Master Critical Thinking Skills For Robust Decision Making

1. Introduction: Hello bear. Did you know that you are ten times more likely to take this course? If I tell you that I have a doctorate or I'm pursuing a doctorate irrespective of what the contents of the courses. But it's true. Studies have shown when an alternative figure, such as doctorate is used, people are more likely to make a decision based on that. And this is called authority bias. Similarly, you are more likely to buy a toothpaste, even if you know that a paid actor is posing as a doctor in the toothpaste end. Alternately, bias against it will have impact in the way your brain works. And if the doctor is reading a stethoscopes, they impact will be even higher, although dentists don't need stethoscope. My name is sapped habitat area and the cognitive science experts from the US with over 25 years experience in advising companies and decision-making and problem-solving in US, India, Middle East, and South Africa, decision-making is widely considered the most important skill for future, especially when artificial intelligence and machine learning are expected to replace many jobs. But decision-making is not easy. There are many psychological biases and blind spots that force us to make wrong decision. If I say Perry's, can you stop the mental picture of Eiffel Tower from coming in your mind? Most people cannot because in our brain, these two inflammation, Paris and Eiffel Tower, are associated to each other. This type of mental association, it leads to a psychological bias called association bias, which often leads to wrong decisions. Advertising industry is built on association by, in this class, we will show you how decades of research in decision science and cognitive psychology has found out the 40 most important biases and blind spots that cloud our judgment and lead us to make wrong decisions will give you a set of tools to rectify these biases to make more objective decisions, especially under uncertainty and ambiguity. The end of this course, it would be able to make better decisions under most circumstances, anyone and everyone who is interested to make better decisions can take this class in the project, we present many actual decision-making situations. And we will test how well you have learned the decision tools that are provided in the class. This class can change the way you look at things and it can change your life. Looking forward to seeing you in the class. 2. Bugs in Our Thinking Software: Introduction, bugs in our thinking software. The mind is what the brain does. Marvin Minsky, cognitive scientist. According to scientists, more than human epi aired 200 thousand years ago. During 95 per cent of these 200 thousand years, we lived in a pretty harsh and dangerous environment where our brain ensured our survival. Already environment has changed, but our brain is still the same. Here are a few brainy facts. Human brain is just a £3 lump of jelly. That is just 2% of body weight on an average. Yet it consumes 20% or more of body's energy. As a result, natural tendency of brain needs to be messy so that it can preserve energy. Many off, decision challenges we face actually comes from these laziness of our brain. The brain is made of 86 Boolean neurons, nerve cells. You can see a picture of a neuron synapse to your right. These neurons are connected to one another through over a 100 trillion connections. And these connections are called synapses. Brain is the most complexly organized structured in the universe. It is Sayed. By scientists. The number of possible states of our brain exceeds the number of particles in the known universe. His brain is constantly creating an audio visual perceptual version of the outside world and presenting it to us. The problem is often brain's version of the outside world doesn't fully match the real world. And those cases are called cognitive fusions. And it is one of the reasons behind many of the decision mistakes we make. Now, let's take a look at a few examples of cognitive illusions. Look at the two monsters in the picture. If I ask you which monster is bigger? You would probably say the one at the back. But if you measure them with a scale, you would see both of them are of same size. It's a case of cognitive illusion. In this case, the illusion is happening due to those perspective lines drawn around the monster, the bag, which gives us the impression that it's farther away from us and therefore bigger in size. Many all interpretations of the outside world happens in our brain truism mental models. The problem with the models, as we will discuss later, the reason behind what we call biases and blind spots that leads to wrong decisions. This is famous chef our table, illusion. One table, the one to the right app ears wider. But if you measured the width of it with his scale, you'd see both of them have the same width. And the same illusion happens again due to the perspective. The mortals and the brain says the orientation of the two are different. And as a result, one ampere's wider than the other. Look at the two pictures of leaning towers. Which tower is leaning more? Chances are, you would say the one to the right. Again, this is an illusion. Both of them are exactly the same picture. That brings us to the next illusion called Mueller-Lyer illusion. Many of you might have seen it before. If I asked you which line is longer, definitely the one above. Happier is longer. But if you've measured them. Easily you would see that both of the straight lines are of same length. There isn't the one app ears longer is because the fin is looking outward in the upper one versus looking inward in the lower one. This direction of the VIN gives the impression that the one in the upper side is longer. Similarly, when information is presented to us, inserted particular fashion, they would always look different. No matter how hard we try. Our mental models will tell us that they are different. We will discuss in more detail later. I promise you this is the last delusion we will look at here. Look at the two gray columns, which one is darker? It is clearly appearing that gray to the right, which is in contrast of white. Ampere's darker than the one which is in contrast of black. If you remove those black lines, you would see both of them are actually same shades of gray. In this case, it is a contrast principle. In contrast of black, happier, lighter, it contrasts. White dude appears darker. And we will discuss contrast principle. Lot of details later on. I think by now, we are somewhat convinced that the version of the world we see are not necessarily exactly what is outdated. But sometimes the difference is very subtle. Sometimes the difference is big, like we saw in those examples of cognitive illusion. But in general, what we see here, remember perceive, interpret. Not exactly what is true, but a slightly modified version of facts based on what evolution has learned to be most beneficial for us and our survival. Cognitive scientists call these mental models through which our brain interprets the outside world. Schemas, which are cognitive frameworks or templates, or Rooms system that we apply to the world outside. To make a sense of it. Schemas can be based on both nature and nurture. People growing up in two different circumstances often end up having different types of perceptions about watered. Look at things differently. We have schemas for every kind of thing we encounter. Before we start discussing what are the bugs in our brains thinking software? It is a famous quote by Thomas Edison, American inventor. The first step is a intuition. Comes with a burst. Then difficulties arise. These things give out then that Bob's as such, little faults and difficulties are called. Show themselves. He's describing how our thought processes, fu, love, Little Falls and difficulties, and he called them bucks. Brain buds. The main objective of the brain is to ensure survival and procreation. While conserving energy, remember, brain already uses 20% of the body's energy, which leads to search for two things, cognitive ease, an automatic thinking. Both of these reduce energy consumption, but they lead to decision related problems. These survival driven schemas. How we interpret the world. Automatic thinking and energy conservation tendency often creates a lot of what is called cognitive biases and blind spots in our thinking and decision-making. Particularly when it comes to our more than warned. Collectively, these shortcoming of our brain are called Brain bumps by some neuroscientists. Neuroscientist then Bono Mano, one of the scientists who like to use the term rain bugs to describe some of the faults of our brain. Here's a nice quotation from him. Query asks that question. To what extent is the neural operating system established by evolution will tune for the digital predated free sugar abundant social effects field, antibiotic laden, media saturated, densely populated world. We have managed to build for ourselves. So he's saying that our world is very different from ninety-five percent of the world through which our brain evolved. In last 100 thousand years. The thinking software or neural operating system it uses. Is it suitable for these very different word? Occasional challenges that we face can be termed as bugs in our brain. Here's a simple description of what we mean by brand bugs. Brain is blind to certain types of information. It over or under emphasize certain types of information. It makes certain common mistakes and fallacies, as we saw in our interpretations and thinking. And it has certain natural impulses and subjective thought processes that varies also person to person and time-to-time. All these put together can be termed as bugs in our brains thinking software. 3. Decision Errors: Introduction, decision headers. It ain't what you don't know that gets you into trouble. It is what you know for sure that just in, so Mark Twain, in the previous lecture, we tried to understand what are some of the bugs are thinking software, like biases and blind spots and variances. Here in this lecture, we will try to understand how those happen and what are the result of those. Psychologist get standard, which Richard West proposed model to look at the thinking of our brain into two types, system one and system do thinking. In reality there is no system 12. But for modelling purpose showed that brains thinking can be divided into two types of thinking system. One, intuition and instinct based thinking, which is fast, automatic, based on association unconscious, leads to lot of errors. This is the main source of bugs. And 95% of our thinking are these type of fast and automatic thinking. Obviously doesn't lead to bugs all the time. But sometimes they do, but 95% of our thinking is fast. Or system, one thinking, system do thinking is irrational, slow, effortful, logical, conscious, and reliable. When we apply our brain and therefore it consumes more energy. But we need to apply it to make decisions, especially the modern decisions we need to make, for example, business or investment or that type of decisions. So good part of this course is to show when do use system two thinking or slow and deliberate thinking. Modelling thinking in two parts, one fast and automatic and the other slow and effortful is not new. Many, many psychologists have written extensively on it. But in recent decades, psychologists Daniel Kahneman has published and written a lot about these two types of thinking and how system one thinking can lead to many biases and blind spots. And how system too can prevent them. Again, to conserve mental energy. Ninety-five percent of our thinking and fast and automatic. That is system one thinking. But in order to apply our learned knowledge of science, mathematics, statistics, logics, or any knowledge, we need to think deliberately and consume more energy. And slowly. That is system two thinking. We need to apply slow and deliberate thinking whenever we feel that our fast thinking is leading to biases and therefore wrong decisions. As I said, many of our wrong decisions that actually due to our inability to apply deliberate thinking. Human brain, any brain for that matter. It's a very busy place where a lot of signal is constantly coming. To the left. You can see brain circuit diagram by David vanish and which is a simplistic diagram, but it shows how complex our brain is. As you can see, different colored sections or different signals coming from visual, auditory. Olfactory emotions may muddy perceptions. All are coming together to the frontal part of our brain. That It's between our eyes. This park is called prefrontal cortex. This is the part that makes all the decisions. But it is constantly getting bombarded with all types of signals coming from all other parts. As a result, it's a very noisy into BZ area. And therefore, either prone. Decision-making is a noisy process in our brain where all the subsystem are vying for our attention. That means that tension of prefrontal cortex offer rain that makes the decision. Most of it is happening without our consciousness or active knowledge or controlled. That means what we are seeing would influence our decision. And we may not be even paying attention to what we're seeing are similarly the sound that we are hearing but not paying attention. Hood subconsciously influence our decisions. Similarly, transient memory can influence our decision triggered by maybe a vision or a sound and we won't even know about it. That's how complicated the situation of decision-making our prefrontal cortex needs to handle. At any moment. So many visual, auditory, tactile, touch related memory, emotions and other signals. Keeping our brain busy. And each can influence the decisions we make. That's why often we make different decisions with the same information but at different times, different times of the day. Now that we had a brief grounding on the processes of the brain, Let's revisit bias, line spots and variants in a more structured way. What is bias? Due to send? Schemas are mental models and automatic thinking. We always think in some predictably irrational ways. They're predictable. Systematic meaning they happen all the time in similar fashion. They happen especially in uncertain, ambiguous situations. What is blind spots? Again, systematic, predictable. And we fail to see or consider some information while making judgments. Again, the level of bias and blind spots may not be the same for every people, or even may not be the same for us all the time. But they are somewhat predictable, somewhat repeatable. But variance is unpredictable and unsystematic. And it happens mainly due to noisy nature of our brain as we discussed. Different people may make different judgments with the same information at different times. Or even same person can make different judgments at different time because it's unpredictable and unsystematic. Now we're ready to categorize all decision enters into two main types, systematic errors and unsystematic decision haters. Systematic decision errors can be biased or blind spots. They happen in a similar fashion for most people. And all the time. On systematic error, which is unpredictable, happen in different ways, different times for different people to draw a comparison between these two types of decision error with target shooting, imagine you're trying to, should the bullseye and your shots are all little far from the center, but by the same extended concentrated in one area. That's an example of bias. Your next shot is predictable and wouldn't fall in that area. Maybe it is due to a event in your gun. The other is a variance where your shots are all over the place. You don't know where your next shots will hit. That's unpredictable and unsystematic decision in her variance. Now, let's look at an example of bias and variance in decision-making. Studies have shown many studies actually, that judges are prone to giving lighter sentences do good-looking defendants. It's an example of systematic decision aided bias because more or less all the judges give lighter sentencing. Better looking defendants that never love. Lightness may be different, but they get lighter sentences, interests. That's an example of decision bias. Whereas studies have also shown that different judges can give very different sentences to the same defendants or two defendants with the same crime, with the same history and everything seemed but one judge give let us say a one-year sentence versus another judge giving a 10-year sentences that has happened. That type of radiance in judgments is an example of unsystematic decision later, variance. Before we end this lecture, we will look at one cognitive bias called association bias and one decision variance. For comparison. Association bias is a cognitive bias that influences our judgment. It happens because our brain works through association. All the information in our brain are stored in those synapses. That is the intersection between neurons. And those synapses are connected to each other based on association. For example, the brain is associated with synapses containing similar ideas like head, mind, intelligence, taught, think, etcetera. When one synapse get activated, all the other synapses get activated. And as a result, we are biased to think in a certain way. I would show you how that works. If I say Perry's, can you prevent the picture of Eiffel Tower from coming to your mind? Most people can't. Because in our brain, the idea of Paris is associated with Eiffel Tower. They're saved at one place, connected and associated. Similarly other things that are associated with Paris, cafe. Maybe more than elisa Louver Museum. Everything stays at one place. Connected. They industry that take advantage of this type of association. Bias is advertising and branding industry. You'll hear Nike. A great athlete comes to your mind. Maybe an athlete is ism, maybe a logo. By showing this 234 or five teams together again and again, create an association in our brain. And that association influences our decision. We will get into a lot more detailed when we talk about association bias. In the section biases and blind spots. We will end this lecture with an example of decision variance that we see in dentist's recommendation. So studies have shown that many dentists, when shown the same x-ray, their diagnosis and recommendations that are very different. Surprisingly, even the same dentist when shown the same X-ray after a few months, often their recommendations change. This is an example of decision variance. With the same information. We didn't do make different judgments and decisions at different time. 4. Cognitive Biases & Blind-Spots: Biases and blind spots. Introduction. 