leading to a preference for omissions. In Bar-Eli's paper the action-effect is reversed to an inaction-effect (Zeelenberg etal. 2002) due to normality, the expectations for goal keepers to act. Therefore, the reconciliation is by using normality from norm theory (Kahneman & Miller, 1986).

Hope that helps, we'd appreciate feedback if things aren't clear.


---

### Answer by username_3 on 2015-12-28. Score: 1

Here are two examples that illustrate the potential difference to me:

> **Example 1:** You are a general and 200 of your troops are being held captive by an enemy. All friendly soldiers are equally valued by the general and all deaths below are friendly deaths. The general is indifferent about enemy deaths. He must pick one of the two options:
>
> 1. Attack the enemy, resulting in 200 deaths with certainty.
> 2. Do nothing, in which case the enemy will kill the 200 captured soldiers.

*Omission bias* might lead the general to prefer option 2. The fuzzy human *reasoning* might be that in choosing the first option, the general somehow causes 200 deaths, while in choosing the second option, it is the enemy that causes the deaths, so the general may prefer the second option even though he should be indifferent between them. This example can not be applied for *Action Bias* because there is no ambiguity, uncertainty or risk in the example.

> **Example 2:** There is an urn with 1 red ball and 1 blue ball inside. A ball is drawn randomly from the urn, and, if it matches your color, you win $100. Your options are as follows:
>
> 1. Choose red as your color
> 2. Choose blue as your color
> 3. Do nothing and be randomly assigned a color

Note that *Omission bias* is inapplicable here as there are no *harmful* actions, and there are really no morality issues at play. On the other hand, *Action bias* might imply that agents are more likely to pick the first or second options here than they are to choose the third option, even though *homo economicus* would be indifferent across the three.

To conclude, the key difference, as I see it, is that *Action bias* is really only relevant in situations with risk or ambiguity. I think technically speaking there is no ambiguity here, since the rules of the game and the balls in the urn are known to the player, but you could easily transform it into a game with ambiguity by saying the player doesn't know the contents of the urn and instead has some belief. *Omission bias*, on the other hand, is more related to morality. If a bad thing is going to happen, we'd rather it happen because of something that we didn't do than something that we did.


---

