The eight big mental errors that keep you from the life you want and how to avoid them.
Every day you are asked to make decisions. From small choices like what to wear to life-altering decisions like who to marry, where to live, and what job to pursue. And research tells us that you are bad at making these choices. Why? Because you allow eight common cognitive errors to trip you up. Worst of all, you don’t even know you are letting it happen.
One of the best ways to avoid making these mental mistakes is to know what the common mental traps are so you can recognize them, avoid them and make better decisions in the future. So here are eight of the most pernicious cognitive biases and ways to recognize and avoid them so you can make better decisions in the future.
Affective Forecasting
Imagine that you just won the giant multistage lottery. How happy would that make you? How long would that feeling last? Or, imagine that you’re injured in an accident that damages your spine and leaves you unable to walk. How horrible would that be? Odds are, you guessed the first scenario would fill you with joy while the second would leave you miserable. And you would be correct, but only for a short time.
It turns out that most lottery winners are ecstatic at first, and most paraplegics are depressed, but after a short time, both groups return to their baseline level of happiness. Psychologists call this the Hedonic Treadmill and it explains why we work hard to advance and buy nice things, only to find the changes in our circumstances don’t make us happier.
It turns out that we are terrible at predicting what will make us happy or miserable. Instead, no matter what happens — good or bad — we tend to return to our previous level of happiness. We are more adaptive and resilient than we think. Our adaptability can be good when compensating for the misfortunes that befall us, but it also means that things will never be as good as expected.
As psychologist and author of the book Stumbling on Happiness, Daniel Gilbert put it, “The hedonic consequences of most events are less intense and briefer than most people imagine,”
How to compensate
Remember that things will never be as good or bad as we think they will. A new, bigger house won’t make you as happy as you think, especially if it means a longer commute to work. When making a decision, keep these points in mind;
- Expect only short-term happiness from any material thing, be it a car, house, bonus, or award.
- Avoid negative consequences you can’t grow accustomed to, such as the long commute that goes with moving to the suburbs or the chronic stress that accompanies a promotion.
- Instead, aim for more free time and autonomy to enjoy what you already have. Follow your interest, even if that means giving up some income to do so.
Loss Aversion
Imagine that you and I are going to bet on the flip of a coin. It is a 50:50 chance that you will win or lose. If I asked you to bet $5 on the flip’s outcome, how much would you think you need to win in to make you feel it is worth gambling your five dollars?
When this scenario was put to subjects in Daniel Kahneman’s psychology laboratory, the answer turned out to be more than $10. In other words, people saw the loss of five dollars as twice as painful as the pleasure from gaining five dollars. This tendency to see our potential losses as twice as unpleasant as our possible gains is known as loss aversion.
Despite this tendency, Kahneman’s research showed that the actual losses proved less painful than subjects anticipated. Again, we are more resilient than we think and better rationalize away our failures than we realize. As Dr. Kahneman put it, “We’re very good at finding new ways to see the world that make it a better place for us to live in.”
The danger of loss aversion is that we also eliminate the possibility of gains in the process of avoiding losses. Your oversensitivity to loss blinds you to opportunities to get ahead. And that can limit your options and your success.
How to compensate
- Remember, whatever the future holds, it will hurt or please you less than you think.
- Seek the advice of someone who faced the same decision in the past. Find out what that person thinks about it now. Are they happy they didn’t take a risk, or do they wish they had?
- Don’t always play it safe. Take a few risks in your life. The worst may not come to fruition, and if it does, you have the psychological resilience to cope.
Confirmation Bias
Who hasn’t had a politically charged argument with someone who only drew on evidence that supported their opinions and dismissed any contradictory evidence out of hand. You face confirmation bias, the tendency to accept new information that supports one’s belief while rejecting information that contradicts that belief.
You want to be proven right. So you look for evidence that supports your opinions and decisions. But in doing so, you are dismissing important information that may disprove your conclusion. You like to think that you are carefully weighing your decision, but the reality is, you have already made up your mind, and you are just looking for support to justify your decision.
This situation has become more acute in recent years as social media sites curate the notices you receive to complement the content you have viewed in the past. Curated content makes it easier for you to trick yourself into thinking all the data supports your viewpoint.