40 cognitive biases will be divided in four groups. The groups are, group one, biases, illusion and fallacies that are due to the architecture of our brain. Group two, these are biases driven by the tendency to achieve cognitive ease. Remember, brain wants to minimize using energy. That is achieved through a set of heuristics or mental shortcuts. This is the laziness of our brain, often called group three, or cognitive biases, that are commonly used as social influencing tools by what is called compliance professionals. These are the sales and marketing people. Group for additional cognitive biases that lead to irrational decisions. Instance, group one biases are due to the way the brain is wired. We'll learn about melody related fallacies, time-related delusions, emotions driven biases, Association, bias, priming, and framing. Group to biases. Due to our brain's tendency to achieve cognitive ease. Minimize use of energy through a set of heuristics or mental shortcuts. We will learn about alternative blindness, availability heuristic, the recency, vividness, this tree, It's somewhat related. Survivorship bias affect heuristic. Representativeness bias. Halo effect, also associative coherence. Status school bias. Fundamental attribution. Group three biases often fall under a specialized area called social psychology. These are psychological biases that are often used as the social influencing tools. It is very important that we fully understand biases. Here we will learn about consistency, dependency and confirmation bias. These are two different things but somewhat related. So that's why they are put together. Contrast principle, liking bias, reciprocity tendency, authority bias, social proof, tendency including scarcity, loss aversion desert again two different things but related to put together in one lecture. Endowment effect. That brings us to the final set of biases in group four. These are additional cognitive biases that lead to the rationality. Desert action bias. The reason respecting stressed induced bias. In-group, out-group fallacy. Here we will learn about a couple of other biases in this section. Incentive induced bias, narrative fallacy and hindsight bias, they're somewhat related. So put together in one section. Post hoc fallacy, say something syndrome, regression to the mean over confidence bias. Within this section, we will also learn about blending fallacy. 5. Memory: Memory. A guy in a bar, teens and other guy, I've got photographic memory, but everything is out-of-focus. Interestingly, scientists have found commonly used term photographic memory is at least no mark, as memories can be stored as photographs. How our memory is stored. Memories are stored in a web of connected neurons. Actually, the memory part is stored in the two connected part of a neuron called synapse. Every time we recall the memory, hold web, all new Ron's width related information fire together and reconstruct. They're in dire mainly in terms of types of memory. Non-declarative memory is implicit memory of how we remember how to ride a bike or recognize your face. It happens automatically and we can't explain it to anyone. But we don't forget it. Declarative memory or explicit memory is how we save our knowledge of the world. Like the capital of India, we know it. We know how to add ten plus five. It's accessible through verbal description or conscious recollection, and we can explain it to other. Now, within declarative memory, there are two major types of declarative memories. One is supposed semantic memory is the type of declarative memory used to store most of our knowledge of facts and meaning, such as heat causes ice to melt berries is in France. It's important to avoid insurance agents, etc. An episodic memory is how we recall the events in our life. For example, when we got married, the entire memory is stored as an API sonic memory. Neuron is a nerve cell, and it's the unit cell of our brain. Brain consists of close to 86 billion neurons. The connection of two neuron is called synapse. All our memories are stored in an abscess. There is something called neuroplasticity that ensures that new synapses are constantly formed as we hear something new. If that new information is repeated, synapses get stronger. That's how advertising works. They repeat information 6788 times two synapses that are built. They're connected to the associated information and that's how we understand what any product that is being advertised is associated with and so forth. As we Then we'll discuss in few areas that brings us to how memories are stored. They're stored in associative infrastructure where a bunch of neurons and synapses connected together. Wherever we hear or get information regarding one part. For example, synapse containing the information on brain is connected to all the related information like head, mind, intelligence toward paying and so forth. Whenever we hear brain, any ideas associated with brain becomes available in the RAM of our brain, if you will, so that we can work together. As far as our tarsal concerned, this associative architecture of storing information together in these type of format is basic reason for some of the brain bugs, if you will, or some of the limitations of our brain. Some of the vulnerabilities of our brains as far as decision-making is concerned, comes from one important rule called Hebb's rule, provides insight on how brain works. It says Neurons that fire together, wire together. If you hear the term berries, automatically, the picture of Eiffel Tower comes to your head and you cannot stop it. Similarly, there are some other associated ideas like Cafe, cross all maybe Mona Lisa, or other things that are associated with various comes together. That means the moment the neuron containing the word Paris fires. All other associated neurons containing the information related to I felt our cafe and cross off fires. So that's why the Hebb's rule is, and every time it fires, these connections get more strong. And that's why this room do you runs that fire together, wire together. Hebb's rule provide the insight on how advertising works. Let's say nike built a brand around their product, let's say shoe or other sporting goods. By showing great athletes or absolutism along with the tagline, just do it. Or maybe some other tagline like we're all witnesses or etc. They constantly showed these things together. So every time we hear Nike, all those other images flashes in our brain because those neurons got weird together. They are quieting together. Every time we hear the term Nike's, they repeating it creates the same association like we saw in the previous slide, like berries and Eiffel Tower, nike and grid antler disease, and that's how advertising works. Now let's look at seven limitations of memory. Well-defined by psychologist Daniel sketcher. Data are important from the perspective of decision-making. Number one, transience, we lose both episodic memory, that is memory of personal experience and semantic memory that is knowledge of the world overtime, nothing new there. We all know it. May buddies strand scene. In number two, absent-minded and we get distracted during both storing and retrieval of memory. Nothing new there either. You all know it, but it's kind of categorized here. Number three, blocking. Sometimes some memory gets blocked temporarily. We cannot recall it. We've all experienced it. Number three, was blocking. Number four is this attribution? It is important from a decision-making perspective. We assign memory to wrong source, incorrect time, place, person, etc. We wouldn't get into details about these later. Number five suggested the leaky tendency to plant information in a more memory through misleading questions and suggestions from other. It is very important in terms of brand bug limitations, so for bringing in memory and it often leads to wrong decision, will discuss in detail in few slides. Then bias. Prison, their knowledge, belief and feeling influence how we remember they're biased. Assistance, remembering disturbing events are facts that one would like to forget. That. Number seven part also Windows. Now 456, misattributions, digestibility, and bias. These three are very important for decision-making and we will get into more details on it. Let's start with misattribution. Memory stores data, but removes the sources of data. If somebody tells you a lie today, years from now, you will remember the information that he told GO but went forget who told you and the fact that he was alive. Something wrong is repeated many times. It's taught to be true. That is how propaganda and deliberate smear campaign words. In the beginning, you know it's wrong. Then it's repeated 23456 times and slowly you started to believe it. That's the tendency of memory. Bystanders often get mistaken as criminals. A witness lineup at ease, misattribution. In a very famous 1975 case. In Australia, a rape victim saw a psychologist named Dr. Donald Thompson, who happened to be in the TV show just before she was assaulted. She miss attributed the face of Dr. Thompson, the person who did wrong to her, and she falsely accused him for the crime. That is how sometimes we miss. Attribute memory from one place to another. If you've come across any name a few times later on, you will feel the dose name chart or famous people. In a very popular experiment. A few names where flashed in front of eyes of few participants of that experiment. Followed by a long list where those names were there. They were asked if they could recognize anybody from that large list to be a celebrity. They thought those names who were flashed in front of their eyes, they identified them, they figured they have seen this name somewhere, but for that where they thought they wear the celebrities are some famous people. That is why today's celebrities and others be media to publish stories about their kids or stories about their relatives. So that slowly people create a perception that those people are famous to later on, they become the stars and movies and so forth. Next, suggestibility of memory. Reading and writing operations in memory are the same. Every time we try to recall a memory, we are actually rewrite it. At that time. One can suggest an alteration of memories. That's what suggests stability is. False memories can be planted by asking misleading, suggestible questions. That is why the questioning protocol in the court of law is standardized. And lawyers, when asking questions to witnesses, have to follow this protocol. They cannot go beyond. For example, let's say a lawyer is asking and witnessed. Did another car pass the red car when it stopped at the stop sign versus the same lawyer asking, did another car pass the red car when it slowed? And the union says, based on that question, as the witness will probably remember that it was a stop sign or an insulin. Maybe. We're not sure whether it was stopped saying on an incidence. So it's Giza by asking a question where specifically mentioning stop sign or a yield sign, the lawyer is blending that information in the witnesses and brain. Let's look at another two questions. What was the color of the hat versus deed? He wears a white hand. Statistically, if 100 people, here's that question. Many more of them was paying that actually the head was white. By suggesting a white cat hat. In the question itself. They information was Lee created and planted in somebody's head. Current important type of memory for all blend related to decision-making is memory bias. Our present day knowledge, feeling, and attitudes skew our memory of the past few minutes. It's a case of consistency bias. In retrospect, we want to be consistent about our committee of the past versus how we feel about the bias based on our time entry. If you don't like something now, you would think you always feel that way, even if that is not the case. In a US study in 19731980 to suspend off nine years. Same group of people who were asked what they felt about a few social issues like drugs, aid to minorities, etc. In 1982, when they were asked if they recall how they felt in 1973, many of them who changed their attitude about those issues? Their memory managed more with their current attitude of 80 do versus how they actually answered the question. It's an empty tree based on how they feel about those issues. Nine years after the first question, they changed how they used to feel about it. In 1973. Memory of how someone looks also gets to constantly updated by how solutes. Now, if we look at an older picture of a person that we know now, that we know if we knew even in the past. The plastic picture look surprising. The current one because we have updated how our impression of her memories of hard to her house she looks now. Our actual past look, look surprising. There is one more memory related bias or illusion that is important for decision-making and it's not part of the 17 sub memory as described by Dan sketch as we discussed earlier, it is that there is a difference between how we experience something versus how we remember the same. And they are not the same as if we have two individual cells within us. One is an experiencing self and other is a remembering self. Confusing actually experienced with the memory, your feed is an important cognitive illusion. They're not the same ACT boot actual experience of being in leisure. He's not how we remember it. Psychologists have experimentally shown that after a long period of discomfort, people just remember the highest level of this scope forward and how we do indeed, it's called peak. And Andrew, forget that total duration of their discomfort. For example. If a group of people were given first 60 seconds for the height being followed by thirty-seconds and moderate pain. Then the same group were given just 60-second of high pain. The orders where switched. So that makes sure that the order is not causing their memory. After a while, they were asked among these two, which one they failed was worse and they said 60 seconds of high bean, that case was worse. Although in other cases they've got an additional 30-second or moderate pain, but that ended with a moderate pain versus the other one in dictate IP. If a good experience ends with a bad one, we're likely to remember the entire episode has a bad experience. That's why the term all's well, net a1 swell wise. He had are some things we should do. We should have been ten records of important events and related facts. We should write them down. Because let's say there was an important presentation where few people attended a year or two years from now. If you want to recall the details about that meeting, your answer will change based on a suggested question, like, was there 12 people in office versus somebody asking how many people were results that date? So write down the description. If you feel it will be needed in future. Most importantly, avoid unnecessary information from unreliable sources that can potentially corrupt your memory. Don't read bad journals. Don't listen too bad. Media because they will call up to your memories. Don't even look at data from batch suits because he will forget the source. And you'd forget that they were unreliable source, but it will read the data, will stay there in a minute. Try to remember the sources of information whenever possible. If possible, write that down. Who said what, why, and how does he benefited from this? Often we don't learn from the past because we remember long and bad, vast, empty. So it says less than point, ends at the same time heals everything. 6. Time: Time. Time is an illusion. Lunchtime, doubly. Douglas Adams alternative. There are five types of common time-related distortions. Number one versus new events. Bad memories become less bed with dime. Reason. Bad memories make people feel worse. Old bad memories often make people feel better. People who lived through 1930s, Great Depression in the US often say that was a good memory. But then number two, delay blindness. In a cause and effect scenario. They effect happens right after the cause. People have no problem understanding the relationships. If the effect comes white of while after the false brain find it difficult to establish a relationship between these two events. Number three, discounting time. We make long-term decisions because we feel the difference between now and next year is much more than the difference between year five and year six. And plot that it is. The less we understand the time well, time is subjective. Fast, good time appears longer than class bedtime. There isn't good time after years shorter than prison benton. A fearful sight seems longer than a pleasing. Finally, number five, temporal illusion. Our brain does constant editing of visual and auditory signals to provide a consistent movie of the world. That means, as we have seen in different optical and visual illusions, what we see are not necessarily always what is exactly out of date. We will investigate delay blindness, dime discounting, and subjectivity of time in little more detail. Starting with delay blindness. We all know Pavlov's famous experiment where the dogs salivated after Bell was ranked because there was a relationship between the bell and the food was established to conditioning. But interestingly, if the food game after a considerable time off bell or Gan, before the bell, the dog is rain was not able to establish relationship between the belinda food and didn't salivate. That means neural circuits cannot establish causality if there is a long enough time delay between the cause and effect. For example, harmful effects of smoking. Com, softer, a long time of smoking. It's not. You start smoking and after a couple of weeks you start feeling the bad effects of smoking. Because of this delay blindness. It took so long to establish the causality between them. That is why we often properly can't establish the short and long-term consequences of our actions. Because you may have to do something for whites and dime in order to see the results. You don't see the results readily. That's one of the reason. Delay blindness is an important factor into considerations. While making the decisions, especially when you have made an intervention. And do you have to understand that you may have to wait for a while to see the results. Next, stop discounting time. There was a famous 1972 stand for marshmallow experiment, which involved a group of kids. They were given a choice. They could eat a marshmallow that was foot in front of them right away. Or they could wait for 15 minutes for a second, marshmallow. They could eat both afterwards. Not every kid managed to wait for 15 minutes at the marshmallow right away. But he was found kids who managed to wait for 15 minutes for the second Martian and during their carrier later on demonstrated higher IQ. That means our tendency is for instant gratification. In order to prevent that, we need to use intelligence. The reason we go for immediate gratification because our brain evolved during a period when the future was not guarantees, you have to leave by the moments. Our instinct is to choose a $100 right now rather than wait for a $120 in a month. Who knows what will happen in the market? By default? We're poor. Long-term decision-maker. Brain is more tuned to ensuring immediate survival. Now many of us are better at discounting time. But it is a learned ability. It helps the decision-making. Time is subjective. In a study, 66 people watched a 30-second films on fake robert. Two days later. They were asked about the duration of the video. Only two people could correctly tell that the clip was for thirty-seconds. Rest felt that it was much longer, so much so the average response was a 147 seconds, almost five times. In some way, the clip invoke fear. And then so they felt it was a much longer clip. When people do simple tasks. Di me happier is longer. When they need to focus and pay attention to dab years, shorter. Dimes since longer when we reshoot to pass quickly. And shorter when we wanted to. Now small prison good time API or shorter than prison bedtime. But fast good time. Ampere's longer. As our remembering self. Dance to remember more good staff than bad ones. It felt maybe it was a long duration of time. Remember that if you did ten things in one hour, but just one thing in ten hours, that one hour will happier much longer because it will occupy more space in your brain. In order to not be influenced by time-related illusions. Events chronologically, timestamp them. If you want to know how quickly you can finish a task, don't go by what you remember about finishes similar task because your perception of past events could be wrong. Check the actual records. Don't trust anyone else's judgment on how long they will take to finish a task. Because their view results are biased by the common time-related mistakes. Always measured time objectively. When did the project start? When did it end? What happened? In which week? Keep track. What did the past meeting led to and when did it happen? Write it down and keep track. 