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00:02:33 Preferring Simplicity

00:05:52 Relying On Contrast

00:08:16 Avoid All Loss

00:12:46 Reduce Risk

00:16:29 The Resulting Trap

00:21:35 Confirmation Bias

00:25:08 Gambler’s Fallacy

00:27:51 Rosy Retrospection

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• Through no fault of our own, there are many ways our brains can actively fool us into suboptimal decisions.

• The first cognitive bias is a preference for simplicity and a distrust for complexity. Sadly, life isn’t always so simple. This can lead us to prefer the simpler, more direct option over options that are perceived to be more complex and have hidden factors.

• The second cognitive bias is a reliance on contrast and relative value. This makes us susceptible to terrible decisions because relative value is meaningless to us—the only thing that should matter is objective and absolute value.

• The third cognitive bias is a tendency to avoid losses. The psychological harm of a loss is exponentially that of the psychological benefit of a gain—thus, we seek to avoid losses in decisions whenever possible, even when it is illogical.

• The fourth cognitive bias is a tendency to reduce risk. This is similar to the tendency to avoid losses. We act to reduce risk because it feels psychologically more comfortable and less stressful, despite usually being a poorer decision overall.

• Cognitive biases are actually the most natural and instinctual way of thinking, which is bad news for your decision-making muscle. This chapter represents four more common cognitive biases that will cause suboptimal decisions.

• Confirmation bias is when you see or interpret things only to bolster your pre-existing assumptions and beliefs. This can cause, in a word, blindness.

• The gambler’s fallacy is when you try to find patterns in random, chaotic events that you have no control over. There is a lack of using actual evidence.

• Rosy retrospection is when you emphasize the positive nature of a past experience and apply that incorrect assessment to a current situation. Your biased memory calls the shots here, not your wealth of past experiences.

#Cacioppo #ConfirmationBias #Cullen #Eeyore #Gambler #JohnCacioppo #Kahneman #ReduceRisk #Retrospection #RobertSutton #RosyRetrospection #Simplicity #Snyder #StrategicDecisionMaking #Sutton #Toyota #Tversky #RussellNewton #NewtonMG #PeterHollins #TheScienceofSelf #TheArtofStrategicDecisionMaking

It's a day to bust some bugs. That's not very nice if you're a nurse assistant. Thank you for your service. And megalodon day for all you Shark fans. If your name is Marina, thank you for being you. I guess today is your day. And our lunch menu, it's looking up today, sort of. If you're in Britain, at least it's beer day. But worldwide it's tapest day, so it opens up a lot of opportunities.

And for dessert, maybe it's Prune day. From Peter Holland's book the Art of Strategic Decision Making. We look today at some decision traps that prevent us from making the best decision in a given circumstance. This episode details and discusses seven different cognitive biases that allows our brain to actively fool us into making suboptimal decisions. Cognitive biases represent flaws in human thinking, whether logical or emotional in nature. They are conclusions that we leap to in the absence of, and sometimes in the face of, evidence that says otherwise. You can also think of them as a mental shortcut that seems to make sense at the time but falls apart under deeper scrutiny. That said, it’s very rare that we encounter such scrutiny, so most of us never realize we engage in these biases—and our decision quality suffers for it. They are a bit more complex than simply requiring more information.

These are some of the ways our brains are fooled in everyday life. For the purposes of illustration, I will be using the same example throughout the chapter: deciding between purchasing an expensive, brand-new car and a beat-up older car. Preferring Simplicity The first cognitive bias is that humans tend to prefer simplicity. In fact, we believe that something is more accurate the simpler it is. By contrast, we also distrust more complex things. We trust them less and we even become suspicious of them because we feel that decisions should be simple and straightforward. Some decisions can be direct, but most of life cannot be reduced to a single question. Wanting simplicity speaks to our need to avoid stress and anxiety in decision making. Juggling many complex options takes a lot of brain power and is quite stressful—in this state of mind, we might want the simplest choice to be the right one.

That feeling of relief of not having to think about it anymore makes us feel that it’s the right decision. In our example, buying a shiny new car is the simple solution. We can trust that it’s new, we can see the mileage, and we know it hasn’t been crashed before by some shady past owner. We seemingly know what we are getting. We sign, we buy, and we take the car off the lot. It doesn’t get simpler than that. By contrast, buying an older, used car has exponentially more moving parts—moving parts that could go wrong and that might not be in sync with each other. There are too many factors outside of our control that we aren’t able to judge accurately. We always have a sense of suspicion and distrust when buying a used car because we never know how the car has been treated and if we are being told the entire truth.

