Last night, we saw a great example of how cognitive biases can have catastrophic effects when Corrie's Rob confessed to the World's Most Perfect Woman that he had killed Tina.

I suspect he did so because of the false consensus effect - our tendency to over-estimate the extent to which other people are like us. Because he knew that he'd killed Tina, he mistook the WMPW's suspicions for hard knowledge and so broke down in the false belief that he couldn't sustain his denial: the fact that he wanted the WMPW to keep quiet about the murder suggests this, rather than a Raskolnikovian urge to repent, was his motive*.

I sympathize with Rob here, because I am prone to the false consensus bias myself. For years in the day job I've been surprised when fund managers talk about behavioural finance as if it's a new thing: "surely everyone knows that", I've thought. And one reason why this blog is so badly written is that I tend to assume that others share my presumptions and knowledge to a greater extent than they do, and so I fail to explain things fully.

There's also good academic evidence for the false consensus effect, for example:

- It can cause people not to vote, because they believe - perhaps wrongly - that others think the same way as them and so their vote won't make a difference. This might explain why Thom was voted out of Strictly Come Dancing on Sunday.

- Trustworthy people over-estimate the extent to which others are trustworthy, and so lose money.

- Eugenio Proto and Daniel Sgroi have shown that tall people over-estimate how many other people are tall; left-wingers over-estimate the prevalence of left-wing opinion; onwers of HTC phones over-estimate their popularity, and so on.

I'm pretty clear, then, that the false consensus effect is widespread. What I'm not so clear about is whether it has whether it has significant costs. I suspect it might, in (at least) three ways:

- It might cause us to under-estimate principal-agent problems because we exaggerate the commonality between ourselves and the agent. This might cause shareholders (or workers!) to insufficiently rein in chief executives, and cause us to become too optimistic about the extent to which politicians will act in our interests.

- It'll cause us to under-estimate the benefits of cognitive diversity. If we believe that everything thinks like us anyway, we'll not invest in ensuring we get a plurality of perspectives and we'll be overly inclined to trust hierarchical decision-making processes.

- We'll under-estimate the divisions between rich and poor. Paul Krugman has pointed out that the rich are invisible, in the sense that ordinary people under-estimate (pdf) just how wealthy they are. This is an example of the false consensus effect; people over-estimate the extent to which others are like themselves. But of course, it's not just ordinary folk who do this. The rich probably fail to see how the worse off struggle to get by.

Now, I know I risk sounding like a one-trick pony, but might there be a common theme here? Perhaps the false consensus effect - to some extent at least - is one of the many factors which helps to sustain hierarchy and inequality.

* Anyone who thinks it odd to mention Corrie and Dostoyevsky together is, of course, not the sort of reader I want.