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Three Cognitive Biases That Cost You Money, Stress, and Happiness

Three Cognitive Biases That Cost You Money, Stress, and Happiness

Lets start with a simple question: how many of each animal did Moses take into the ark? If you pounced with the answer “2,” you have fallen into the same trap as most people. (The answer is zero—figure the rest out yourself.) Cognitive biases tell us we know when we don’t, create absurdly optimistic estimates of what we can achieve, and keep us stuck in bad relationships and bad jobs.

Here are three biases and some strategies for getting out of the trap they set.

1. The Sunk Cost Fallacy

Imagine you have a ticket to the movies for which you forked out 10 bucks, but you are attending with a friend who got hers for free.  The weather turns sour and they are re-running Dukes of Hazard.  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 (assuming you can’t plead a refund).  Since you are out ten bucks whether you go or not, it should not affect your choice.  What matters is the cost-benefit of braving the weather, and whether your movie features more interesting characters than Boss Hogg. (Unlikely. Still.)

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The sunk cost 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 future—whether you can turn the relationship around, or whether the next billion dollars and young 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 error.  Wiki lists over 100; it seems the amazing human brain has many hard-wired flaws.

Some of these flaws may have conferred an evolutionary advantage.  Who knows what the exact conditions were five thousand years ago, but the hard-wiring of our brains may not have changed quickly enough to keep up with the white-heat of cultural and technological evolution that has happened in the last 5000 years (a blink of an eye in genetic evolution).

Conquering the sunk-cost fallacy is very tough.  Who has not poured time and money into something and wished they hadn’t, only to pour more in on the next occasion?  We like to self-justify (to believe that we made good decisions in the past); who likes to say “I was a fool then”?  Then, we look for confirming evidence things are going our way.  “He stopped drinking for a week, and had a job last year.”

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One technique is to create an imaginary scenario.  Imagine you parachuted into the (house, relationship, investment) for free, with nothing invested.  What would you do then?  If the answer is “run for the hills,” then you have your answer.

2. The Planning Fallacy

A second bias which causes enormous stress is the “planning fallacy.”  Humans suck at estimating how long things will take. Partly, we like to believe we are super-human, but mostly we are deluded about how complex things get.  As a writer, I’m constantly amazed that the last 5% of a project takes 30% of the time.  The average overrun on big technology projects is 27%, and many really big ones overrun by one hundred percent or more!  A group of students were asked to estimate how long a term paper would take, 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!

tough decisions

    How much stress and misery, I wonder, comes from people in offices saying “I can do it by Friday,” only to find that a couple of more Fridays are required?  We like to people-please, and to look confident and competent, but we are incompetent at estimating how long things take!

    3. Optimism Bias

    Our final bias rears its head in conflict situations, where everyone is sure of their “facts” and confident in their predictions about 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.

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    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.  Further, when they thought an outcome had “no chance,” it happened 15% of the time.  What percentage of people are above average listeners?  96%!

    This “confidence without competence” is one cause of conflict running out of control.  People who are dogmatically sure of themselves beget adversaries who become similarly dogmatic. The next time you are in a conflict situation, make a table with two columns; write the facts (as you see them) in one column, and your opinions and conclusions in the other column. Ask your adversary to do the same (nicely!).  Check off the facts on which you agree, and where you disagree. Do some homework together.

    The difficult part of resolving conflict lies in the area of opinions, interpretations, values and predictions, so you are only part of the way there.  But going through the process of developing a shared set of facts will diminish the polarization, and allow you to get down to business.

    Learning about our biases can help.

    The sunk-cost fallacy keeps us stuck in a miserable past, throwing good time and money away after bad decisions. The planning fallacy creates tremendous stress as we struggle to meet unrealistic deadlines. Optimism biases make us feel sure of ourselves when we have no right to be, which leads us to prolong and exacerbate conflict.

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    We didn’t learn these things in school because they were not well understood, were not part of any college curricula (unless behavioral economics gives you jollies), and certainly far from mainstream understandings of how humans work.

    Learning about our biases puts us back in the game.  Like sharpshooters who correct for wind velocity and direction, knowing our thinking is skewed in a particular direction means we can auto-correct, make better decisions, and get more of what we want in life.

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    Last Updated on August 20, 2019

    How to Find New Growth Opportunities at Work

    How to Find New Growth Opportunities at Work

    Career advancement is an enticement that today’s companies use to lure job candidates. But to truly uncover growth opportunities within a company, it’s up to you to take the initiative to move up.

    You can’t rely on recruiter promises that your company will largely hire from within. Even assurances you heard from your direct supervisor during the interviewing process may not pan out. But if you begin a job knowing that you’re ultimately responsible for getting yourself noticed, you will be starting one step ahead.

    Accomplished entrepreneur and LinkedIn Co-Founder Reid Hoffman said,

    “If you’re not moving forward, you’re moving backward.”

    It’s important to recognize that taking charge of your own career advancement, and then mapping out the steps you need to succeed, is key to moving forward on your trajectory.

    Make a Point of Positioning Yourself as a Rising Star

    As an employee looking for growth opportunities within your current company, you have many avenues to position yourself as a rising star.

    As an insider, you’re able to glean insights on company strategies and apply your expertise where it’s most needed. Scout out any skills gaps, then make a point to acquire and apply them. And, when you have creative ideas to offer, make it your mission to gain the ear of those in the organization who can put your ideas to the test.

    Valiant shows of commitment and enterprise make managers perk up and take notice, keeping you ahead of both internal and external competitors.