We prefer simplicity in all walks of life, and that means the decisions that seem the simplest or have the fewest number of moving parts are almost always going to be preferred. They feel more trustworthy, like everything is transparent. This also implies another aspect of what we prefer—we prefer things that we understand easily and immediately. If we can’t, then it’s as though there is a logical disconnect and something is being hidden—never mind the fact that many concepts cannot be broken down in such a fashion, but that’s why this is a cognitive bias. Studies have dubbed this cognitive fluency—how easily information is digested and understood. If information is easier and more closely resembles a model you already understand and can make a comparison to, it will feel familiar and fluent as a result. For example, there is a science to branding and marketing such that studies have found easily pronounceable names and reproducible logos perform far better than others. It’s the power of simplicity. We would love to quickly be able to ascertain the major points of competing decisions, and if we can’t, then we mentally write off the more complex version.

Just because something is simpler at first glance doesn’t mean you should fall for the chance to reduce your due diligence. Sometimes simplicity is better, but by itself it means nothing. Relying On Contrast This cognitive bias can be seen very prominently in our example of buying cars. It’s the error of being swayed by relative values. It occurs frequently when you make a comparison to something that doesn’t matter yet creates a large contrast, which is not always the metric you should actually be considering. Let’s say the expensive new car you are looking at has a sticker price of fifty thousand dollars. The used car is only ten thousand dollars. However, the new car is currently discounted from the original price of ninety thousand dollars. By simply introducing the relative discount, that sure makes it more attractive, doesn’t it?

Sometimes we will get caught in this trap of perceived value. It sounds like a good deal to get a ninety-thousand-dollar car for almost half off, but that assumes that the car is actually worth ninety thousand dollars and that fifty thousand dollars is also a fair price. By introducing the comparison to the number that isn’t exactly relevant, one might actually feel that they’re getting a steal at fifty thousand dollars. However, this isn’t considering the car on its own merits or its own absolute value. This is considering it only in comparison to something it shouldn’t be compared to: a relative value which makes it appear attractive. You are stuck on a fundamental misunderstanding of comparisons, not wanting to miss out on something versus evaluating something in a vacuum by itself. Life doesn’t operate in a vacuum, but it’s important to keep your focus on the factors that actually matter in your decisions. In this example, the best course of action would be to judge if the car is actually worth fifty thousand dollars, despite how much of a discount the price represents. Then you can compare the absolute value of both the new and old cars at their respective price points to make a much better decision that is free of cognitive bias.

Otherwise, you just might be fooled into caring about something that is wholly irrelevant to what you are trying to accomplish. When battling the reliance on comparison cognitive bias, try to strip away the fancy trappings and focus on only one factor: the absolute, objective value. Avoid All Loss We hate to lose things. In fact, we hate to lose things so much that we often would rather not lose anything as opposed to gain a lot. This is referred to as loss aversion, and it perfectly encapsulates people’s strong tendency to prefer avoiding loss as opposed to acquiring gains. We build our decisions around the irrational desire to prevent loss, even when it doesn’t benefit us very much. Even if there is a net negative effect from a decision to avoid loss, it psychologically feels better than a net positive gain. Emotions are not always useful in high decision quality. Studies by Kahneman and Tversky showed that the motivation, and thus decisional influencing, of avoiding losses are twice as powerful as acquiring a gain.

If your number one priority in decisions is to avoid loss, then what happens to the rest of the considerations, which are often more relevant and important? Out the window. How does this fit into our example of dueling cars, one used and one new? A buyer will buy from whichever salesman is able to make the buyer feel like they own the car as quickly as possible—by putting them in the car, referring to it as theirs, signing papers, or making them otherwise feel emotionally attached. The salesman could even give the car to someone for a thirty-day free trial period, which would really cement the decision for the buyer. This creates the possibility for the feeling of loss we so wish to avoid. Why is this? When someone gets familiar with a concept or object, especially in as tangible of a way as a thirty-day trial, they grow ownership. Only when you have ownership and attachment does the possibility of loss begin to matter.

