Today we’re exploring how cognitive bias affects venture capitalism. The topic is worth our time because investing is just as much art as it is science.

A venture firm works from a thesis, but a thesis is just a set of proposed understandings. Beneath the graphs and pie charts, the empirical anchors, lie fuzzier things like intuition, hope, and bias.

Let’s understand that bias to better understand why money gets allocated the way it does.

Brains Full of Bias

The human mind is prone to quirks of thought that distort reality. A fun example is the IKEA effect: the tendency to over-value items that you assembled yourself. The planning fallacy is another cognitive bias, one that software developers are familiar with, at least in practice — peop...