Three Cognitive Biases That Cost You Money, Stress, and Happiness
Lets start with a simple question: how many of each animal did Moses have into the ark? If you lot pounced with the reply "2," you lot have fallen into the aforementioned trap every bit most people. (The answer is cipher—figure the rest out yourself.) Cerebral biases tell us we know when we don't, create absurdly optimistic estimates of what we can achieve, and go along us stuck in bad relationships and bad jobs.
Here are three biases and some strategies for getting out of the trap they set up.
1. The Sunk Toll Fallacy
Imagine yous have a ticket to the movies for which you forked out 10 bucks, just you lot are attending with a friend who got hers for complimentary. The atmospheric condition turns sour and they are re-running Dukes of Run a risk. Which one of you is more likely to cancel? If you say "my friend, duh," you are trapped by the sunk cost fallacy.
Your ten bucks is gone (bold you can't plead a refund). Since you are out 10 bucks whether you go or non, it should non impact your pick. What matters is the price-do good of braving the weather, and whether your movie features more interesting characters than Boss Hogg. (Unlikely. Still.)
The sunk toll fallacy traps people in bad relationships, bad investments, and traps countries in destructive, no-win wars. ("We can't withdraw because we have spent billions and people have given their lives.") What matters is the hereafter—whether you can turn the relationship around, or whether the next billion dollars and immature lives will be squandered in vain.
The sunk-cost fallacy is an example of a cognitive bias—a habitual, predictable, way of thinking that leads to fault. Wiki lists over 100; it seems the astonishing human encephalon has many hard-wired flaws.
Some of these flaws may have conferred an evolutionary reward. Who knows what the verbal conditions were five thousand years ago, but the hard-wiring of our brains may not have inverse apace plenty to keep upwards with the white-heat of cultural and technological development that has happened in the last 5000 years (a blink of an eye in genetic development).
Conquering the sunk-cost fallacy is very tough. Who has not poured fourth dimension and coin into something and wished they hadn't, only to pour more in on the side by side occasion? Nosotros similar to self-justify (to believe that nosotros made expert decisions in the by); who likes to say "I was a fool and then"? Then, we look for confirming evidence things are going our way. "He stopped drinking for a week, and had a chore last year."
1 technique is to create an imaginary scenario. Imagine you parachuted into the (house, relationship, investment) for free, with zero invested. What would yous exercise then? If the answer is "run for the hills," and then you take your answer.
two. The Planning Fallacy
A second bias which causes enormous stress is the "planning fallacy." Humans suck at estimating how long things volition take. Partly, we like to believe we are super-human, simply more often than not we are deluded about how complex things get. As a author, I'g constantly amazed that the last 5% of a projection takes 30% of the time. The average overrun on big applied science projects is 27%, and many really large ones overrun by ane hundred percent or more! A group of students were asked to estimate how long a term newspaper would have, their "best case" guess was 29 days, and the "worse case" (excrement hits the fan) was 48 days. They took an average of 55 days!
How much stress and misery, I wonder, comes from people in offices saying "I tin can do it by Friday," only to find that a couple of more than Fridays are required? We like to people-please, and to look confident and competent, but we are incompetent at estimating how long things have!
3. Optimism Bias
Our last bias rears its head in conflict situations, where anybody is sure of their "facts" and confident in their predictions near how different actions will pan out. This family of biases means we take a rosy view of our knowledge, and a dim view of other's. Nobody is as right as they think they are.
Professor Philip Tetlock has studied expert predictions over a lifetime. He found that experts (real experts, not talk radio experts) who were 100% sure of an outcome were wrong 25% of the time. Farther, when they thought an outcome had "no chance," it happened xv% of the time. What pct of people are to a higher place boilerplate listeners? 96%!
This "confidence without competence" is i cause of conflict running out of control. People who are dogmatically sure of themselves beget adversaries who become similarly dogmatic. The next time yous are in a conflict situation, make a table with two columns; write the facts (equally you see them) in one column, and your opinions and conclusions in the other column. Ask your adversary to practice the same (nicely!). Check off the facts on which you agree, and where you lot disagree. Do some homework together.
The hard part of resolving conflict lies in the area of opinions, interpretations, values and predictions, so yous are only part of the manner there. Only going through the process of developing a shared set of facts will diminish the polarization, and let you lot to go down to business organization.
Learning virtually our biases can help.
The sunk-toll fallacy keeps us stuck in a miserable past, throwing good time and money away after bad decisions. The planning fallacy creates tremendous stress every bit we struggle to meet unrealistic deadlines. Optimism biases make us feel sure of ourselves when we take no right to be, which leads united states to prolong and exacerbate conflict.
We didn't larn these things in schoolhouse because they were non well understood, were not part of whatsoever college curricula (unless behavioral economics gives you lot jollies), and certainly far from mainstream understandings of how humans work.
Learning nigh our biases puts us back in the game. Similar sharpshooters who correct for wind velocity and direction, knowing our thinking is skewed in a particular direction means we can motorcar-correct, make improve decisions, and get more of what we desire in life.
Source: https://www.lifehack.org/articles/work/three-cognitive-biases-that-cost-you-money-stress-and-happiness.html
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