However, just because the emotions are so disproportionally weighted doesn’t mean the path of loss aversion is smarter. The decisions are still equal; negative emotions just tend to take hold on us more strongly and blind us with fear or rage. Scenario A: I give you ten dollars, then flip a coin. If the coin lands on heads, I take the money back. Scenario B: I flip a coin. If the coin is on heads, I give you ten dollars. Which do you prefer? Scenario B is clearly more comfortable psychologically. It’s not to say that you should ignore negative consequence in decisions.

It’s only to caution and gain awareness that negative consequences have the ability to take root firmly in our brains and never let go. They can emotionally color our perspectives until all we want to do is avoid a slight amount of potential negativity at the expense of a sure positive gain. Reduce Risk Humans want to reduce risk whenever possible. This cognitive bias is about reducing the risk that you face in decisions—choosing the option that represents zero risk over something more lucrative that might have a slight increase in risk. It is similar to the prior cognitive bias of loss aversion. We want to avoid losses because the emotion of loss is far more salient and painful than the emotion of gain, and it’s the same with risk. The gut reaction of knowing you face a certain risk is far more powerful and convincing than the emotion for any marginal gain. This is otherwise known as the zero-risk bias, and it’s a cognitive bias that makes you prefer options where the primary goal is to eliminate one risk, where other options are actually better at reducing risk overall. That’s an important distinction to make.

That’s the zero-risk bias—when people are willing to completely eliminate one risk at the expense of lower efficacy and outcomes. This speaks to how humans prefer to face problems—the fewer the better, even if the fewer are more powerful and harmful. There is a preference on juggling fewer balls because it just feels better and safer. See how our emotional sides are getting the best of us yet again? You can imagine how this affects your decision quality and clouds your judgment. More problems are bad, yes, but the number of problems in itself is meaningless to the overall decision quality. How does this play out in our new versus old car example? You would be basing your decisions on which car completely solves one problem for you and ignoring any other considerations or aspects. This might be good if you choose to focus on something like safety, but we are usually more fixated on things like horsepower or sleekness.

What we ignore is the overall satisfaction we would gain from the car in favor of having a car that solves one issue sufficiently for us. Reducing risk sacrifices psychological comfort for good decisions. The Resulting Trap This is when you focus exclusively on the outcome of a decision and, based on that, you act. It sounds so eminently reasonable, right? What else could you be thinking of when making a decision? The reason this is a trap is because, for any short-term, single decision, the outcome is generally only loosely associated with the quality of the decision. Yes, the two are related, but perhaps not as strongly as we might think when we’re busy weighing up options. When focusing exclusively on the outcome, we forget a crucial detail: that there are other things that determine the outcome outside of our action, a big one being chance and another being other people’s actions. For example, you might be trying to choose between two new prospective employees.

Employee A has these pros and cons, employee B has those pros and cons. You sit down and consider these in detail, imagining what life in the workplace would be like if you hired each of them, and how that might play out for you. But you couldn’t possibly know that employee B would eventually fall pregnant and leave or turn out to be an undercover double agent, or that employee B would have a life changing car accident and no longer be able work for you a week after being hired. It’s these chance events that actually determine the outcome—your decision between A or B features relatively little. That’s the trouble with focusing on the outcome—we start to think that it’s our decision alone how that outcome plays out. In retrospect, we might see that we were just one player in a complex wed of interconnections, but strangely, when thinking about the future, we can get tunnel vision and imagine that outcomes rest solely on what we do or don’t do. Luck plays a role, and always will. Luck can come in and completely demolish our informed guesses and hopes. It can come along and show us an aspect of the problem we hadn’t considered before.

It can merely change or modify the outcome we had anticipated. The point is that we simply don’t know how much of an effect it will have on the outcome, if it has one at all. It would be more accurate to think about a range of possible outcomes, rather than just one, and think of them not in terms of guarantees, but probabilities, i.e.: “If I do X, then there’s a high chance Y will happen (but that chance is never one hundred percent)." Another problem is that by focusing on results, we can lose sight of the fact that even if the quality of the decision and outcome are highly correlated, it may take some time for this to play out. You may make a good decision and not really feel it until months or years later—haven’t you often thought something like, “Wow, I didn’t know it at the time, but I’m so glad I did what I did three years ago”? Your decision may need to set others in motion, or the results may simply take a while to mature and come to fruition. Many people believe they made the wrong decision simply because they were expecting more immediate results. We cannot use potential outcomes to help us determine the quality of decisions. The relationship is simply not that direct.