Charles Darwin was not the first person to propose the theory of evolution. His grandfather Erasmus Darwin wrote a poem about it years before Charles got involved. Charles created an iron-clad picture of the idea that addressed most criticisms before detractors could raise them. And Charles did that by deliberately seeking out disconfirming information. He even carried a notebook with him because he recognized how easy it was to “forget” contradictory ideas and evidence. He crafted a solid theory by forcing himself to confront the evidence that did not initially appear to fit.
How to compensate
- Play the devil’s advocate. Recognize that bias exists in others and yourself. We tend to overestimate how much this bias affects others while underestimating how much it affects ourselves. Being aware of your blindness is the first step to overcoming it.
- Seek out information that does not agree with your opinion. Do like Charles Darwin and deliberately try to prove yourself wrong. It’s not a lot of fun, but it can save you from having to live with the consequences of a wrong decision which may be even less fun.
- Deliberately expose yourself to dissenting ideas. If you are a hard-core MSNBC fan, consciously watch Fox News on occasion, and vice versa. It might not be fun, but it is necessary if you want to be informed.
Anchoring
Would you believe that something as arbitrary as your social security number could influence how much you would pay for a bottle of wine? Neither did MIT students in a now-famous study conducted by Dan Ariely, Drazen Prelec, and George Lowenstein. Students were presented with items without a price: a bottle of wine, a textbook, and a cordless trackball. The students then wrote down the last two digits of their social security number as if that was the item’s price. The researchers found that students with high social security numbers paid up to 346% more for the same item than those with low numbers. Those with numbers from 80 to 99 paid an average of $26 for the trackball, while those with numbers from 00 to 19 paid only $9.
This research does not mean you should run out and try to get your social security number changed as a means of saving money. What it does mean is that we are consciously susceptible to the Anchoring Effect, the tendency to rely too heavily on the first piece of information offered, even when that information is not relevant.
You have seen the infomercial salesman who asks his audience, “How much would you pay for this? Thirty dollars?” Boom, you just got anchored. By setting an arbitrary price, you now see $30 as the value of an item. So when the salesman offers it to you for the “special low price of $19.95!” it looks like a bargain. But is it? No. If the item’s price is $19.95, that is the price no matter what the salesman told you earlier.
The anchoring effect is why store discounts are effective at getting people to buy things and why retailers display the original price and the sale price. That “original price” acts as an anchor, so the sale price looks more attractive. Anchoring does not work as well if you have a way of knowing the value of a product before you see the sale price. If you know that a particular shirt costs $30 in other stores and is only $25 in this store, then you have found a bargain. The problem occurs when you can’t know the value of an item. When that happens, you are far more susceptible to the anchoring effect.
How to compensate
It’s hard to compensate for the anchoring effect. Sometimes you can search on the internet to find out what those cool new shoes are selling for other places. But other times, there is no way to know the true value of a purchase. Buying a home is a good example. There is no way to know what a house is worth. You can look at tax valuations and compare other houses sold in the same area, but these are all anchors.
One way to compensate is to set a counter anchor. The problem here is knowing where to place that anchor. Simply setting an arbitrary counter anchor is no better than the original anchor. One way to develop a counter anchor in home buying is to know your budget and what you are willing to pay. This anchor keeps you from getting carried away and overpaying. It’s not a perfect system, but it is a way to figure out what something is worth to you and helps you stay on budget.
Sunk Cost Fallacy
A friend sold his Apple stock in 2012 when that stock was at an all-time high. “I want to lock in my gains,” he told us as he bragged about how well he had done. At the same time, I knew this man was an investor in a local company that had been struggling. He doggedly continued to invest in this failing business because, “It just has to turn around, I know it will. It just needs a little more time.”
Of course, Apple stock has continued to sore since 2012, and a share today is worth more than five times what it was worth in 2012. Meanwhile, the local business eventually collapsed, taking my friend’s money with it.
So why did a smart man make such a bad decision? Selling the Apple stock was a classic example of loss aversion (see above), while the failure to get out of a sinking business is an example of the Sunk Cost Fallacy. My friend locked in his gains when he should have stayed in to realize even more profit, while he stayed in a losing investment because he did not want to lock in his losses.
