Everyone thinks they make rational, objective, well thought-out decisions, whether they are big or small decisions. But let me tell you, I was enlightened recently... I’ll summarize my findings:
- The Anchoring Trap
Is the population of Turkey greater than 35 million?
What’s your best estimate of Turkey’s population?
If you’re like most people, the figure of 35 million cited in the first question (a number chosen arbitrarily) influenced your answer to the second question. This question was asked to many groups of people; half the cases they used 35 million and the other half they used 100 million. As predicted, the answer to the second question increased by millions when a greater figure was used in the first question. This common phenomenon is known as anchoring. “When considering a decision, the mind gives disproportionate weight to the first information it receives. Initial impressions, estimates, or data anchor subsequent thoughts and judgments.”
--------------------------- - The Sunk-Cost Trap
Your friend needed a job and you decided to pull a few strings and ask a few favors from your boss to have him hired. Your friend isn’t the most reliable person and can’t cut it as the employee you made him out to be. What do you do? You try to teach him more, fix his mistakes, make excuses for him; pour enormous effort into improving the performance of an employee whom we knew shouldn’t have hired.
Our past decisions become what economists term as sunk costs – old investments of time or money that are now irrecoverable. We know, rationally, that sunk costs are irrelevant to present decision, but nevertheless they prey one our minds, causing use to make improper decisions. Frequently, it’s because we are unwilling, consciously or not, to admit we made a mistake... especially if there are other people affected by your mistake. We become trapped by an “escalation of commitment” and try, consciously or unconsciously, to protect our earlier, faulty decisions.
--------------------------- - The Confirming-Evidence Trap
Your boyfriend just broke up with you and you needed to call someone to vent to. You decide to call one of your girl friends, whom you know wasn’t too fond of your ex-boyfriend to begin with, to get support and comfort from.
Okay, I know that example is situational and when dealing with people, things are very complex. But the general idea behind this trap is that, when we believe something is the best decision and we’re looking for evidence and supporters, we tend to seek out the people who have similar ideas as us. “The confirming-evidence bias not only affects where we go to collect evidence but also how we interpret the evidence we do receive, leading us to give too much weight to supporting information and too little to conflicting information.”
--------------------------- - The Framing Trap 1 --> Gains vs. Losses
Your father put you in charge of taking care of 3 boxes of merchandise each box worth $200. Somehow, the boxes got lost in the shipping, but the insurance company offers you 2 options:
Plan A. This plan will save the merchandise of one of the 3 boxes, worth $200.
Plan B. This plan has a 1/3 probability of saving all 3 boxes, worth $600, but has a 2/3 probability of saving nothing.
Which plan will you choose?
Most people in this type of study chose the “less risky” Plan A. But if we were to ask you to choose between:
Plan C. This plan will result in the loss of 2 of the 3 boxes, worth $400.
Plan D. This plan has a 2/3 probability of resulting in the loss of all 3 boxes, but has a 1/3 probability of saving all the merchandise, worth $600.
In this framing, most people would choose Plan D. If you haven’t noticed, Plan A=Plan C, and Plan B=Plan D. As studies show, people are less risky when a problem is put in terms of gains (boxes saved) but riskier when a problem is posed in terms of avoiding losses (boxes lost).
--------------------------- - The Framing Trap 2 --> Different Reference Points
You have $2000 in your checking account and you are asked the following question:
Would you accept a 50-50 chance of either losing $300 or winning $500?
Would you accept the chance? What if you were asked this question:
Would you prefer to keep your checking account balance of $2000 or to accept a 50-50 chance of having either $1700 or $2500?
Rationally speaking, your answers should be the same, but studies have shown that many people to refuse the 50-50 chance in the first question, but accept it in the second. Our different reactions result from the different reference points presented. The first frame, with its reference point of $0, emphasized incremental gains and losses – the thought of losing triggers a conservative response in many people’s minds. The second frame, with its reference point of $2000, puts things into perspective by emphasizing the real financial impact of the decision.
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There are many other traps that are mentioned, but I believe they are more obvious and recognizable which is why I didn’t include them. Just remember: the higher the stakes, the higher the risk of being caught in a psychological trap – the best protection against all psychological traps is AWARENESS.
2 comments:
haha good ol pyschology text books...
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