Advertising

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

Advertising
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.)

Advertising

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.”

Advertising

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.

    Advertising

    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.

    Advertising

    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.

    More by this author

    Cognitive biases and decisions Three Cognitive Biases That Cost You Money, Stress, and Happiness Three things a skeptic should know about neuroscience Forget Resolutions: If You Only Do One Thing to Get Ready for 2014, Do This!

    Trending in Work

    1 20 Ways to Describe Yourself in a Job Interview 2 How to Start a Side Hustle While Keeping Your Full-Time Job 3 Why Personal Branding Is Important to Your Career 4 How To Boost Employee Motivation During Difficult Times 5 7 Effective Ways To Motivate Employees in 2021

    Read Next

    Advertising
    Advertising

    Last Updated on November 15, 2021

    20 Ways to Describe Yourself in a Job Interview

    Advertising
    20 Ways to Describe Yourself in a Job Interview

    “Please describe yourself in a few words”.

    It’s the job interview of your life and you need to come up with something fast. Mental pictures of words are mixing in your head and your tongue tastes like alphabet soup. You mutter words like “deterministic” or “innovativity” and you realize you’re drenched in sweat. You wish you had thought about this. You wish you had read this post before.

    Advertising

      Image Credit: Career Employer

      Here are 20 sentences that you could use when you are asked to describe yourself. Choose the ones that describe you the best.

      Advertising

      “I am someone who…”:

      1. “can adapt to any situation. I thrive in a fluctuating environment and I transform unexpected obstacles into stepping stones for achievements.”
      2. “consistently innovates to create value. I find opportunities where other people see none: I turn ideas into projects, and projects into serial success.”
      3. “has a very creative mind. I always have a unique perspective when approaching an issue due to my broad range of interests and hobbies. Creativity is the source of differentiation and therefore, at the root of competitive advantage.”
      4. “always has an eye on my target. I endeavour to deliver high-quality work on time, every time. Hiring me is the only real guarantee for results.”
      5. “knows this job inside and out. With many years of relevant experience, there is no question whether I will be efficient on the job. I can bring the best practices to the company.”
      6. “has a high level of motivation to work here. I have studied the entire company history and observed its business strategies. Since I am also a long-time customer, I took the opportunity to write this report with some suggestions for how to improve your services.”
      7. “has a pragmatic approach to things. I don’t waste time talking about theory or the latest buzz words of the bullshit bingo. Only one question matters to me: ‘Does it work or not?'”
      8. “takes work ethics very seriously. I do what I am paid for, and I do it well.”
      9. “can make decisions rapidly if needed. Everybody can make good decisions with sufficient time and information. The reality of our domain is different. Even with time pressure and high stakes, we need to move forward by taking charge and being decisive. I can do that.”
      10. “is considered to be ‘fun.’ I believe that we are way more productive when we are working with people with which we enjoy spending time. When the situation gets tough with a customer, a touch of humour can save the day.”
      11. “works as a real team-player. I bring the best out of the people I work with and I always do what I think is best for the company.”
      12. “is completely autonomous. I won’t need to be micromanaged. I won’t need to be trained. I understand high-level targets and I know how to achieve them.”
      13. “leads people. I can unite people around a vision and motivate a team to excellence. I expect no more from the others than what I expect from myself.”
      14. “understands the complexity of advanced project management. It’s not just pushing triangles on a GANTT chart; it’s about getting everyone to sit down together and to agree on the way forward. And that’s a lot more complicated than it sounds.”
      15. “is the absolute expert in the field. Ask anybody in the industry. My name is on their lips because I wrote THE book on the subject.”
      16. “communicates extensively. Good, bad or ugly, I believe that open communication is the most important factor to reach an efficient organization.”
      17. “works enthusiastically. I have enough motivation for myself and my department. I love what I do, and it’s contagious.”
      18. “has an eye for details because details matter the most. How many companies have failed because of just one tiny detail? Hire me and you’ll be sure I’ll find that detail.”
      19. “can see the big picture. Beginners waste time solving minor issues. I understand the purpose of our company, tackle the real subjects and the top management will eventually notice it.”
      20. “is not like anyone you know. I am the candidate you would not expect. You can hire a corporate clone, or you can hire someone who will bring something different to the company. That’s me. “

      Featured photo credit: Tim Gouw via unsplash.com

      Advertising

      Advertising

      Read Next