The sunk cost fallacy says that the more we invest in something, the more committed we become. This is true with money and business ventures but is also true in other areas of life. Have you ever polished off an expensive dinner even after you started to feel uncomfortable because you reasoned that you paid for it, so you needed to finish it? Sunk cost fallacy. It can also explain why you watch a terrible movie to the end or why a nation stays in a war in the middle east for more than a decade.
You think you need to see these things through to the end, but you don’t.
How to compensate.
Decide to continue as if it is a decision to start. Forget about everything you have invested so far and ask yourself, “If I was not already invested in this, would I start investing now?” My friend needed to step back and ask himself that question. If he hadn’t already invested in the failing business, would he have started investing when it was clear the venture was sinking? Probably not. Meanwhile, if he had not already profited from Apple, would he have invested in the company when he pulled out. Almost certainly he would have.
The trick is not to throw good money after bad. Just because you have lost so far, don’t feel compelled to “stay the course.” It can be painful to get out and lock in your losses, but it will prove best in the long term.
The question I should have asked my friend in 2012 was this, “Would you take the profit you made from Apple and invest it in your other business?” If he stopped thinking about it emotionally and started reasoning, he probably would have repurchased his Apple stock and stopped investing in the failing business. I do feel a little guilty I never asked him that question.
The Paradox of Choice
Imagine you go into your favorite gourmet grocery store and see two displays offering jam samples. One exhibit has 24 flavors available, while the other is limited to just six flavors: peach, black cherry, red currant, marmalade, kiwi, and lemon curd. What would you do? That is the question social psychologist Sheena Iyengar wanted to answer.
Dr. Iyengar had research assistants pose as jam suppliers and set up sample tables. In addition to jam, the assistants also offered coupons to encourage customers to make a purchase. What the researchers learned is that less is more when it comes to making choices. The fewer choices people had, the more likely they were to make a decision.
Although shoppers flocked to the stand with 24 varieties, most became overwhelmed by all the options, and only 3% went on to purchase a jar of jam. Meanwhile, at the six-flavor stand, people were able to decide and bought a jar 30% of the time. The shoppers who visited the table with fewer options were ten times more likely to make a choice.
We tend to think more choices are better. We are attracted to extensive menus and lots of options. But all those options put more demand on your decision making which can lead to decision paralysis. It can also make us less satisfied with the choice we make out of fear that we made the wrong decision.
Psychologists break decision-makers down into two categories. Maximizers are the people who seek out the very best by looking at all of the options. While their opposite is the Satisficer who chooses the first option that meets all of their needs. According to Dr. Barry Schwartz, who has studied this issue, there is nothing to suggest that maximizers or satisfiers make better decisions. However, satisficers with high standards are happier with their decisions than maximizers who report lower satisfaction with their choices and with life in general.
How to compensate.
- Look for good enough. Try to think like a satisficer. That does not mean settling for less. Instead, it means setting criteria for what you want and then taking the first option that satisfies all your criteria. And I know what you are thinking if you do that you won’t get the best available. You are correct; it turns out maximizers earn 20% more than satisficers. But that is not the whole story because satisficers are more satisfied with their jobs and overall lives.
- Ask a friend for advice. If you know someone who has faced the same decision, ask them what they chose and how happy they are with their choice. If they are pleased with what they selected, odds are you will be with the same choice.
- Limit the options you consider. It’s tempting to search the internet and visit every local store before you make a choice. It’s also time-consuming and mentally exhausting. Rather than buying from the 24 jam table, do your shopping at the six jam stand. Deliberately limiting your options will not only make it easier to decide, but it will also make you happier with your choice.
Conclusion
Decision-making is important. Too important to leave it up to your intuitions alone because those intuitions lead to mental shortcuts and cognitive errors. To make the best decisions, you need to carefully evaluate more than the information you use to make a decision; you need to assess how your mind tries to trick you. When faced with a serious decision, think through these cognitive errors and make sure you are not falling victim to one or more of them.
Published on Mind Cafe
Relaxed, inspiring essays about happiness.