But then what can we use? The decisions themselves, as we see them in the present. Yes, we obviously have to keep in mind what we’re trying to achieve by acting this way or that way, but we need to have wide margins for error and the effect of luck and chance. A decision needs to be considered in the here and now, with the information available to you, when measured against your goals. You need to constantly remind yourself to choose between options and decisions, rather than choosing between outcomes—which is a power none of us actually has. Once you’ve made a decision, try to resist interpreting the results solely in terms of your own actions. It’s human nature to try and see an outcome as our sole responsibility, but remember that it is actually a mix of your choices, other people’s choices, and the unexpected impact of luck. You could have actually made a good decision that nevertheless led to a bad outcome for reasons outside your control. It would be a shame to assume then that this was a bad decision.

Similarly, don’t assume you’ve done the right thing just because things worked out in your favor. Many people end up with a lucky outcome despite making what is objectively a horrible decision! Confirmation Bias This is the fancy way of saying we believe what we want to believe. Confirmation bias is the tendency to see, interpret, or seek information in a way to confirm our beliefs or preferences. Ideally, all of our decisions would be based only on the evidence and facts. If you have an assumption, you test it and observe the evidence, and you adjust your assumption accordingly. However, it’s hard to deny that whenever we have an idea stuck in our head, we often go out of our way to find a way to make it manifest. We’re stubborn animals when we want to be, and it’s a huge cognitive handicap. Let’s come back to our car dealerships.

If you go into this process with the belief that only a certain brand of cars can be bought used, then you will see everything through that lens. It will serve as a given, or truth, for you. It’s almost like evidence that sprang up from nothing but an errant thought in your head, or something you thought you read somewhere once. You will search for information about that particular car brand and how it is indeed the only good used car. You’ll ignore any evidence to the contrary as flawed or fake. You will interpret dubious information to be an exception or to actually prove your point in a backward way. If you believe you want to buy a Toyota, your research and analysis will only serve to confirm that belief. This tells us two things. First, we want so much to be correct that we fool ourselves and ignore anything that tells us we’re wrong.

People are unaware they are ignoring contrary evidence; they just fixate on a particular stance or belief and commit to it prematurely. Imagine that you decided when you were a teenager that you were destined to be a doctor, yet you discovered when you were in medical school that blood makes you faint. A strong confirmation bias would lead you to conclude that you happen to faint when blood is around because of other factors, and being around blood isn’t even that important to being a doctor. Now, that doesn’t sound right ... Gambler’s Fallacy The gambler’s fallacy is the feeling that there are predictable patterns in what are actually random sets of events. It’s when you give far too much credit to the amount of control you can exert over the universe. For example, if you roll dice, you might feel that you should eventually roll a seven because it’s time for it to happen. Never mind the fact that this is not statistically or probabilistically sound, you are attempting to create order in something that is impossible to have control over. This is the cognitive quirk that makes humans superstitious, finding links and causal connections were there are none, or assuming that we understand the rules of a game governed only by randomness.

This is a cognitive bias that causes us to ignore the concept of probabilities and make a decision that makes zero logical sense. The gambler’s fallacy is overall the notion that just because X happened, Y should happen, X shouldn’t happen, or X should happen again. They are all, more often than not, independent of each other, and this should guide your decision making to be less biased. There is no causation, and just like a gambler thinks, “I’m due for a lucky hand at some point!" you will also think incorrectly. For our car situation, the gambler’s fallacy, or seeing patterns where there are none, makes a big difference. It will cause you to keep holding out for better models and lower prices on both the new and used car. This isn’t something you can predict; you are simply trying to rely on a pattern that you’ve invented in your head that ultimately is incorrect. You have noticed what you perceived to be a pattern once, and the belief in that pattern is leading you down the wrong path.

Each price that is associated with a new or used car for sale is independent of previous used car prices. You are attempting to find logic and an explanation for a random series of events. There is no better illustration than how early mankind started to see entire scenes in the night sky in the form of constellations. The stars in the sky are certainly randomized, but there is the tendency to find patterns, make familiar, and put things into contexts we already know. Basing decisions only on verifiable evidence is what can put a stop to this cognitive bias. Rosy Retrospection This is the tendency toward having far fonder memories than what actually occurred. The name comes from the saying of seeing events through rose-colored glasses. We have the tendency to remember the past in terms of positivity. Why?

