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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.

    More by this author

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    Last Updated on February 20, 2019

    17 Versatile Work Skills That Will Gain You More Career Opportunities

    17 Versatile Work Skills That Will Gain You More Career Opportunities

    When we look at a job advertisement, it can seem as though employers want an exhaustive list of experience and technical skills from their new hire.

    They list desirable qualities such as ‘initiative’, ‘team player’ and ‘strong work ethic’. Those words can mean a variety of things to different people and it can be quite hard for employers to illustrate fully the combination of technical and soft skills they want their potential employees to have.

    What they often want is a mix of versatile skills that make it easy for them (and you) to adapt to the changing needs and demands which occur in businesses today.

    After all, adaptability and innovation are what make businesses thrive.

    In today’s ever-changing environment, versatility is a mandatory attitude every working person needs to have. With the following seventeen work skills, you will not only make your employer extremely happy and confident that hiring you was their best decision, you will experience greater personal satisfaction and results.

    1. Know What You Want but More so Why You Want It

    Employers need to sense you have a solid idea as to why you are a fit for their role and their organization. They need to sense you have your own sense of purpose.

    However, it can be a double-edged sword to say you know exactly what you want to achieve and gain if you are successful in your application and interview.

    Some employers can perceive this as arrogance; your needs first, theirs second. What employers are really looking for is your internal sense of knowing that potential to join their organization is a winning combination for both of you.

    2. Diplomacy and Conflict Resolution Skills Save Money, Lost Productivity and Efficiency

    Can you agree to disagree? Can you evaluate without passing judgment or at least be self-aware of your own biases? Can you put these aside to find solutions for the betterment of the team?

    Employers look for versatility in soft work skills that bring peace, lower stress and contribute to creating harmony. If you have ways with words to help heated arguments reduce to a simmer so there is space for compromises, negotiations and reasoning to take place your employers’ respect for you will jump at least tenfold.

    Peace-making skills are invaluable in changing workplace culture, particularly toxic ones. Any good employer knows a strong in-house negotiator will save them thousands of dollars in engaging an external mediator.

    3. Know How to Set and Reframe Your Own Goals

    Much research has documented that when employees have a clear purpose, mission and goals, they are more likely to be highly productive. They are less likely to flounder around in many directions nor be busy and not produce results that matter.

    Employers know well that employees who develop their own goals and can align these with those of the company are more self-driven, self-sufficient and take greater ownership for performing their role.

    And the benefit is not only to the employers. You personally will find greater personal satisfaction from achieving targets you have chosen to set yourself. Everyone wins!

    4. Great Time Management and Organization Skills Make You Highly Productive

    Being able to exercise versatility with these work skills needs no explanation. Great time management does not mean multi-tasking. It actually uses more brain power and reduces effectiveness.

    Having great skills to prioritize your activities and demands, being able to assess how long things might take you to address are planning skills which greatly aid effective and better execution.

    Working in harmony with your colleagues’ timetables makes for better teamwork and workflow plus a less stressed environment.

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    In today’s working world, any strategies for reducing stress-invoking opportunities are like finding golden nuggets. Your employer will want to hold on to those for dear life!

    5. Be a Flexible Team Player by Being Able to Change Roles When Required

    Employers will be looking to see how flexible a team player, a potential employee could be.

    If you are a natural leader, being a better team player might, in fact, mean you stepping down from the helm and encouraging someone else to exercise and step into their leadership potential.

    It might be more beneficial to your employer to play the role of Indian as opposed to the Chief in certain situations. Stepping into different positions on your team not only helps you grow but also the rest of your team.

    Employers relish having a versatile work team which can adapt and is ready and willing to play different roles, even if uncomfortable when crises happen.

    6. Initiative, Self-Motivated and Driven

    When you have your own internal reasons for looking to undertake a role your motivation is driven by something sizzling inside of you.

    There is a personal drive and desire for the satisfaction you will experience when you meet a certain target that no other person will be able to give to you.

