Imagine for a moment that you are in the market for a new suit. You find one that you like for $200. A fellow customer then tells you that the same exact suit is on sale across town for only $100. Do you go?
Imagine that you are buying a new car. You’ve done your test drives and made a final decision on which make and model you want. You go to the dealer near your home to find that the car costs $30,000. A salesman sees you eyeing the car and says, “My manager would kill me for saying this, but the dealer on the other side of town has this model for $29,900.” Do you go? Continue reading “Your Instinctive Thinking Is Losing You Money”
When faced with a tough decision, most people choose to do nothing.
This is the basis of the Status Quo Bias, first proven in a series of experiments in 1988 out of Harvard. The general idea is that people are emotionally attached to the current state of affairs and are skeptical of any change from that baseline.
This means that we tend to need overwhelming proof to make a change, even when that change would be the better option. Continue reading “Why We Have Trouble Making a Change”
In Lake Wobegon, Minnesota, all the women are strong, all the men are good-looking, and all the children are above average.
So says Garrison Keillor, host of A Prairie Home Companion, and creator of the fictional town.
While all of the women in a given location could be strong and all the men could be good looking, the idea of all of the children being above average is an interesting paradox. Continue reading “What to Do When Everyone is Above Average”
I like to spend a lot of time exploring cognitive biases. I firmly believe that if we spend the time to get familiar with the natural flaws in our thinking we can avoid those flaws, make better decisions, and live a richer and happier life.
Previously we have explored confirmation bias and the sunk cost fallacy. Today I want to talk about the cognitive bias with my favorite name. Continue reading “The IKEA Effect”
Let me pose to you a scenario posed to subjects of a 1985 University of Ohio study:
Imagine that you spent $100 to book a ski trip to Michigan that seemed like it would be a lot of fun. You later spent $50 on a ski trip to Wisconsin that seemed like it would be even more fun. After spending your money on both (and finding out that they cannot be refunded or resold) you realize that the trips are for the same weekend. Which one do you go on? Continue reading “Saving Time and Money – Avoiding the Sunk Cost Fallacy”
I tend to focus on three distinct categories here: building wealth, becoming happier, and thinking smarter. Usually there is some overlap between these subjects. Even if there is not a direct overlap, there is always at least some connection behind the scenes. Correcting cognitive biases can make you wealthier. Well-spent money can make you happier. Being happier can lead you to better performance at your job.
But today I want to talk about a tool that allows you to hit all three of these subjects directly. The library. Continue reading “Get Smarter, Richer, and Happier. Go to the Library.”
One subject on which I want to spend a lot of time and words on this site is why we make bad decisions and how we can make better ones. This means taking a look at our cognitive biases, which are basically holes in our ability to think logically and rationally.
That may sound boring, but by noticing and correcting these holes we can make better decisions, be more convincing, and generally make ourselves smarter. Does that sound less boring? Continue reading “Thinking Smarter: Avoiding Confirmation Bias”