It wouldn’t hurt to also remember the valleys and nadirs that represent the worst of times as a cautionary tale. Remember the Eeyore hat? Knowing that memories sometimes get a rosy glow, we can deliberately remind ourselves of how we actually felt during past memories to balance this bias. Finally, understanding this bias has a curious side effect: if we know that we tend to retrospectively decide that past events were better than they were, this actually means that we may have a greater chance of ultimately being satisfied with a decision we make right now! Overall, decision traps and cognitive biases reveal one truth about human beings. We want to operate as if we are correct and understand the truth. This is highly positive and optimistic thinking, but it can also be called hubris and arrogance at the same time. It’s not about becoming a perfect, flawless decision-making machine, but about becoming aware of how you are actually making decisions, so you can moderate your blind spots a little better. How can you fight these biases from entering into your decision making?

It’s a matter of stepping back and first looking through these chapters to make sure you aren’t committing grave sins. Honesty is key in this step. Slowing down and making the process deliberate and transparent is also important. Being unaware of what we’re doing means all kinds of self-deceptions can come into play without us even realizing it. To bring any potential biases out into the light, you must begin to ask yourself the following foundational questions that underlie your beliefs and reasoning: 1. Can you articulate your reasoning coherently without emotion or “hunches”? 2. How valid are the cons and arguments against your belief and reasoning? 3. What do you think influences your beliefs? 4. If all factors were equal, is this still the belief you would hold, or are you influenced by something external? 5. What do you gain and lose with this decision?

The moment you assume that you’re thinking perfectly rationally and don’t need to bother about cognitive biases, is precisely the time they’re likely to trip you up! Cognitive biases and decision traps don’t represent an occassional deviation from normal thinking—they are normal thinking. Keep that in mind the next time you think you are being clear-minded. This episode of The Science of Self was brought to you by Newton Media Group. Thanks for tuning in. If you enjoyed today's episode, head over to Bitly Peterhollins, and there you can sign up to get access to his free email newsletter or visit us@newtonmg.com. We'll recap today's episode in just a moment. Today is also National Smile Power Day, june 15. From Nationaltoday.com.

They tell us about National Smile Day. People say that love makes the world go round. What people forget is that it's a smile that makes the world a much happier place. A smile is contagious and can make everyone else instantly perk up. Let's spend the entire day with big bright smiles on our faces. That's not my personality. Maybe it's yours. But maybe work to get one in every so often. Today, spreading joy is all that this day is about.

Fun fact about smiling it can instantly make another person feel better about themselves, build their self confidence, and also improve their self esteem. If you're a regular listener to this and our other podcasts, you'll know that smiling has big effects on you and those around you. Here's a recap of today's highlights through no fault of our own, there are many ways our brains can actively fool us into suboptimal decisions. The first cognitive bias is a preference for simplicity and a distrust for complexity. Sadly, life isn't always so simple. This can lead us to prefer the simpler, more direct option over options that are perceived to be more. Complex and have hidden factors. The second cognitive bias is a reliance on contrast and relative value. This makes us susceptible to terrible decisions because relative value is meaningless to us.

The only thing that should matter is objective and absolute value. The third cognitive bias is a tendency to avoid losses. The psychological harm of a loss is exponentially that of the physical benefit of a gain. Thus, we seek to avoid losses in decisions whenever possible, even when it is illogical. The fourth cognitive bias is a tendency to reduce risk. This is similar to the tendency to avoid losses. We act to reduce risk because it feels psychologically more comfortable and less stressful, despite usually being a poorer decision. Overall cognitive biases are actually the most natural and instinctual way of thinking, which is bad news for your decision making muscle. This chapter represents four more common cognitive biases that will cause suboptimal decisions.

Confirmation bias is when you see or interpret things only to bolster your preexisting assumptions and beliefs. This can cause, in a word, blindness. The gambler's fallacy is when you try to find patterns in random, chaotic events that you have no control over. There's a lack of using actual evidence. Rosy retrospection is when you emphasize the positive nature of a past experience and apply that incorrect assumptiment to a current situation. Your biased memory calls the shots here, not your wealth of past experiences. Our comings and goings today for celebrities and other famous people include Courtney Cox, whose birthday is today for the YouTube generation. El cartoons and Garrett Watts are celebrating birthdays today. If you're a more urban listener, I hope that doesn't offend anybody.