    When you can genuinely identify and demonstrate your own personal connection to the role’s objectives and the greater goals of your employer’s business, they will see you have an internal drive that they don’t need to whip and flog to keep the momentum going.

    Any employer will be grateful they just need to help navigate you and support you with the right tools and network and off you go.

    7. Be Confident but Not Arrogant

    Imagine if you were conducting initial telephone interviews with shortlisted candidates and one of the questions they asked was:

    “How long would it be until I’ll be eligible for a pay rise or promotion?”

    There is a significant difference between being confident and arrogant. Employers are not looking for confidence purely in you being able to perform every aspect of your role at gold star level.

    It comes with being comfortable to say you don’t understand, you have made a mistake, you need support, further training, acknowledging what your limits are and being willing to risk stepping outside your comfort zone.

    When you’re a new kid on the block, respecting that you may need to learn to walk before you can run is essential. Unless it is your job to start making significant changes from day one, chances are you’re going to create enemies if you’re so confident your new methods and ideas should replace existing processes.

    8. A Positive Attitude

    Demonstrating positivity as a work skill that will truly win over your new employer is about being genuine and actively applying strategies which look for the glass half full.

    Recruiters and employers are not dumb. They can easily see through short-term bright smiles, nervous giggling and general ‘you just need to think positive’ statements.

    In the face of grueling challenges, employers are going to look much more favorably on that candidate who can acknowledge the negative features of a situation but still encourage another solution-focused perspective to be adopted.

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    Even better, if you can use language effectively to demonstrate how you have adopted a positive perspective and helped turned around a tough situation.

    It is one thing to have a positive attitude but your potential employer will see you as a superhero if you can show them how you have successfully applied it.

    Take a look at these tips to learn more about staying positive:

    10 Tips To Make Positive Thinking Easy

    9. You Are Resourceful but Know the Value of Asking for Help

    There is nothing more unproductive (let alone frustrating) than that person who simply asks out loud a question to their team when they could simply have Googled the answer.

    Or worse still, they have a manual at their fingertips which has the answer to their question…they were simply too lazy to look for themselves.

    Be that person with Sherlock Holmes as their middle name who sleuths like a dog after a buried bone. You can research and turn over stones to discover and learn what you need but you also are able to ask for help and assistance when you need to.

    Any employer will relish that person who looks to discover the answers to their own questions first before reaching out and asking for help.

    Hesitate to ask for help? This article may just change your mind:

    Afraid to Ask for Help? Change Your Outlook to Aim High!

    10. Emotional Intelligence Creates a Harmonious Workflow

    Despite the level of seniority of your role having a strong ability to handle emotions is fast becoming an essential work skill (and also life skill).

    It is even more desirable for any employer when your work skill set includes the ability to detect, adapt to and have skills in managing certain emotional patterns of others you need to work with, manage or report to.

    So much time, energy and productivity is lost due to individuals’ lack of skills in this area. Any manager who can see you possess and can demonstrate such versatile work skills will think they’ve won the managerial lottery!

    You can learn how to improve your Emotional Intelligence from this article:

    7 Practical Ways To Improve Your Emotional Intelligence

    11. Be Able to Adapt Your Learning Style

    There is no real evidence that using preferred learning styles actually increase the rate at which we learn nor the effectiveness of certain styles.

    However, being able to make changes to what we are given to learn and adapting it to suit our needs and preferences does help us settle into a new work transition sooner.

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    We also need to recognize that even though we feel uncomfortable learning a new skill a certain way, it might actually be the way we need to receive it to cement the learning. It is also likely that our new employer only knows or has a budget to deliver training in a certain way.

    Either we can choose to adapt or resist but we know for sure the latter is not going to benefit to anyone.