7. Emotions: Emotions. In a simplistic way. Human brain can be modeled in three parts. The lowermost sides. Primitive brain, that maintains life's functions like heart rate, breathing, etc. The central part is the limbic brain that controls emotions, memories, etc. The topmost part, just below the scholar is neocortex. That process all the five senses and the executive functions like in decision-making. Neocortex is what we see when we see a picture of a brain. Because it wraps all the other parts from outside. Amygdala is a tiny, almond-shaped part. The limbic brain in the central area, it has two parts. It controls emotions and memory. You may hear about amygdala all the time in relation to fight or flight syndrome, which is the emotional response. The amygdala is directly connected to the frontal cortex, PFC, which is the part of the neocortex that sits between the two eyes in the front of our head. This prefrontal cortex is responsible for thinking and decision-making. Emotions like fear, anger, happiness, sadness, pleasing, overwhelming role in decision-making. Because prefrontal cortex cannot make decisions without checking it with an Internet. Unfortunately, we often make decisions only based on emotions, which comes before the results you get are a few watch out. Don't make financial transactions when you are sad. Studies show when you were sad, they were more likely to sell something for less and buy something for more. When people are disgusted, they both buy and sell for less. You're likely to buy a product at the higher price or sell at a lower price, or accept a bad deal or reject a good one when you are too emotional. That's in general. But one important point here is emotion. Not necessarily all bad thing. We need influence of emotion to do a lot of good things and making good decisions, but we have to watch out for their bad effects. Here are some more things to be aware of. Don't make an important decision when you are hungry, angry, sad at the fearful, orients our moon. In any other dominating emotion. All these emotions in our ability to judge properly prefrontal cortex that saw overwhelmed with signals from amygdala that it cannot function properly. We're likely to spend on wisely when we're too happy. That's why casinos try to make as euphoric by giving us pretty stuff, maintaining a great Blink full environment and so forth. Don't make a decision when you are emotionally charged, allow a cool off period. Make it a point to not make decisions when you are emotionally charged. During cooling off period. You ask yourself the question about the true costs and benefits of the decisions you're going to make. No other emotion matches flower of fear in controlling our decisions and judgments. Throughout human evolution, fear has been an important survival to. Darwin described how animals in secluded, It's Gallup book has island would be easily captured and killed. These animals lost their deities to do is nothing to fear in that island. But our surrounding has changed. Yet fear almost always have a C. Most decisions we make. Al Gore coined the term amygdala politics to describe how fear mongering is used in politics. To give an example, there is a famous 19 and Katie for commercial Bye. Reagan, before he was President, it's called bear in the woods. Where the commercial sure. The bed moving around in the woods with ominous voice saying there is a beard and the Woods was referring to Russia and nuclear catastrophe indirectly creating fear in people's mind. And it is said that, that commercial played an important role in President Reagan's election when that's how powerful families in influencing our decisions. Fear can be hardware or learned. For example, if you lost a lot of money in stock market. We won't investigate easily. If you were a bitten by a dog once, you may fear doubt for the rest of your life. With post traumatic stress disorder is an extreme case where fear leaves a lasting impression in our psyche. Our higher attention and responsiveness to fear is exploited by advertisers, media, The Dacians, and everybody else who's trying to sell something to us. We are likely to watch views of death, destruction, and crime, which in turn makes us more fearful. But our higher attention to fearfully news creates a biased media where anything bad. News of the people dying, news of fire, news of catastrophe is disproportionately present compared to something good. That is a bias view of the world we get also that's a different thing, but that's why fear is being sold everywhere. Peer influences what we buy, where we live, where we vacation, who we socialize with, where we shop. Many decisions we make are driven by fear. For businesses. It determines how much risk we did. But we often fear wrong themes and hence make wrong decisions. People buy more insurance after a natural disaster or pandemic rather than before it when the premium was less. That's the thing you making a decision after a fearful incident, you're likely to make a wrong decision. So you have to make an assessment before the fear things comes in the mix. What can we do? First? Be aware that fear might be influencing decisions. You've made. Remember, advertisers and salespeople often attention, let me remind you of a fearful situation to sell their crafts. We should use reasoning, logic, rationality, and statistics to establish the validity of fear. Letting it sway our decisions. Lot of fear that are being sold to us are inaccurate. More people die from mosquito-borne disease then from snakebites. That we fear snakes more than mosquitos, heart disease or cigarettes in more people than any other disease. But we're not dead fearful of heart diseases sequence. We veered off in the wrong things. Finally, by your insurance based on the risk assessment. Not after a neighbor's factory gets his body. Because if you are making the decision after a fearful incident, chances are that incident is influencing our decision rather than an objective assessment of the situation. 8. Association Bias: Association bias. What does cow drink? I bet you a picture of milk first came to your head and then you rectify at it and said water. And that's what association biases is always associated with milk. A cow, the word milk also come to our head. So if we have to say something else, we need to use our deliberate thinking to come up with a different answer. Billions of neurons in our brain, 86 billion to the precise form, instantly share information among them to help us recognize faces, sounds, speech, stored, and retrieved memory. Now this associative architecture leads to these Association bias and storage and retrieval of memories happens automatically without our conscious mind. We hear a word, everything that is associated with it gets activated. It is easy for anybody to influence our decision by a number of other words that could activate that cell actually equities men works. We know the famous experiment by Russian psychologists pavlov, where he rang a bell and give food to a dog. And after that was done for quite some time, right after ringing bell, the dog started to salivate, thinking the food is coming. Now, similar thing happens when we see adversities. When an advertisement is shown at least 67 times or more. There are associations that happens in our brain between the stuff that are being shown in the advertisement. So we've looked cool, our brand always show a lot of happy people. So that cooler brand good also associated with happiness. Similarly as sports and brand like Nike, they show a lot of good performance athlete. They get associated together and that's an advertisement works. Here's an example of how association can be built. Let's say you are trying to build an association between a bottle of soft drink or a beer and grade surrounding of a tropical beach where two people could be sitting on to relaxing chairs. These two photos shown side-by-side for many dimes, at least more than 67 times, that's an interval afterwards, ETC. Just the Bartle. The picture of that beautiful tropical sea beach with your relaxing and var1 men income to your head. And that's how advertisement works, that sell branding works. Here's an example of Coca-Cola, a great advertisement, tremendous brand name. Many of us may not know that before Coca-Cola started showing Santa Claus in red and white dress, Santa Claus is to come in many different dresses. It after people seeing Google ads where the Santa Claus were coming in, Red and White become standardized. And now so much so that we can not even visualize Santa Claus in any other drinks. And that's how powerful the participant was. Similarly, often they show in core countries and great tropical, warm environment with lots of young people having fun. And that's how the brand was built. That if you have a Coca-Cola, you will see happiness In joined. And having funds. Salesman make use of association bias quite well. Good salesman always wear very nice excludes. Expensive watches that drive good expensive cars. All of these are associated with a great performance, offer new products and services that they had. Saltzman strength. Saltzman becoming great clothes and great cars and waiting expensive. Watches and using expensive bends, it's difficult for us to tell that he has to reduce price of his broad. Because if every other product is associated with a high-quality and expensive, how can you sell something cheap and low quality? And that's how they're successful. Salesman takes the client, do a high-end restaurants. And that client subconsciously started associating the restaurants quality with the product and services, the sounds as to offer. That's how again, associations are built and we get influenced by it. Stereotyping is kind of an association bias. We stereotype people based on their ethnicity, gender, skin color, etc. It becomes ingrained in our cognitive system. In a Implicit Association Test, IED. He was tested that people unknowingly associate men and women with different types of jobs. We associate crimes with skin color and so forth. The Fool associated countries like Germany with great engineering, China, sometimes with low price, friends with arts and culture. These associations are built over a period of time. Mental heuristics make decision-making less effortful. But often people make use of hours to sell us shoddy product. For example, in India, some people were making products and they just said they were German engineering. Just the word German engineering gave people an impression of high-quality. The product was simply using the term to sell it. Because these are mental heuristics that people use to buy your product. We see a man and we immediately develop a perception about his intelligence abilities based on his heights. Luke's includes speech, postures. We call it first impression, but it is based on our association. Bias in our brain that quickly fruits that person into a pigeon horn where he is willing associated with other factors. There's some interesting cases. Better packaged foods have a better Parsi if test. It, not just the cell, more people desk them to be better. And in many studies has established it. In study. People said winds fact in beta or models and sold at a higher price. Yesterday, better, higher fries and Bitter bottle was associated with better quality. People felt IT estate video. That's why the top shifts spend a lot of the 14th presenting their dishes. Because if the dish presentation is not very well, may not taste that. Green girl serve differences between the test and the loops to decide how we do them. So presentation is very important. For years during blind testing, more people who preferred Pepsi over Coke when they're stealing from the red and white branded, can. More people preferred the desktop? Cool. Let's exactly how branding works. That's exactly how Association bias works. Companies tend to sell their products in oversize boxes and bags to provide the illusion of value. We are more likely to buy an expensive product. If it comes in a very large box, a tiny earring and large box. Especially luxury products selling larger boxes or bags. Many restaurant had stopped showing the dollar sign. Food manager. If something costs $30, just write 30. Because dollar will remind people of money, they would be less willing to spend. For judges were found to grant more Burrows right after lunch. Then in an empty stomach after lunch. Now, this example will come in few places because many studies have being done in different countries. But aspirin as association is concerned, the grid feeling that one person gets after having food, make them more lenient. After an employee delivered a bad news to see you, the CEO started avoiding that insulin because he felt that employees are associated with bad news. It shouldn't happen, but it does happen. What can we do? Now that you know, there is an association bias that creates the first impression about everything. You can try to consciously these associated products offering people from that impression of associated things. Do you evaluate them on their own? Knowledge of association bias is the first step and now we add their assets, every product, operating person, etc, based on a set of predetermined criteria to determine the criteria even before you see the product offering or different options. The stakes are high. Create a scoring chart. Writing things down is always helpful. And remember people, products situations are neither good nor bad merely because we associate them with a positive or negative product from Germany and the product from China. Not one is not better than other because it's coming from two different entries. So you have to try to be more objective in evaluating before making a decision. Associated a negative emotion if you'd like to in certain behavior. And great example is putting the photos of skulls and cancer patients and cigarette packets. Now these two things that are associated, UCSC grit and the picture of skulls come to your head. You should be more careful before buying a bankruptcy grit. Similarly, if you'd like to get rid of a bad habit, associate a negative emotion with it, and that will MTU, getting rid of that habit. 