Bias at play: why you might choose a road trip over saving money

By December 5, 2018Blog

Research shows that men and women alike treat minorities differently within milliseconds of seeing them. Our brains automatically apply stereotypes within the blink of an eye. Astounding, right? Welcome to the world of biases – quick mental shortcuts that impact our decision-making. Stereotypes are a part of it.

As much as we’d like to believe that we aren’t biased, we have unconscious thinking patterns that stem from our social networks, emotions, religion and our education. They prompt us to choose people who are similar to us and steer us away from differences.

We carry different kinds of biases. And they shape our behaviors without us knowing. As the Nobel Prize laureate Daniel Kahneman noted: “We’re blind to our blindness. We have very little idea of how little we know.” So, to know, let’s look at some common biases we succumb to:

  • #1: Confirmation bias is a self-fulfilling prophecy – finding the exact information that confirms our beliefs, leaving no room for other perspectives. The first impression drives every decision. For example, if you think someone is hostile towards you, you’ll act hostile towards them, prompting their hostility.

This bias affects the way we invest. If we want to make a financial investment based on data we feel is accurate, and then we’ll look for information to support that. Thus, we feel confident about our investment, but might not be prepared for things going wrong. Or, we may never seek information that contradicts the investment, preventing us from getting a 360-degree view of it.

  • #2: Sunk cost fallacy refers to thinking in terms of winning and losing. We believe when we give something, we should get something back. But, sometimes there is no return. This loss is a sunk cost. Says Kahneman, our aversion to losing makes us cling to the idea of ‘regaining’. Much like gambling, where inspite of losing large sums, people continue betting to recover it all.

Our decisions about spending vs saving money are driven from this space. The automatic thought: what am I gaining for this amount? For some people spending money is about the novelty of experiences like travel or a Broadway show. For others, saving the same amount helps them gain security.

  • #3: Availability bias is the ‘what you see is all there is’  We rely on immediate information when evaluating a decision. What we don’t know in the moment, doesn’t matter. This happens in supermarkets. Even though we have weekly budgets or brands we prefer, we often buy products which are visible prominently. Research shows that we don’t stop to consider their nutritional/ monetary value – like those candies at the checkout counter.

Do any of the above shine light on your own decision-making process? Stay with it. We’ve got more to share in the next post.

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