    Want to find out what your learning style is? Take this quiz:

    How This Learning Style Quiz Can Help You Make the Most of Your Life

    12. Flexible Leadership Style

    Dan Goleman has conducted extensive research on different leadership styles, emphasizing that being versatile to switch between different styles (e.g. authoritative, coaching, affiliate, coercive, pace-setting) and knowing when to do is a fundamental skill for any leader.

    Being able to change your style to lead other people is as important as how you lead your own role responsibilities.

    If you want to be a better leader, these books are great resources:

    15 Best Leadership Books Every Leader Must Read To Achieve Success

    13. Incredible Communication Skills That Actively Listen and Give Clear Messages

    Strong and effective communication across all mediums takes time, life experience and highly developed intuition.

    Knowing when to use email, a face to face conversation or telephone discussion is one thing. Another is to use words which emotionally connect and influence the receiver to accept, hear and heed your message.

    Great communicators know that it is their responsibility as much as the receiver for good communication to take place. However, they also know that the receiver may not feel this is the case.

    When you can listen equally, be sensitive to read between the lines to hear the message of ineffective communicators and can respond kindly with inspiring, equalizing and encouraging words, your influence and general likeability as a new addition to your employer’s team will develop in leaps and bounds.

    These books are also nice resources to learn effective communication:

    13 Best Communication Books for Stronger Social Skills & Relationships

    14. Accountable, Responsible and Dependable

    We’ve all worked with people or managers at some point who lay external blame the instance something goes wrong.

    Contrary to popular belief, making mistakes and owning up to it is a highly desirable and versatile work skill that gains loyalty and understanding particularly when mistakes occur.

    Owning up to errors early allows both yourself and the business to recover quickly and shows you’re willing to take responsibility to continue forward on when you have stumbled.

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    When you illustrate you can do this, you build your employer’s trust and faith in you.

    15. Exercise Proactive Self-Awareness

    Self-reflection is a highly empowering work skill that contributes greatly to becoming better and performing better.

    When you actively look for the achievement, celebrate your success and look for pockets of where mistakes you have made can be corrected you improve faster, become more effective and make your work easier.

    When you start to look at your own errors, receiving feedback from your employer about the same errors can feel far less confronting and having corrective conversations is easier, transparent and far less stressful and emotional.

    You naturally increase your resilience and make life easier for yourself and your employer if you conduct regular self-check-ins and keep your employer updated.

    Here’s how to practice self-awareness:

    How to Increase Your Self Awareness to Be Much More Successful

    16. Apply a Problem-Solving Growth Mindset

    When faced with a problem or challenge, your ability to activate a growth mindset is a highly versatile work skill employers love. Not only are you able to reduce the pain and anguish that a fixed mindset can sustain but your ability to remain open to possibilities to find different pathways or ideas is refreshing and helpful.

    If your thought patterns automatically ask: “How can we?” or you often think “there must be a way”, you will only contribute to creating growth opportunities for your organization and inspire others to think the same way.

    Learn more about developing a growth mindset here:

    5 Ways to Cultivate a Growth Mindset for Self Improvement

    17. Be Teachable

    If you have ever tried to teach someone a new skill or technique and they keep reverting back to traditional ways that are familiar to them, you might have become frustrated to the point of giving up.

    Don’t be that person who’s stuck in tradition which no longer serves the business. Whether you are entering a new environment, learning new software or negotiation skills, know that all employers need people who are open to being taught.

    Innovation is a core concern of every business. Innovation means change and change means doing something different.

    Stay Versatile and Keep Learning

    Technical skills can often be taught. Ray Croc illustrated how well a systemized franchise can dominate the planet. Over 36,000 McDonald’s establishments around the world are run by managers barely in their twenties!

    Soft work skills, however, take time to develop, learn and confidently apply.

    There is a key combination of work skills that would make any candidate employer’s dream. However, the essential factor underlying all of these work skills is versatility.

    Equip yourself with these 17 work skills, stay curious and keep learning; and you’ll always nail the job you want.

    More Resources About Career Success

    Featured photo credit: Unsplash via unsplash.com

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