9. Priming: Framing. Let's do a test. Think about a country in Africa. Any country. Now, think about the colors you see in the game of chess. Now think about an animal and write the name down in a piece of paper. When this study was done. Most participants thought about African animal life, lion or elephant. And many of them thought about Zebra, which is black and white, and also African animal. Have you thought about any one of these animals? These two previous question about Africa and chess were not asked. Hardly any people thought about Zebra and only a few people thought about African animal. So your answer to your question about animals is getting influenced by your thought about that reviews to questions. That's what priming is. Before we move to a similar next test. Just remember not everybody gets influenced by the previous two questions. If your answer was not lying, elephant, zebra, or any other African animal, it could be due to a recency effect or some other effect, but it happens to quite a few people. Let's do another test. A pencil like this between your teeth. Now, look at this joke. Where does sill? Where your hand slink tells? Sharp, do not consume if the seal is broken. Now read how funny you think these cartoons in a scale of one to five. Many studies have shown that when you were a mimic and artificial smile by holding a pencil between your tip, you are more likely to find a job or a cartoon. More funny. Studies have shown people with pencil on an average scored higher in humor on bed to people who didn't have a pencil between them. What is priming? Our exposure to certain stimulus influences the way we think, the way we behave and the decisions we make. Hens people to some extent can manipulate us by intentionally exposing us to a certain set of stimuli. We can be primed to some extent to think, behave, and decide in a certain way. Now let's take a look at a few popular experiments on Breiman. In an experiment in somewhere in England, in an office on the wall next to a coffee machine and money collection box for the coffee. Every week. A difference image where pasted on the wall. Some weeks it was photo of a pair of eyes. Some weeks it was an image of a flower. It was found that on the weeks when there was a pair of eyes, that collection of money and the money collection box for coffee was three times more. Then on the weeks when there was an image of flower. That means for the same amount of coffee people were paying three times when there was a pair of eyes on the one. So people were primed to feel as if somebody was watching me. In another experiment. When two groups of people, we're given two sets of word puzzles. One with words like aggression in patients, etc. The other with words like patients, dollar ins, etc. The second group behaved more mildly. In subsequent experiments. They were primed by those words. Our emotions and actions can be primed by events that we're not consciously. Before asking people to fill out. The blanks. Be blank, blank D. If you show them a picture of a river, they are likely to write BOX. The boat. If you show them the picture of a fluid, they are likely to write the d. Again, it doesn't happen all the time. It doesn't happen to all people. But it is frequent enough to believe that people are getting Briand. People who listen to patriotic songs are primed to be more patriotic. Can involve more following to an ideology by displaying pictures of the originators of that ideology. If picture of a country's leaders, our politicians are on display everywhere so that people see them everywhere they go. Country's citizens will be more obedient. And corn farming to the leader. Many experiments have happened on priming. In some experiments, it was found that a screensaver with a runner primes people to be more competitive. More formal office environment primes people to be less cooperative. Therefore, in startup companies where a more informal environment is maintained, people are more likely to be more cooperative and more helping to one another. In office. Smell of all purpose cleaners, frying people to keep their environment more tidy and more clean. Later on when they were asked why they're doing it, they were not aware. Don't think when surprise me. Money prime people work harder. Be more independent, but unfortunately less health. Studies have shown. In experiments. Kids who saw photos of old people and old age homes walked slower after the experiment compared to kids who saw neutral photos. That means older age reminded them off slower walk. So they've got Brian. Studies have shown people can sell prime when people forced themselves to smile, they feel better. Actually. Also, frowning helps people to think more critically. If you have to scan a document more critically, create a frown. Be more productive. Battle cries, prime soldiers to be more aggressive, whereas uniforms make them more visit with students waiting uniform will be more obedient, disciplined, but they would also be less innovative and creative. In the same way. If you want your factory workers to be more disciplined and obedient, have them wear uniform as meaning offices and factories do. Here are a few additional things to remember. Remember, the order of questions often influences. So for example, if you are asked a question before you answer, look back and see if there was any other question that was asked before that could be influencing your answer, would be priming you to answer in a certain way. For example, if you ask a group of people first how happy they are with their life. And then you ask them how happy they are with their job. You will find there is hardly any correlation between these two answers. If you reverse the order and fast as them about how happy they are with their job. And then asked how happy they are with their life. The answer to the job satisfaction question will have high correlation hits their life satisfaction questions. So one is framing. Be awake. Exposure to one stimulus often influences our response to other unrelated events. So after watching your team to win an important championship, don't make any decision about financial spending or anything because you may wish money. Use prime to your advantage. If you want someone to see a doctor, be as specific and comprehensive as you can, give them that address, contact information of the doctor. Draw a map to the clinic if you can. Ask him when he will go. Also ask him which root key will dip. All these are congenital factors together primes that person towards going to the doctor. 10. Framing: Framing, decisions we make are all fin, frame bound and not reality bound. Richard Nisbett, social psychologist. Statements. Statement one, Franz 12018 World Cup finally versus statement do Croatia lost 2018 Warren confinement. Not the same statements. Bring seen two different images in our mind. Statement. One brings in the major, it static. French players celebrating. Statement do ranks in the Manager of sad and grouping fruition players standing. Framing is how you describe something using language to create two different emotions to influence people's judgment and Decision. During the experiment, it was found that if something is framed in a positive way, more people accepted versus the same thing framed in a different way. For some cancers, survival rate after surgery was 90%. When it was framed to doctors. That there is a 91st% year survival rate, 84% physicians recommended that options. First says, When the same thing was framed as the year one mortality rate was 10%, only 50% physicians recommended. It suggests that switching all word survival and mortality and corresponding percentages create big difference in terms of decisions positions made. And these were trained physicians. A common people would be more influenced by these frame. In another. They must caves when credit cards were first introduced, businesses charged. So if you use gash, you have to be a certain amount. If you use credit card, you have to be the cash amount plus a surgeon. But nobody was using credit cards. So what they did is the med credit card version, the default. So if you this is the price you pay for his credit card. And if you use cash, you'll get a discount. Previously, credit card game with a surcharge. Now cash comes with a disgust, both at the same thing, but people are now willing to use credit card. The problem solved, That's how far from training candy, something framed as lost generates greater than negative reaction compared to the same thing. Showing as a cost. For example, losing from an investment is bad. But cost of doing investment is okay. Basically the same thing but framed in different ways. Similarly, falling stock price drop as correction. Justifying overpaid acquisition by framing it as goodwill. Terming management problem as opportunity, farming layoff as restructuring, etc, are all examples of frame. Similarly, the spam blocker allows for percent spam. That's bad. That if the same spam blocker blocks 96% spam, make it 96% of spam free. That's great. Man asked braced, can I smoke while I pray? That brief said no, absolutely not. Next week the man comes back and asks, Can I break while I smoke? The British said Yes, Go ahead. We already know that most things we see are do have impact. And therefore we do some framing in our conversation and write two different words or behaviors evoke different feelings. We have to frame problems in two opposite ways to see if we make the same conclusion. If we do, you have to go with that conclusion. Our negative reaction to certain words or situation is driven by our fast and automatic thinking. We have to engage our slow and deliberate painting. Remember, 4% survival is worse than 95% death. 11. Alternative Blindness: Alternative blindness. We're blind to the alternatives. And there is a famous story. To explain this. During World War II, Allied bombers were bombing German gunboats and coming back. On their way back, they were getting fired add by machine gun fires. Statistician Abraham Wald was put in charge of putting armor plates on the planes that were coming back. Now if you see the picture of the plane to your left, the red holds, the ones where there were hit with machine gun fires. But interestingly, instead of putting armor plates on the areas of red holds, people would armor blade on the white areas where there was little machine gun fire. He was asked why you're doing it. And his answer was, look, you're not looking at all the blades. You were looking at only the airplanes that are returning. How about the ones that are not coming back? Chances are those are getting hit on those white areas. That's why they're not coming back. Lo and behold. After he put armor plate on those white areas, more and more planes started coming back. The moral of the story is, we have to look for alternative in order to make a good decision. People say startup succeeded due to great focus. But they don't look at many other startups that didn't succeed. Also had grateful. Many people. Just look at movement of stock price without looking at the volumes of share stress before making investment decisions, buying or selling. They shouldn't do that. Trade-off 10 million shares and a trade-off 10 thousand shares, look exactly the same on the phrase chart. If those shares are traded at a higher price, the price chart shows it has gone up. If it has a lower price, it has gone down. But they're not exactly the same. 10,010 million share trade are not the same thing. Remember, if a 100 thousand shares of a company trades at 10% discount does not mean they entire value of a company with a 100 million shares, if that is the case, have come down by 10%. The point is, while making any decisions, try to look for information. It is not in front of your eyes and consider that information do before making a decision. We only look at what is easily seen. We do not look for to find omissions are alternatives. So our decisions are based on just a part of the total information that is in front of our eyes, but that shouldn't be the case, then we cannot make good decisions. Here's an example. Often you see the Ivy Leagues publish a high salary of their homelands. The salary of alumni Ivy League colleges are based on the response of people who decided to participate in that salary survey. Generally, these are people who are earning more. That is only a part of that information. So the publication of salary by Ivy League colleges are biased towards higher side because people who has average or below average salary generally don't participate in those circuits. But we conclude that Ivy League education is guaranteed for high salary, which is not the case. The reason we have this bias of alternative blindness, due to our selective attention of what we focus on 14 cases, we have something in front of our eyes, we focused on that and we miss out that is not there in front of our eyes. There is an interesting and funny desk was done in 1999 by psychologists Simons and Chabris. It's called Invisible Gorilla experiment that showed how far fool our selective attention. Now the study involved a group of students, half of them wearing black fluids and other half wearing white goods, passing a ball and constantly changing sides. And a group of participants were asked to count the number of passes. Only. The students in white shirts made, ignoring students in black shirts. And it was not an easy task because they were constantly. Students were constantly changing sites and locations. While this was happening and participants were counting from a video, they were watching the number of passes. A person wearing a black gorilla suit cross from one side to the other. The person who had been stopped in the middle and waved his hands and then move down. More than 50% of people were doing those tasks. Miss that Goring completely. When they were saying to Dan, did you see anything unusual, they say no because they were so focused on the balls being passed. And remember, they were asked not to focus on students wearing black dresses. That shows how far full hour and attention scan B, that often we miss out on staff that are very obvious, but we're not focusing on when we're focused on something predetermined. We often miss obvious things do only because they are unexpected. Experienced pilots while trying to land a plane. So they're so focused on that task. In flight simulators. Nice to another plane sitting on the runway. This type we'll focus is also behind many runway accidents. Howard attention is limited while keeping it focused on one task attend. Being open to other possible alternatives is not easy. In order to achieve it, you need discipline and practice. Another reason we overlook alternative is they often make our options too narrow. For example, while making investment decisions, we often only focus on stocks and bonds because the person was selling it. These are the two things they're selling. So these intentionally asking us to focus on these two options, but there could be many more options would be pulled. Velocities, real estate, REITs, many other options. There are always many options. While making carrier decisions. Most students consider just a few options, which are common. But there are many other alternatives which are equally and in more cases, even more rewarding than what they're focusing on. But most people don't focus on those options. Patients with dominating illness, open Lucas, just two options and doing or not doing some doctor recommended risky surgery. But in reality, there are always other options. Are there alternatives, late medecine, different types of medicines, etc. To summarize, now that you know that there is an alternative blindness, which is very common while making decisions. Always search for alternatives. Forget the proof are between a rock and a hard place. As if those are the only two options. Remember, there are always other options. When planning for something. Remember that there are almost always more possibilities than what app ears at the first glance try to estimate the relevant based rates of those other possibilities, probabilities and so forth. And consider them all before taking the final quarter. If you do that, you are likely to make more robust and optimum decisions. 12. Availability: Availability. Availability bias often comes due to vividness and residencies. So they can be discussed together. Most easily available information creates our worldview and opinions on issues. Sometimes this availability is due to how vivid some information is or how recently it has happened. We have because of this bias and incorrect risk met all the airline accidents that are shown by media, but just a few car accidents, if any, are covered by media. Hence, we may be more worried about airline accidents only because more information is covered. Media grab our attention with something that is more vivid, novel and dramatic news stories. But not necessarily something which is more important or more Grubhub. And as a result, we'd have a wrong risk met. From availability bias. There is an incident that happens, it's called availability cascade. It is a self-sustaining chain of events which may start with an unimportant but vivid media report. That leads to a public outcry, followed by more media coverage, followed by more outcry. And finally, even more media covered it leading to government action. In some cases. There are few cases that are given as an example. One is an infamous Love Canal toxic waste gaze, where some news about dark seek waves created public out EBRI that created more news, created more outcry and leading to some shutting down and new regulations. Sweet some people felt was not necessary. And out of proportion and exits at that type of incidents are not very uncommon. 3d, unimportant issues get lots of attention leading to actions. Activists and politicians know that. So they constantly tried to create an availability cascade to serve their own cars and agenda. Companies, politician, activists, celebrities in special interest group use this availability bias of general public to manipulate our thinking and decision-making. That their own purpose or observed. We have to understand one thing. Everything that is happening in this world, only a small fraction of it is covered by the news or by other sources from which we collect our information. That small fraction easily available to us while making a decision. If we completely depend on it, we may end up making wrong decisions. Were also influenced by stories as opposed to logical facts. Information we easily find has more impact and information that is difficult to find. As mentioned, vivid description from a frame biases our judgment more than statistics. We give more importance to recent information compared to statistical average over a long period, which is called base rate. We look for a company's recent performance, for example, to decide about its future and overlook in last year's performance over a long period. Our mind is unable to deal with small risks. We either completely ignored them if it is small or give far too much importance, nothing in-between. So that's another corollary of availability bias. We have to remember this media is biased. We have to consume it carefully. Try to assess relevant, rational, normal outcome of a specific issue based on information that is not presented immediate, constantly interact with many people with diverse background, knowledge and opinion. People with different experiences and knowledge can help you detect a blind spot in your view and detect some of the information that are not easily available to you while you were making decisions. Remember, accurate information is better than dramatic information. Because if you have only a dramatic information that is like a wrong man, no map is often better than a wrong max. If you see a trend, it could be misleading. It could be wrong. Try to assess if something is permanent or temporary. If a recent trend is driving your decision, it could be a short-lived. Therefore, when you're making a decision, tried to use information that is not available in front of your eyes. 13. Survivorship Bias: Survivorship bias, media and other sources of information. Mixed success and triumph more visible by covering them more. We only hear about the lottery winners and losers. And as a result, we always overestimate the true probability of success. These bias or survivorship bias. We have to remember that for every popular writer, painter, actor, sports in startups, there are thousands who couldn't do it. Yet. We hear only about the success stories at the top, 0.001% or less. As we like interesting and inspiring and vivid stories. Out of a 100 studies just do showed promising results of health benefits of some food products, let's say red wine. Media just covers those two stories, ignoring the 98%. That should inconclusive and therefore boarding results. But we feel that's the true reflection of that product's benefit. Now let's understand the importance of randomness and chance on performance. Good basketball fall been so track record is not always a get indeed, superior future results because a chance could have played an important role. But we often ignore that. For example, if thousands of people predicted many future scenarios, some predictions would always be right just by chance. But following survivorship bias, if you'd just be attention to the right predictions and ignore the wrong ones. It would tend to believe