    Employ these other useful tips to let your rising star qualities shine:

    1. Promote Your Successes to Your Higher-Ups

    When your boss casually asks how you’re doing, use this valuable moment to position yourself as indispensable: “I’m floating on clouds because three clients have already commented on how well they like my redesign of the company website.”

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    Tell your supervisors about any and all successes. Securing a new contract or signing a new customer should be a cause for celebration. Be sure to let your bosses know.

    2. Cultivate Excellent Listening Skills

    Listen well, and ask great questions. Realize that people love to talk about themselves.

    But if you’re a superb listener, others will confide in you, and you’ll learn from what they share. You may even find out something valuable about your own prospects in the company.

    If others view you as even-minded and thoughtful, they’ll respect your ideas and, in turn, listen to what you have to say.

    Check out these important listening skills: 13 Powerful Listening Skills to Improve Your Life at Work and at Home

    3. Go to All Office Networking Events

    Never skip the office Christmas party, your coworker’s retirement party, or any office birthday parties, wedding showers, or congratulatory parties for colleagues.

    If others see you as a team player, it will help you rise in your company. These on-site parties will also help you mingle with co-workers whom you might not ordinarily have the chance to see. For special points, help organize one or two of these get-togethers.

    Take the Extra Step to Show Your Value to the Company

    Managers and HR staff know that it can be less risky – and a lot less costly — to promote from within. As internal staff, you likely have a good grasp of the authority structure and talent pool in the company, and know how to best navigate these networks in achieving both the company’s goals and your own.

    The late Nobel-Prize winning economist, Gary Becker, coined the term “firm-specific,” which describes the unique skills required to excel in an individual organization. You, as a current employee, have likely tapped into these specific skills, while external hires may take a year or more to master their nuances.

    Know that your experience within the company already provides value, then find ways to add even more value, using these tips:

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    4. Show Initiative

    Commit yourself to whatever task you’re given, and make a point of going above and beyond.

    Position yourself so that you’re ready to take on any growth opportunities that present themselves. If you believe you have skills that have gone untapped, find a manager who will give you a chance to prove your worth.

    Accept any stretch assignment that showcases your readiness for advancement. Stay late, and arrive early. Half of getting the best assignments is sticking around long enough to receive them.

    5. Set Yourself Apart by Staying up on Everything There Is to Know About Your Company and Its Competitors

    Subscribe to and read the online trade journals. Become an active member in your industry’s network of professionals. Go to industry conferences, and learn your competitors’ strategies.

    Be the on-the-ground eyes and ears for your organization to stay on top of industry trends.

    6. Go to Every Company Meeting Prepared and Ready to Learn

    A lot of workers feel meetings are an utter waste of time. They’re not, though, because they provide face-time with higher-ups and those in a position to give you the growth opportunities you need.

    Go with the intention of absorbing information and using it to your advantage — including the goals and work styles of your superiors. Respect the agenda, listen more than you speak, and never beleaguer a point.

    Accelerate Your Career Growth Opportunities

    A recent study found that the five predictors of employees with executive potential were: the right motivation, curiosity, insight, engagement, and determination. These qualities help you stand out, but it’s also important to establish a track record of success and to not appear to be over-reaching in your drive to move up in your company.

    Try to see yourself from your boss’s position and evaluate your promote-ability.

    Do you display a passion and commitment toward meeting the collective goals of the company? Do you have a motivating influence with team members and show insight and excellence in all your work?

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    These qualities will place you front and center when growth opportunities arise.

    Use these strategic tips to escalate your opportunities for growth:

    7. Find a Mentor

    With mentorship programs fast disappearing, this isn’t always easy. But you need to look for someone in the company who has been promoted several times and who also cares about your progress.

    Maybe it’s the person who recommended you for the job. Or maybe it’s your direct supervisor. It could even be someone across the hall or in a completely different department.

    Talk to her or him about growth opportunities within your company. Maybe she or he can recommend you for a promotion.

    Not sure how to find the right mentor? Here’s How to Find a Mentor That Will Help You Succeed.

    8. Map out Your Own Growth Opportunity Chart

    After you’ve worked at the company for a few months, work out a realistic growth chart for your own development. This should be a reasonable, practical chart — not a pie-in-the-sky wish list of demands.

    What’s reasonable? Do you think being promoted within two years is reasonable? What about raises? Try to inform your own growth chart with what you’ve heard about other workers’ raises and promotions.

    Once you’ve rigorously charted a realistic path for your personal development within the company, try to talk to your mentor about it.

    Keep refining your chart until it seems to work with your skills and proven talents. Then, arrange a time to discuss it with your boss.

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    You may want to time the discussion around the time of your performance review. Then your boss can weigh in with what he feels is reasonable, too.

    9. Set Your Professional Bar High

    Research shows that more than two-thirds of workers are just putting in their time. But through your active engagement in the organization and commitment to giving your best, you can provide the contrast against others giving lackluster performances.

    Cultivate the hard skills that keep you on the cutting edge of your profession, while also refining your soft skills. These are the attributes that make you better at embracing diverse perspectives, engendering trust, and harnessing the power of synergy.

    Even if you have an unquestionably left-brain career — a financial analyst or biotechnical engineer, for example — you’re always better off when you can form kind, courteous, quality relationships with colleagues.

    Let integrity be the cornerstone of all your interactions with clients and co-workers.

    The Bottom Line

    Growth opportunities are available for those willing to purposely and adeptly manage their own professional growth. As the old adage says,

    “Half of life is showing up.”

    The other half is sticking around so that when your boss is looking for someone to take on a more significant role, you are among the first who come to mind.

    Remember, your career is your business!

    More About Continuous Growth

    Featured photo credit: Zach Lucero via unsplash.com

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