that those predictors where geniuses and it's possible to predict future for these conclusions would be wrong. There was a famous stalk, deep scammed in the United States where a group of people received the later, in the beginning of one week, later, predicted the next week's stock market performance, whether the market will go up or down. At the end of first week, they found the prediction was right. Then they received another later predicting the following weeks performance in stock market. That prediction also came up to be rate. Similarly, people received five consecutive letters. All predictions came up to be, right. They were so intrigued by these unknown sender of later that they followed his recommendation, invested in a Offshore Fund and lost all their money. How did the fraudster managed to achieve this? What they did is this selected 20 thousand odd names from foreign books to 10 thousand descender letter saying the market will go up through the other 10 thousand. They sent a letter saying the market will go down. At the end of first week. The only those 10 thousand for which the previous prediction was right. To 5 thousand people this into later saying market will go up to another 5 thousand people. They said market will go down. Next week, 2500, they said market will go up. Another 2500 market will go down. Similarly, the end of five weeks, they had 600 people for which all five predictions were right. Many of them invested and lost money. But none of these people were aware that these fraudster was dealing or sending letters to many other people because they were blind. Do that. That was the survivorship bias. Mutual funds often start many funds and close the worst performing funds each year. After some years. They have only the surviving good performing funds and all the bad ones money is folded in the good ones. When they add vertices, they show, look at our fund it 121. Well, in last 45 years, what they don't show you. All the other fun that they started and eventually closed because of bad performance. It's again, another case of survivorship bias works. You have already seen this example a couple of times. It's a classic case of survivorship bias. During World War II. When planes returned with bullet holes all over. Statistician Abraham Wald put extra armor plate on the parts of the plane. We doubt bullet holes. Is that the white AD as in the plane, instead of putting armor plate on the areas of bullet holes, there's the red dots because there isn't the planes that were not coming back. We're getting hit in those places. His guest turned out to be right. More and more planes started coming back. He made a decision based on airplanes that didn't survive. Instead of based on airplanes that survived. That decision came out to be right. We shouldn't decide based on successful people, companies ideas. It's a drone with, we should also take into consideration of the less successful ones do. In order to make more robust instance. The term survival bias or survivorship bias game from epidemiology. Because in many studies there only the characteristics of survivors are often included. Special case of survivorship bias is called publication bias, is a famous New York Times article on this, which describes how drug companies only published the result of successful studies whereas not published the ones that are not so successful. For example, in a 100 drug trials, if 20% are successful and other 80% are inconclusive. Only the successful results are submitted for publication, creating a bias. Now there are new rules which prevents or tries to prevent this type of fraud. Survival bias is a chronic problem as we are trained to analyze information available in front of our eyes. And unfortunately, most of the sources provide only the information on success. And survivors. We rarely look for information. We can see that is the information role failures. Successful stock traders or fund managers are great examples of survivorship bias, as we described in the previous slide. Remember, even if everyone has equal probability to succeed, some will succeed and some will not. Similarly from people who succeeded for one year, some will have probably T2 success and some will not said they end up few years. You will always have people who succeeded consecutively it just by chance. They had the survivors. But we get biased to think that it is some special talent they have. Sometimes they do have special talent, but not all. Survivorship bias is a big challenge to decision-making. You have to hunt for information of failures or all the information. Sleep after him, Walt, reason with, before you can make the true assessment of success. Make decisions based on statistics, not based on stories and anecdotes or narratives. As we have discussed in few other places, as they don't provide the full picture. If you want to invest in stock market, real estate, or any other assets. Your expected return should be based on statistics for a long duration of time. Not based on stories and how some people got rich by investing in those assets last month or last year. Failure stories can be and useful source of reality check. 14. Affect Heuristic: Affect heuristic. Let's start by understanding what is heuristic. Heuristic is a mental shortcut to achieve cognitive ease while answering a difficult question or making a decision. Often, heuristic involves substituting the real question by an easier question. Let's take a look at few example of heuristic. Real question and heuristic substitution next to each other. Should I invest in Ford Motor Company? To answer this, you often substitute this by a heuristic question that says, Do I like Porsche car? If the answer is yes, you end up thinking I should invest in Ford Motor Company? Real question, how happy are you with your life? Answered this question, you often substitute with juristic question, what is my mood right now? If you're a mood is good. You say you were happy. Which of my employees should I give highest raised to? That's the real question you often substituted by who has spoken to me more often last year. Believe it or not, employees who speak with their supervisors more often get high-res. Real question, who will win the next heavyweight boxing title bout? Heuristic substitution, which boxer do I like? That's an example of ethic Heuristic will speak about it later in the next few slides. Or if you don't know anyone up the boxer, you replace that question with the simple question, which box are loops tougher? American psychologist Paul Slovic for our stopped about affect heuristic. When people leave their liking or disliking, dictate their decisions. If we like certain food, we may think that is less harmful. If you like certain habit, we may think that is less harmful. Similarly, if we'd like a country, we will think that it's a great country, or vice versa. Affect heuristic is often described as peoples didn't Lindsay to make decisions based on gut feeling. That liking provided you off making a decision without considering, analyzing or today other existing information. People invest billions of dollars because they like a company or a project without considering on analyzing the risks. If people have positive feeling about something, it lowers their perception of risk and vice versa. If you'd like Elon Musk, maybe you have listened to him in a program recently. Like the way he spoke. You may think that his company will do great. We make initial judgment based on our first impression. Connections are made between synapses, the future experiences getting the burden approving as wrong, which may involve doing analysis and so forth. Which is doubly difficult as old connections or neural associations are to be cut a new one So to be formed. So if you like somebody based on the first impression in order for you to dislike him, then you need more important part important decisions. Look at all the facts and don't let your gut tell you what to do. It's a simple suggestion, but it's very important. Just remember your assessment of risk. It would be driven by your liking or the first impression of a person on a project or a company or a subject or issue or whatever, be aware of something called the affect heuristic. Affect heuristic leads us to value projects that took more time, money, far more than projects that was done faster with less cost. There. The duration of the project and the cost of the project becomes a substitution of the quality or value of the profit. If you'd like a company or its people interact with, you will genuinely feel that company is a better company and its products and services that are higher-quality. Effect heuristics. You're also more likely to give better credit term or payment terms to people you like and interact more with. More interaction leads to more likely and more liking leads to valuing something, it to be of higher quality. While evaluating performance of people don't discount that people who silently finish all their job without much discussion with you, compared to people who constantly interact with you and dig more time to finish their work. Don't allow any factors like how much time you spent with your subordinate, how often he met you as a proxy for how good he or she is in her or his job. 15. Representativeness Bias: Representativeness bias. Let's do quake desk, a simple one. Linda is a 31-year-old, bright, outspoken philosophy graduate. As a student, she was deeply concerned with the issue of global warming and climate change. Now rank the following four scenarios in terms of their likelihood. Number one, Linda is a schoolteacher, number to Linda is a bank teller. Number three. Linda is an insurance salesperson. Number for Linda is a bank teller involved in environmental activism. Out of these four, which one do you think is more likely? Interestingly, more people think that Linda is a bank teller involved in environmental activism. And it's possible that you could be also thinking that way. That part process comes from the fact that she was deeply concerned with the issue of global warming and climate change as a student. But just think that number of bank tellers is always more than number of bank teller involved in environmental activism because that's a subset of total number of bank teller. The possibility of Linda being a bank teller is always more. Ben Linder being a bank teller involved in environmental activism. But just the description of Linda in terms of hearted concern for global warming and climate change, often lead us to think that number four is more likely. Because Linda represent that description more squarely. And that's what representativeness bias is on Event. Let's take a look at another example of representativeness bias. You saw a man reading newspaper in New York City subway. You see the photo to your right. Let's assume this is the man wearing a hat and glasses and a nice suit and tie. Now please rank the following four scenarios in terms of their likelihood. Number one, The man is a Wall Street broker. Number to the man is an investment banker. Number three, the man does not have a college degree. Number for. The man has a PhD. More people will think the man is a Wall Street broker because he's wearing a nice suit is in New York City, subway. More people will think it could be an investment banker. It looks like a banker type. It could be even having a PhD because it's an old guy wearing glasses. But he's more likely to be actually somebody without a college degree. Because more people without college degrees travel in subway in New York. Because that's the base rate. It based on historical statistics. When we see somebody or something, We have a mental image that fits well with a certain profession or certain type. And as a result, we get biased to think in a certain way. And we don't look at the historical statistics are more likelihoods and we make wrong decision. And that's what is representative bias. Let's look at a few other examples. We see a guy with tattoos and we think he's unreliable because he has so many tattoos. We see a man dressed while looking confident, and we really must be a good manager. So we hired him. We see somebody walking gracefully and speaking forcefully. We've been, she must be a great leader. Representativeness again, we get so much bias by representativeness and stereotyping. These are more like stereotyping that we neglect the base rate or sometimes even common sense to check for additional information before jumping into conclusion. That's what heuristic is all about. We do a shortcut and come to a quick conclusion rather than checking for more relevant information. Studies show that taller people get more promoted, better looking criminals get lighter sentences. Again, the guy loop. So while he couldn't be doing such a bad thing. So let's give him a lighter sentence. Here are a few things we should remember regarding representativeness bias. When you have to make decision where you could be influenced by the representativeness bias as if you can find some historical probability that can help you make decision that is called base rate. Remember that there is always more than what meets the eye. Also, stereotyping and representativeness bias go hand in hand. And they cloud our judgment. Somebody's skin color, ethnicity, background does not determine their ability to do a task or a job or anything else. So look for more information. Always look for more information that is more relevant. Before you can come to a conclusion. Don't jump to a conclusion. Base rate neglect or neglecting. Relevant information is do you do our gut field-based thinking? We see a guy and we'd like or dislike him based on certain facial features a bit clouds, sometimes even skin color or ethnicity. These are all fast thinking. Try to avoid it and do more deliberate and slow thinking. Studies have found that people are more likely. Here's an interesting point to make right decision when they frown, rather than displaying a neutral normal expression. When in doubt, frown. When you were asked a question, let's say that task about looking at that New York City subway picture. If you frown, you could have a slightly more different perspective of that problem that's more objective when in doubt from 16. Halo Effect: Halo effect. When a stock does well. We see perfect strategy, great culture, good customer service, exemplary leadership in that company. But if for some time the stock tanks, suddenly, we see bad strategy, bad culture, war, customer focus and Shorty leadership in the same company. When we like one quality of a person or an organization or anything, We then to believe all other qualities of that person to be likable and vice versa. That is why good-looking people are often viewed as more intelligent and trustworthy. If someone is friendly to us, we will assume her to be a good person and vice versa. We form a good or bad halo or perception around a person. And all higher-quality needs to nicely fit within that Hillary. Hello effect, also called exaggerated emotional coherence, makes our knowledge of one quality of a person influence our judgments of all other quantities. If we liked a guy, we will think everything about him, his likable. You met John and Jude the same time. Then over four months, found out about four of their qualities in the order shown. In case of John do first found out that he was intelligent and hard-working. Then you found out he was impulsive and stumbled. In case of Joe, you started on the wrong foot. He found out he was stubborn and impulsive first. Then you found out he was hard working. And now the question is, will you have the same impression of thing laughter for months. Dancer is an empathic know. You would like John better than Joe because his later bad qualities would be viewed less badly. Whereas in case of Joe is good qualities that you found later would be viewed as less good. Examiners get biased after grading the first couple of assignments of students, they become victim of halo effect. The order in which we see things In greatly influenced our judgment. Baseball scouts who watch many gapes, Minor League, and other places to look for good players often pick layers based on their physical features. Unknowingly, assuming if Blair is more athletic and tough looking, he will throw or swing a ball better or play. Better. People who looked like an ideal Dr. politician, lawyer or consultant are often viewed as better doctor, policemen, lawyer, and consultant, even if they may not be the case. Instance. If you voted for a leader for some of our policies, does not mean you have to blindly agree with all of our policies. But that is what we do. To make a good judgment. We should derive information for each area of that judgment. Judge them separately without trying to be emotionally. Go here, and I'll mention one thing here. One very important part of making good decisions. Dividing a decision interview part and independently judging them, and then summing them back together. This independence is an important factor in removing both bias. And later on we will discuss it in reference to variance. But it is important that we try to independently judge different qualities. Before making a final choice. 17. Status Quo Bias: Status quo bias. It took Noah 20 years to build an arc. And people said he was being silly because the skies were beautiful. And off course, the whole time they looked stupid until it started raining. Warren Buffett, American investor, like to give things precisely the way they are, not changed them. While setting up our new phone, computer, or insurance policy. We tend to pick the default option that is selected automatically unless we change because we don't want to think. Kids, Dan, to sit at the same place at school every day. People tend to use the same brand of products. We refer. Before minimization. Every free trial, free subscription is applied. To take advantage of our status school by ice. Once lured into three months of free subscription. People tend to continue the subscription even after three months when they have to pay a much higher demand. This irrational human tendency is a corollary toward tendency for loss aversions. Humans are more worried about harm that comes from action compared to harm that comes from inaction. We feel much worse when we fail after taking an action compared to when we feel after doing nothing. That's our status quo bias. One should remember that that decision to do nothing is also a decision. Many cases, the ghost of inaction can be much more than the cost of action. Bank, home loan, telecom, and all other service providers know about the status school bias quite well. Know that customer acquisition is the most difficult part. Ones they have act toward a customer. Customer is hardly going to switch even after the cost of service or products gets higher and the service gets worse. Here are a few things to remember. First, blindly selecting the default option without looking at all the other options is not advisable. It makes us vulnerable to manipulation, especially manipulative, businesses may make the default option in such a way that it is against our own interests. Second, we should remember what we're trying to achieve. Then carefully determine whether this data school will take as d. If not, we should take action. 19th century British biologist Thomas Henry Huxley provided a nice school. Perhaps the most valuable result of all education is the ability to make yourself do the things you have to do when it ought to be done, whether you like it or not. So status school bias is our tendency to not do anything. It is something that we need to be aware of so that we can force ourselves to do what needs to be done. 18. Fundamental Attribution Error: Fundamental attribution error and power of situations. You are the average of the five people. You spend the most time with. Gim, Ron, American entrepreneur. Fundamental attribution error is the tendency to attribute other people's behavior to their dispositional factors. It's like trait or nature. When attributing our own actions to situational factors like I acted in politely because I was under a lot of stress that date. When people behave badly, we think they are bad people. But it could be due to situations. Maybe they got fired from a job or had a rough day. That's why he acted badly. We think people behavior, ys, do you do, That's how they are. But situations have a great sea on how people behave. The same person behave differently when he is in an economy class versus an a business class, maybe it's more polite and nice. And the business glass of a plane. Light clothes, we change our behavior as we interact with different people, with our boss. We have one version of us with our subordinates. We behave in a certain way. Family members frames. We behave differently with all these different people because of situation differences. Attribution theory is a pillar of social psychology that investigates people's behavior under different contexts and situations. In 1971, social psychology study at Stanford University. It's a famous study. Students were asked to play the roles of either prison guards or inmates. Interestingly, within a few days, the participants started to act like real guards and real inmates. So much so that guards started to be violet to the inmates. Inmates became also violet as if they were actually inmates in the prison riot broke out. The experiment had to be stopped. That means their role they were playing influenced how they behaved. People's brain collect information from external situation and triggers action in specific. It really two main ways. They look at this is the situation I should behave in such a way. And that's why they started behaving in that way. A Stanford professor taught two courses, undergrad courses, one in his statistics and others in community outreach. Students. In the first score statistics rated him at the end of the course as rigid, humorless, and cold. Where does the students from the other gourds part at the end of the course that the guy was flexible, funny and warm. That means based on the course, he was stitching. If it were, if it was rule-based and rigid than he was viewed as rigid and gold, which was statistics schools. Or whereas in community outreach, which involved talking more to students and reaching out to them. He was viewed as flexible, funny, and warm. Based on the roles people play, they are viewed accordingly. Fundamental attribution error. Organizational psychologist Ronald Humphrey did a very interesting experiment where he randomly selected participants to play roles as managers or clerks. Managers perform higher skill tasks and they supervise the clerks. Clarks did low-skill tasks and this happened for two hours. After which they were asked to rate others their beers and the other group in traits like leadership, intelligence, motivation, etc. Managers rated fellow managers more highly. Even the Clarks rated managers higher than how they rated their fellow clerks. Meaning their judgment of other people Straits where highly influenced by whether they were manager or Clarke, more than the actual objective evaluation of their abilities. What role we play determines how we are perceived by others. Here's an experiment to understand how powerful the situations can be. Looked at the two photos and read the expressions of the central figures. In both photos in a scale of 0 to four. For anger, sadness, and happiness was found that people who are more influenced by the surroundings or context read the central figure in the upper photo less happy compared to others. And the one in the lower photo more happy compared to the others. As you can see. For people around the central figure in the upper photo, are sad. If you are influenced by their sadness, you will think the one in the center is less happy. Whereas in the lower photo, for people around the central figure are happy. If you get influenced by them, you will feel the lower happiness of the central person. It's a classic example of how our judgements get influenced by the surroundings. People from different cultures and our upbringings display different level of effect of surroundings. It said that people from Asia are more aware of context and surrounding compared to people from waste. To summarize, remember, social roles affect behavior. If you decide to get into a room, you will automatically be acting in a way that fits that rule. If you have quit your job as a CEO and start a bakery, you will slowly see yourself as a jovial Baker and act accordingly. Rather than a dominant leader used to be. We trust people, we should not, because we think they are in a certain way based on the context. We avoid people who were truly trust warranty. Maybe we saw them in the wrong situation. While deciding a person straight and abilities. Remember that contextual situations have profound effect on it. That leads us to the old adage. Hard times will always reveal the true frames. 19. Consistency & Confirmation Bias: Consistency, confirmation bias, cognitive dissonance. It's easier to resist at the beginning, then at day. And Leonardo da Vinci. Consistency is a commonly used social influencing technique. But it has implications even much more beyond that. Once we have made a choice, taken a stand, invested resources in something made in commitment. We want to remain consistent to that, despite new contradicting evidence. We hang onto bad ideas, wrong investments, wrong policies, failing strategies. Long after they're proven wrong. The more time money and authorities invested, the more difficult it becomes to let it go. Once a lot of resources is invested in a project, it's difficult to quit. One of the case in point was Vietnam wars. The Americans gaped ongoing event after Americans realized that it was the wrong decision. Study showed, after placing a bit on a horse in a race track, people are more confident of his chance of winning. Similarly, after we invest in a stock, you are more confident that it will give you a higher return. Anything you do will influence how you think about it later on. That brings us to confirmation bias. It's a very, very important, unbiased. We agree with all new information that is compatible with our old and disregard the rest. We actually look for evidence that confirms our preexisting beliefs, ideas, and action. For example, if you liberal minded person of all the news that is there, you will only trust the news that is in line with your view. And you will tend to think that all other contradicting information is not trusted or it is a fake news, party will simply disregard that. That's confirmation bias. Warren Buffett says, what the human being is based at doing is integrating all new information, that their prior conclusions remain intact. We hardly change. We simply use new information selectively to fit in with the already existing. Academics. Do not back off from ideas after spending most of their professional life behind it becomes immaterial. If the idea is right or wrong, you just continue to stick with it and they find evidence that supports that and disregard ones that doesn't. Scott Fitzgerald. American Essays had a solution to overcome confirmation bias in order to make the decisions. And that says, the desktop first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One can do that. That will make that person and great decision-maker. But it's not easy to do holding two opposing ideas in one sense, there isn't it started to do, is because of cognitive dissonance. Cognitive dissonance is a theory according to which psychological stresses generated. If we insert in competing ideas in our mind, meaning if we keep two competing, opposing ideas in our head, we tend to prefer facts that goes well with our preexisting beliefs so that we don't have cognitive dissonance, which is unpleasant feeling. Now, psychologists and rapid forward suggested how to resolve this conflict of cognitive dissonance and make decisions in some cases. Suppose you are resolving a conflict. One tactic you can take is first argued. In a formal debate to make a strong case for the opposite side. Before making your own kids. That way, one will not be blind to opposition viewpoints in a conflict and therefore will make much more robust decision. Ben Franklin, one of the founding fathers of the United States, wrote an interesting story in his autobiography, which is often referred to as Ben Franklin Effect. It is an interesting use of consistency, tendency, and cognitive dissonance. One implication of cognitive dissonance is that if our belief and behavior don't match, one has to change so that they match. Interestingly, often our belief changes to match with our behavior. Meaning, if you can convince somebody to do something, it is likely that Parsons believe will change to be consistent with what he did. The story is, there was a rival legislature in Pennsylvania who opposed Ben Franklin all the time. What Franklin did is he asked for their favorite, the rivaled legislature had a rare book collection. Franklin asked him to lend him a book for a couple of weeks. After those, we'd see return the book and thanked him for his favorite. After that, the rival gentlemen came to him and spoke to him for the first time. They became lifelong friends. Ben Franklin wrote, that has once done you as kindness will be more ready to do you and other, then he whom you yourself have obliged. That means if you think that if you help somebody, it is more effective in convincing the other person to help. That is not more powerful. More powerful is if you and ask someone to help you, then that person will start pinging that he likes you and is likely to help you again in future. Now, let's take a look at a few sales technique based on consistency. Most commonly used is low-ball technique. First, the guy tells you it's only $1.200. Is that while after a while it says there are taxes and others, it is now 300. And he was still accepted because you already went. Another example of common example of low-ball technique is a car company advertise and low-price. You go there, you do a test drive. And then you find out that this price does not include many features. The actual price is much higher, but at that point you already went there, spent time to be consistent with your previous decision, you buy the car anybody. Later on you'll find other reasons to justify your branches. That's a low-ball technique. Another example. You hear about a low price advertised by superstore for dv. You go there, the salesman tells you that advertised module is out of stock, but there is something slightly better quality and slightly more expensive. You come home with the more expensive. That's a newborn. Different sounds familiar. Can other probably used since technique? That is the consistency principle is called food at the door technique. It has been studied through various researches. In one study, set of us homeowners were first asked to put a tiny sign saying to be a safe driver in their ear. Two weeks later, when the same set of homeowners were asked to put a much larger billboard that they've been obstructed the view of their house that said, drive carefully. 76% of the homeowners complied with the request to be consistent. Without the precedence of the small sign, only 17% of the homeowners. He agreed to put up the large billboard. That means one sou can convince people to do something small. Likely to be able to convince them to do something large. That's the food or the dual strategy involves convincing blind to buy some things 1 first, after which they become loyal customers to be consistent with their previous decision. After a small by the customer, no longer a prospect in sales dollars. Once people buy a product and brand, stock, etc, start liking this to be consistent with their decisions. Here are few things you should do. You should be very careful before agreeing to even trivial requests. Because later turning down larger requests could be more difficult. Psychologists have shown that our belief actually comes from our, It's not the opposite. Just like the Ben Franklin Effect. Easily do, are made to do something. We will believe that to be true. If people make a commitment in writing or in public, they're more likely to conform, do it. Boat conformation then Lindsay, in positive views get people to commit to something well in advanced, they're likely to stick to their commitment in order to be consistent. Here are a few other things you can do. You should actively try to be uninfluenced by previous decisions and deeds. Roman philosopher Seneca said, There is nothing wrong with changing our plan when the situation has changed. Unless hedge fund manager George Soros is known to change his investment teases all the time and he's very successful at that. If one finds himself in a whole, the best thing to do is to stop digging. Famous British economist, John Maynard Keynes said, when somebody persuades me that I'm wrong, I changed my mind. What do you do? One should learn to unlearn one's best loved ideas. Not easy that one should try to learn it. Diverse team with people with different ideas and background often makes the best decisions. They can help one another deal with their personal confirmation biases. You can use consistency techniques and mindedly to influence your costumers hopefully with the right intention if selling them good products. If you can have your potential customers to just fill out a survey. But the type of products you sale or anything related, like future of industry trends, etc. They are more likely to buy from you, be consistent with their previous decisions of feeling something out for you. Using low-ball technique is not ethical. Especially for B2B sales. It can backfire, but many companies unfortunately do it. They sell cheap stuff first and then sell expensive stuff. You can influence your employees by using consistency techniques. If your employees commit to anything in writing, they're more likely to stick to their commitment. That is why if you are a sales manager and you have number of salespeople under, you, ask them to send an e-mail with their sales target. As they have written it down, they're more likely to conform to it. 20. Contrast: Contrast. Contrast principle is an important social influencing tool. Let's say you have gone through a car showroom to buy a car. Good salesman first shows you the most expensive car in the shoulder. After seeing that car, every other car in the showroom. Ampere's inexpensive. Also, a car salesman sells a car at a good price. Then one-by-one sale to a lot of small value accessories. After you buy a high price scar price of accessories, especially when they're sold one-by-one. Ampere's very small. You just agreed to that. And at the end, you end up spending a lot of money. Also, let's say you have gone out to buy a suit. You buy a $1000 suit. Then the salesman shows you a $150 sweater, which is pretty expensive as swayed dead, but compared to $1000 suit, it doesn't appear that expensive, So you buy it. Then he shows you as seventy-five dollars dy, which is an expensive tie, but after $1150 purchase that appears less expensive. Always buy the cheapest item first. Otherwise you will definitely end up spending more. In contrast, principle is a powerful social influencing tool. Even if you're aware of it, you will probably still be influenced by real estate agents. The first show you a couple of expensive or not so good decoys properties. If you have gone out to see real estates, then they show you the one they always wanted to send in contrast with the others that appears the best and the bindings. In an experiment, when people were asked to choose between $10 and an elegant thin, which costs $10 approximately. Chose the money. When another inferior quality pen was introduced, most people chose their ligand. That's how powerful the contrast principalities, because in contrast of the inferior pen, elegant panel appeared more attractive compared to the $10. But without that pen everybody chose to him. On trust principle is used in industry all the time, especially in pricing product. In a real case, a company could not sell an expensive machine. They introduced and even more expensive machine and the demand for the previous machine in Greece, because it appeared less expensive now compared to the new more expensive issue. All companies, when they're creating their product strategies, think about and if not, they should think about contrast principle. Because some of their products, all companies, cars, refrigerators, two DVs are decoy product. They don't sell many of those mornings, but they're still there so that they create demand for the other less expensive broad nets, which appears more affordable. In contrast, the more expensive ones. Flying dining restaurant menus often include a couple of very expensive items to make the price of other ones more reasonable. In contrast, nobody orders them, but they're there to drive demand with the other broadens. Here are a few things issue. If you have both good news and bad news to hear, hear the good news first. Because after the bad news, all news may appear good. The success of a company often depends on how it can create a contrasting position for its products and services. Be aware of that and tried to use that in your pricing, product qualities, features, and sulfur. While evaluating options, just concentrate on the one you are interested in. Nothing else. It's very important. Only then you can avoid being influenced by contrast. Buy the cheapest product first, and your instinct will help you better negotiate the prices of the more expensive ideas. Here are some more tools in a trade show. Never select a book position next to a very large company. Bought a 3D expensively decorated, include. Check your booth number and make sure you are not next to a very big company. It will make your company no bad. If you have to present in a conference, try to avoid presenting just after a very boot present. Because in contrast to that other presenters, your presentation may not appear as interesting as it should be. Companies often clean their balance sheet, insured losses in a bad year. So that in next year's number looks spectacular. Because there are two factors. First, in contrast to a bad year, Goodyear and loops even better. And second growth is calculated from the base of the previous year. So if you can show a very bad year, that will help your next year look even better. This type of manipulations are used all the time. I'm not saying you should be using these manipulation, but at least you should be aware of his evaluate people and objects by themselves and not by how they look. In contrast all others. Here are a few additional recommendations. In contrast principle, while pricing of product and services. If you wanted to sell something, tried to create something more expensive than try to bless them together, are marketed them together. When buying. Always objectively check the price versus value. Maybe create a chart or a matrix to make a comparison a price and value that you are not influenced by something spurious lake contrast principle. Be aware that contrast principle play a role in how companies manage their income statement and balance sheet. That they can enlarge, hit imbalance sheet so that the next year looks good. That take a loss. The next year looks good in terms of profit. Be aware of it or quarter by quarter basis. Now, if we are doing a due diligence of accompany, scrutinized for contrast in their income statement and other financial statements. 21. Liking: Liking. The main work of a trial attorney is to make a jury like his blind Clarence Darrow. Lawyer. Do you recall seeing any Wildlife Fund add with the photos of spider, BGN, or orangutan. Some of those diseases are even more endangered than Panda or tiger would show up in those advertisements. The reason is because they are more likable. People provide more funds. If he sees something more like we'd like to do business with people who are likable or with similar background as ours, with similar interests and personalities. And most importantly, who also like us top are aware, is a commonly used case study to demonstrate a follower of likey. They sell their products through home parties organized by families and friends. And they are a large company. You try selling the same types of product through other channels. You won't be able to sell as much. They entire business model of social selling through friends and families is based on that. Even if somebody comes with a reference from your friend, you are unlikely to reject that person because rejecting that person is like rejecting your friend. That's why reference works for salespeople. Good-looking people are more successful in general, in most carriers because we automatically assign their traits like intelligence, kindness, honesty, etc, to good Luke's. And it's called halo effect, which is covered in a different section. Nonetheless, we like good-looking people, so that's why they're more successful in as yourself sprinting other professions. Studies found also that convicts were a better looking, get less severe sentences. This is discussed in another section on their units in decision-making. Liking and social acceptance or basic human instincts. It's impossible for us to ignore them. But we should be careful that we do not get overly influenced by liking while making decisions leading to wrong decisions. Do not go by. Mpls. Concentrate on the issues, not on the people. I will repeat this sentence because it's very important on centered on the issues, not on the people. That way, it will be less influenced by Yuval. So if somebody's selling something, concentrate on the product, not on the person who's sending. That brings us to a healthy organizational culture which is not influenced by this dipole biases like liking and so forth. As Peter Drucker said, Culture eats strategy for breakfast. Every organization setting up a culture is more important than anything else. That's what I have learned in my 25 years of experience as a business leader and management consultant later on. 22. Reciprocity: The reciprocity. There is no duty more indispensable than that of returning a kindness. Marcus Cicero, Roman statesman. Someone in a public place, or Firstly will flower. You take it. Then his frame asked for a donation. It's difficult to ignore that after you take the flower. Resamples, free food testing, etc. Are various versions of the same trick. Companies that raises employees for a new job, motivated employees in return, the same principle of reciprocity. Companies that harshly criticizes its employees get high attrition rates in return. One professor, just to test, send Christmas cards to unknown people. Interestingly, he received cards back from them because he had a return address given. That's the rule, it says we should try to repay in-kind what another person has provided us. It's a social norm. Now that social norm of reciprocity leads to a few cells technique or compliance technique or influencing techniques. One is called deaths not all technique, the seller code surprise. But before you say anything, he says I will add another product for free. If you accept as you have to reciprocate that generosity. And that's called, that's not all technique. Adding something to the original offer, creating an arch to receive the Andon is viewed as a gift. Reciprocal concession is another technique used when seller asked a higher price intentionally, so you say no, then the seller concedes and reduces the price just for you or offers a cheaper product. As a favor. You reciprocate and bye. When shop owners provide complimentary tea, coffee, or soft drinks to its customers, it's difficult to leave that they can sell more goods after that. Some people dig advantage of reciprocity when they intentionally do a small favor and asked for a larger favor. In future. We have to be aware of that. A rejection then retreat is the technique that is related to reciprocity. You first make a larger request that I reject, then you make a smaller request that was all along your original intention that you were really interested in? That time I comply. Cute example of garden scout comes to your house, brings the value open and she asked for a large donation is now after rejection. She asked, Would you buy a few cookies and you accept? That's rejection then retreat technique. In a study when first asked to spend a day doing charity work, eighty-three percent people declined. Only 17% people accept it. But when an equally large number of people were first asked to spend two hours per week for two years doing charity work or VSD. Everybody rejected. And after that rejection they were asked to spend the day's work doing charity. 50%, that is almost three times 17%. That was the acceptance rate last time. 50% people complied with the days warmth. The rejection and retreat technique increased compliance by three divs. Truly gifted the negotiator. Gamma flags is first exaggerated request as a genuine demand, but he knows all along that will be rejected. So when that is rejected, he can retreat from their demand later to ask for a smaller demand that he really wanted. That time. That demand gave 650. Here's Calvin and Hobbes. Comic On that topic. Galvin asked, Mom, can I set fire to my bed mattress. Mom says No Kelvin. And he asks, Can I write my tricycle on Ruth's. Mom says no. Then he adds then can I have a cookie? That was his intention all along. And mom says No Kelvin, she knew better. Kelvin say she is onto me. In this case, Kelvins rejection and retreat technique didn't work. Prr, afield things we should be aware of. First of all, rejecting a person's initial favor or gifts is an option, but not always easy to follow. Also, it could be a genuine favor and not a compliant stack days to influence our decision later on. If somebody comes to us with a small gift, it's very difficult to decide and reject at that point. But if the initial favorite turns out to be a trick, then we need to identify them as such and treated accordingly. The moment we properly identify your favor as a compliance tactics, it's no longer different. All do ignore it. Any follow-up requests? If a fire protection company offers free assessment of your facility to send its high price services. Take the assessment, not the services treated, the way it should be treated. Looked any offer from the point of view of the person offering it, ask yourself, what could be the machine for that person to offer them before accepting an offer? 23. Authority: While authority authority is a much used and abused social influencing June that is routinely used to influence our decisions and sell products. One thing about questioning authority is he were always sure of getting an answer. People tend to obey authority, especially when they are uncertain under supervision or others are also doing it. Alternatives is degrees, experienced, positions of importance, social status, affiliation with known organizations to exert their influence. Harvard economist said that will carry more weight than just an economist Xavier. I was following the order syndrome related to following authority. In a famous experiment, Twenty two hospital nurses received a phone call from an unknown person who claim to be a doctor and ask those narcissists do, given all obvious overdose off unauthorized medicines, which 21 out of 22 nurses did. Just the word that I'm a doctor convinced those narcissists to do something illegal. Many industries excel products by showing an authority figure yield. Professor Stanley Milgram did a very famous experiment where the participants were asked to the fake electric shocks to a number of people. They went up to 400 volts up shocks, thankfully, was not a real electric shock. Otherwise, if good skilled people, only because some experts said them to do it. That's how powerful authority figures are. As far as our communities, to self-concern, how our tendency to follow them is concerned. Expert sound more convincing. When we do not understand them. We get impressed by something that sounds flavor and complicated. And more. I didn't understand. The more I believe they export, That's a tendency, that's a human tendency we have. There is a famous case where a hedge fund named Long-Term Capital Management, which was being managed by Nobel laureate economist, lost nearly $5 billion. People invested there only because they were very famous people, Nobel Laureate, economist. It ultimately needed a government bailout. Millions of trained economists in the world can predict any major economic crisis, like 2008 financial crisis, 19, Russia and lawn, but we still routinely follow them. Only because they had seen as authority figures. There are few ways alternative figures exert their influence. One is the title, a person with a title like Doctor, Professor, economist, etcetera. Supposed to be an expert and easily influence our judgments and decisions. Clouds. By rating specific clothes. One can report Leslie influenced us. Actors posing as bullies, doctors, scientists, etc, can sell more product. It's a pretty example if you are buying and Madison and if a person waiting includes is asking you to buy adversities and other actor you know that he is an actor. Waiting a doctor's growths, telling you to buy. More likely to be influenced by the guy who is waiting doctors loads trappings just by wearing expensive clothes, watches. But he using expensive cars and gadgets one can influence, some are judged can do and see in YouTube and in any braces, just regular Joe will come by renting expensive clothes and cars and we'll try to give you advice. And you will tend to follow them only because they appear to be incoming inexpensive cars and wearing expensive stuff. It has a mental Leary. That's how this authority figures weren't. Here are some things we should do. Try to use underlying facts to evaluate not what somebody says. If a statement is true or fonts. Without paying attention to the degree of the person who is saying. It seem easier than you think it is. Try to distinguish between a good expert and the bad expert. It might need some work, but not every expert should be followed and should be listened to. Don't ask a barber if you need a haircut, always check how that expert may benefit from his own recommendations. It's an incentive driven bias as you have seen in another section. Different doctors, stock brokers, consultants, economists give different and recommendations daily different syntax for important decision. Triangle, check with multiple people for making a decision. And it will come back again in the variance section of decision-making. If you want to be a good decision-maker, you have to maintain a high level of arrogance against potential authority figures, influencing your decision. That you can remove any element of surprise. Remember that an alternative symbol is easy to fake. Anybody can say they have a PhD. Anybody can say they're from so-and-so schools these days, getting a degree online or in many ways from a film school is very easy. And with those, becomes the authority to manipulate you to make a decision that may not be at your best interests in the way. Remember, sometimes alternative figures first when your trust by doing something that is against their own interests. In a famous case, it happens many cases you go to a restaurant where you have not been before. They had alternative figure is the waiter who knows about the quantity of food, what is good, what is not? So you asked what is good here? Keepers recommend something cheap. So you feel, Oh, this guy is trustworthy. And then slowly he recommend something more expensive. Anyway, end up being more. And sometimes they used car salesman doubt see that there is something available at a much lower price. You trust these guys is a nice guide. And then eventually he sells you a very expensive. You have to be aware of this type of standard manipulations. Remember, no one has a monopoly on knowledge in today's day and time. Anyone can learn almost anything. Lot of information is available in different sources. Trusting an authority figure as an absolute guide to make any decision or not. What way. 24. Social Proof: Social rule. When people are free to do as they please, they usually imitate each other. Eric Hoffer, philosopher, we want what others want. We avoid, what others avoid. We emitted others when we're uncertain. When we see people like us doing it more, when we lack knowledge. Social proof is present everywhere. All news channels are showing more or less the same news. We read books that others read. We watch movies that other watch. We wear clothes that other. Do. We buy same stocks that others Bye. We get into management bandwagon that other companies are doing. Traveled to the same places we eat same types of diets. Everything. Here are a few serious implications. Social group. One is in time of emergency. A bystander is unlikely to help. If there are many other people around. There's just 1% around he or she's more likely to help. But if there are meeting, everybody is likely to think somebody else will help and nobody helps. There was an infamous case in Bronx way to poor lady Kitty Genovese was murdered by an assault or over a few hours and 38 witnesses watched from their house and nobody helped. There is a big outcry afterwards. Everybody thoughts and the thoughts was going to help. Everybody thought somebody else called the police and nobody helps somebody called the police and she died. One of the reason we have this sort of tendency of following the hard is because in time of uncertainty, following the heart. And being collectively wrong is viewed as a safer bet than going alone and being wrong. Managers often lose jobs when they dig unconventional decisions. Fail there said, Well, why didn't you do what others were doing? That's why you would see mutual funds invested in the same company. When they are wrong, they're wrong collectively. There's a famous quotation by British economist John Maynard Keynes, which is worldly wisdom teaches that it's better for reputation to fail conventionally than to succeed unconventionally. One of the negative implications of social proof is commonly seen phenomenon called group think, where members of a group do not voice their personal opinions or objections and quickly agreed to that so-called unanimous decision, which might be coming from just a few people. Because nobody wants to be viewed as always not a good team player. This often leads to a wrong decision because strong consensus does not ensure correctness. Former General Motors chairman Alfred Sloan famously said, if we're all in agreement on this decision, DNA proposed, that we postpone further discussion on this matter until our next meeting. To give ourselves enough time to develop these agreements and perhaps gain some understanding of why this decision is on a band. That means is saying, if we quickly agree, part of it could be that we don't fully understand what these decision is on the back. As a monitor fact. Diversity of thinking and opinion is an important part of making an objective, an optimum decision. It is good tool to reduce both bias, systematic data in decision-making, and various non-system educator in decision-making. Therefore. This team will come back as many parts of this force. To emphasize, we need diverse and independent views to come to an overall decision. At the end, we need to come to an overall decision. But in the beginning and middle, there should be debates. There should be diversity and obedient and thinking in order for us to make good decisions. The social proof is most influential, powerful. In the time of uncertainty. When we're uncertain, we've been to follow what others are doing to when people see other people similar to them doing it. Middle-class people like other middle-class people. Engineer's like other engineers, doctors like other doctors and so forth. That's why you would see advertisement by FMCG and other companies showing an average man on the street using their product. But you have to be careful these are not average man on the street using a detergent Dora cell phone. Because these are paid actors. Even if they are not actors, they are not showing everybody. They're just picking and choosing people who are using their product. We shouldn't be fooled by that. But it's a good way to influence people. And also it's relevant to sell something to an engineer, show him other engineer's feedback rather than what your manager might have said. Similarly, if you want your factory workers to follow a certain norm, the best option is to sit an example of norm by the actions of other factory workers. Nadh by again a manager or an HR person or somebody else. Because if this C and other worker following it, there will be more influence to follow it. To prevent groupthink. Try to be skeptical and speak up your mind. If you were the leader. Encourage debate in a group. Assign a person just to ask questions on all decisions. Given the role of devil's advocate. Try to disregard what everyone else is saying or doing just because everyone else is saying and doing. We need to think for ourselves to ask questions like, does it makes sense? A lot of time, it doesn't. What is popular is not always right. With their important people. To walk on. People are great number of people agree with something or not, is irrelevant. Wrong, is wrong. Also make people responsible for their own actions. One cannot say I did it because everybody else did it and now it's wrong. That's no excuse. You had to think for yourself, remember, when all are accountable, no one is accountable. That should not be. 25. Anchoring: Anchoring. Anchoring is one of the commonly used social influencing tools. Let me ask you a question. Is the population of Malaysia more than a 100 million? Thinking about it. Now answered this question, what is the population of Malaysia? Please write it down. Now. Think about this question. Is GDP of Diana more than 20 billion? Now answered this question. What is the GDP of Ghana? Now? Chances are that you will guess the population of Malaysia, which is actually 30 million, much higher than it is. Because you first look at the 100 million number. Similarly, you were likely do think, unless you already know the GDP of Ghana, that it is lower than what it actually is, which is around 74 billion. If that is the case, which is most of the dime that gaze, then you were influenced by the anchors in the first case, the 100 million number and the second case, the 20 billion number. While answering the question on population of Malaysia or GDP of Ghana. Whenever we have to guess something that we don't know. Suppose length of Nile depth of the Arabian Sea, price of a used guard, etc. We always start with a reference number. It's called anchor. Often, completely irrelevant number can be planted in our head. We stopped consciously dig that up while answering that question on thinking about the right answer. This phenomenon is routinely used by sales professionals and other compliance professionals and expand. And getting. In a study in the University of Oregon. We love fortune was rigged to stop either at ten or 65 contestants, who are the students, where asked to guess the percentage of African nations that were United Nations members. Interestingly, students who saw, we'll stop at ten guest on an average 25% of students who saw that we'll stop at 65 on an average guest, forty-five percent. That means those two completely irrelevant numbers which were rigged, influenza answer the students gave. Sometimes we get is anchored by completely. There are many studies to prove that completely irrelevant numbers, if it comes in front of our eyes. While making a guess about a number. Lawyers induce judges with multimillion dollar anchor. First, the wind big damage settlements. It's been proven by many studies. If they give a high number to start with, outrageously high, they end up getting more. Ceos often anchor a number by saying two board members that it will cost $3 million, then reduce it by a million, then get away with it. Used car salesmen often anchor and a potential buyer with a high price, we all know it. It's not just used car salesman any day above Saltzman, anchor with the high number, then slowly reduces it and we feel that we have done a good deed. The way our cognitive machinery works is called anchoring and adjustment. In case of uncertainty, we start with an anchor and then adjusted in the direction we didn't feed. Now the bias comes from insufficient adjustment. Sometimes they intentionally people give a very far off ANCA. So even after a lot of adjustments, we're not close to the optimum picker. We have to be aware of it. So how can we deal with it? Start from 0 base, always think what you'd do if we're not aware of that anchor value. Another example of anchoring in a very interesting way. Take a piece of paper and draw a two-inch line from the top of the paper. Now, take another paper and try to draw a line from the bottom of the paper, which will stop. Just do inch below the top. When you look at these two pages, you will see that your estimation of two-inch are not the same. When you were drawing from the top versus when you were stopping sharp two-inch while drawing from the bottom, the aftertaste the average to create your best estimate. Because in one case the top was the anchor. In another case the bottom was there. That's the technique you should use to create your own anchor. In addition to the anchor that are given. If somebody gives you a very large value, you start with a very small veins. So that using Boot anchors you can come to an optimum figure. 26. Scarcity & Loss Aversion: Scarcity and loss aversion. The way to love anything is to realize that it might be lost. Gk, Chesterton, writer, loss aversion is a natural psychological tendency. And scarcity is social influencing tool that is based on our tendency to reduce loss. That's why when you see an advertisement saying the offerings on Sunday time is running out, act now it later by now, final week and so forth. That means somebody's trying to use scarcity technique to sell something to us. When people are asked to gamble by tossing a coin where the wind came to allergies it is head and lose $10 when it is. Most don't take the widget. Because on an average, I'm losing. Something makes us twice as unhappy as getting the same thing makes us happy. We are loss averse. For us to play the larger the wind, a noun should be $20 and lose them out and should be done donor on an average. Homeowners. Here's an interesting statistics by insolation more readily. If they're told how much money they would lose. If they don't use insulation. Rather than telling them how much money they would save by using the insulation. In an interesting experiment, through cookie jars, one width ten. And now there were two cookies were given to a group of people. They were asked to eat cookie from the jar and rank them in terms of their 22 cookies going to do first. The fewer cookies were ranked more desirable and people were willing to pay more for them. That means if you take a cookie from a jar that has just do cookies, you would think that cookie tastes better and you were willing to pay more. That's the instinct against scarcity. One of the value propositions offered by luxury goods industry is scarcity. There are only limited number of products available. They can demand higher price for it. Just a few bags, just a few cars. If something is rare and scarce, it's deemed more valuable. Companies create demand by captions like offerings and midnight. Limited number of products that are available. First come, first serve, etc. As we discussed earlier. Also people hold onto the stocks that have lost money and willing to sell stamps that have gained. Because realizing loss is painful. This is also influenced by what is called mental accounting. We have an Internet account of wind and loss. It is tough to accept loss in our mental accounts. Interesting tactics. You see about an advertised product. And you go to a supermarket store and the salesman says, no, that product is not available. But after some time, magically, he finds just one unsold product. And you quickly by it. It says, scarcely detect ticks and we have all seen it. There's something called boiler room operation in stock market lingo. It involves selling stocks over flown through high pressure sales tactics. And it uses scarcity as a tactics. Mostly. It involves generally three phone calls. All number one, salesman calls you, introduces himself his company interested name, address, followed by main with the company brochure. Then you get a second phone call. When the salesman presents a great investment opportunity. But in the middle of the call, he learns from somebody else. It puts you on hold and then comes back and tells you that the opportunity is no longer available. And salesmen apologizes to the client, says sorry, we cannot offer this, but he was a great opportunity. Then you get a hard goal. The goal is again to inform that that opportunity There was no longer available earlier, unexpectedly opened up again. But just for our very brief time period, the client has to invest right away. And a lot of people fall for that tactics. And that's a scarcity based on standards. Now, let's take a look at an actual case study where a company was able to use genuine information on scarcity to create more demand for their product. Food importer found some information on potential supply chain disruption. And based on that, the created three different sales presentation for three different groups of their customers. To one group. They did their standard sales presentation. The second group did the standard sales presentations last. They informed the customers about the potential supply chain disruption. And do a third group in addition to their standard sales presentation. And they inflammation about potential supply chain disruption. Also informed them that this information is not publicly available. Only they threw some sources, got a hold of that information. The third group learn that not only the product is scarce, are going to be scarce, but the information is also scapes. Here's the result. The second group ordered twice as much as the first group. The third group ordered six time as much as the first group when both the product was going to be scarce and the information. Hopefully it's disruption is also scarce. People ordered six times that much additional demand and came from scarcity related reasons. Things to know about our loss aversion instinct. It is difficult to avoid it because it has been developed over 200 thousand years of human evolution. During most of which people who reacted more proactively to loss or perceived risk actually survived. And we are the descendants of those who survived. But there are few things we can do. Before any decision. We should ask ourselves how it affects our original Boone and opinions before somebody put that loss aversion or scarcity related information in front of our eyes. Step one, if any, internal instinct is tempting us to make a quick decision, use that as a signal. That may be the scarcity tactics is blamed. No decision should be made under Pending. That's one. Rule. Step two is when under scarcity pressure asked if we want something for each utility or for any other social, economic or three-stage related benefits. Meaning if we don't buy it, Would that make us Warsaw off from utility perspective or our social status perspective? If just utilities involved, we should not grave it due to its scarcity, let it go. But if the other factors that also important, then we can look at scarcity as possible reason for us to buy it. If media consultants, marketers advise us to do something immediately or incurring huge losses. We should objectively analyze the situation before making any decision. What do they mean by losses? How that is going to impact us for us to make that decision. The real estate agents show the same house, too many people at the same time. It's called Open House to create some sort of scarcity pressure. So they do an open house where many people, I mean, there's free food and look around your house. They could only potential customers. So that creates a perception of scarcity. There's just one house, so many potential buyers. Activists always exaggerate the immediacy of global issue. To create a situation of scarcity. To get bigger, support, scarcities of proven and tested tactics for any day, bulb activism. Interestingly, if you ask kids not to do something, they will find ways to do it. They will find it more attractive. That's an effect of scarcity you do. Here are a few things one can think of while taking advantage of scarcity in selling their product over and above the standard routes to market your products as how much customers lose if they don't use your product, rather than how much they save by using these products. Mentioning loss, it will probably create more demand. While launching new products. Select products that could potentially make cost savings short to customers how much they lose if they don't use these products. And try to find information on potential and supply chain or any other problems that is not publicly available. Then you can truthfully share this information to create demand. 27. Ownership & Endowment Effect: Ownership and endowment effect. We consider things we own be more valuable than they exact same thing we don't own. And economics professor in 1975 would not sell a bottle of collector wine below a $100. But when it comes to Him buying a similar bottle, you wouldn't be more than thirty-five dollars to buy it. Study done during depressed real estate market found that the owners of houses demanded and eventually received higher price compared to the builders. These type of bias of owners of product is called endowment effect. Often you don't even have to own it. Just the thought of ownership is enough to assign a higher value. During auction. Initial bidders who had, by now had a part that they could own the stub their bidding for often end up being a lot. Farms often end up being a much higher price than fair market value during a long drawn him any deal because they had a thought of ownership by that point. In another famous study, people who own the certain coffee mugs, target value was more than $7. But when they didn't own it, their perception of its value was less than $3. It's another classic display of endowment effect. Remember, var2 and ownership is an important aspect of selling. After the desk drive, a customer is more likely to buy an expensive car because he or she now virtually own State College. After enjoying a free subscription for a period, customer is more likely to fully pay for the expensive membership because by that time he has a virtual ownership of that specific membership. Ownership can be for an idea to, once we support any political ideology on a sports team or an organization, it's difficult to part with that. Always remember, endowment effect makes us be or demand more than the actual economic value of any product or service. 28. Action Bias: Action bias. Men finds nothing so intolerable as to be in a state of complete rest without passions, without occupation, without diversion, without default. Blaise Pascal, French, polymath. Action bias, sometimes called do something syndrome. Ease our overwhelming arch to do something, even if that does not add any value. During penalty shootout. In football, equal proportions of goals or scored through left, right, and center. Yet, it is impossible for the goalkeeper to stand straight. During the shootout. Humans, especially more active people, have an orange to do something big, even if that could be detrimental. Based on historical base rate was found to be counterproductive. In the past. It's almost unheard of for business leaders to stay bored and do nothing. The more energetic leader is, the more likely he is to be involved in some sort of intervention. Activity acquisition larger or any other action without often being due attention to if that action will bring in any desirable and sustainable result. Some companies undergo constant reorganization, which often hard more than it helps. But for managers, it is easier to explain action rather than inaction. If something bad happens, they can always say, Oh, he tried these and that it didn't work. Rather than saying, no, we didn't do anything that would be viewed as a bad manager or a bad leader. That's what the action by disease Do something even if it doesn't help. The sad fact is that most major acquisitions display any bridges imbalance. There a bonanza for the shareholders of the Aqua. They increase the income and status of the work orders management and honeypot for investment bankers and other professionals on both sides. But they don't help the company or the shareholder. Quote by Warren Buffett. To summarize the action bias. Activity and results are not the same thing, but they are often viewed to be the same thing. Doing good job with an activity that is not needed in the first place, does not add any value to an organization or individual. As Warren Buffet says, there is no use running. If you're on the wrong road. It's important to ask the questions like, what is the objective of my action? What are we trying to accomplish? Then? Analyze all the options, including the option of not doing anything. You would be surprised that a lot of time that is the best option. 29. Reason Respecting: The reason respecting for the cognitive machinery or forebrain, some reason is better than no reason. It's frustrating to be kept in the dark. Because there were brain works in a causal way, something has to cause something else. In order for that to happen. You get furious when you learned your flight was delayed, only to come down when they announced the reason for the delay. Maybe the previous flight gaming late. You got annoyed with the traffic jam deal. You saw the roadwork cycle. That black entity. Our need for sense-making makes us vulnerable, sometimes do nonsense. The stock market moves up or down purely due to randomness. Media commentators keep inventing and providing reasons. We would be frustrated if this area is that natural movement of the stock market. That's why it's going up and down. Famous lines from Alice in Wonderland. Please. Would you tell me why you're getting greens like that? Said, Alice needs to tertiary, Gad, said the Duchess. That's why. In an interesting experiment, a female social psychologist first tried to break a long line in front of a copying machine, and people in the line stopped her from breaking it. Next time she came back with a reason, she said, Excuse me, I have five pages. May I use the Xerox machine because I have to make some copies. Surprisingly, nearly everyone this time allowed her to break the line with such a flame series. And of course, everybody in the line was there because they had to make copies. So there was no special reason. Reason respecting tendency can be used for positive purpose. A company can expect better performance from its people if it tells them why they should be doing in thinking, rather than just telling them to do something. There should be a reason for a company to be in a certain business, and it should be beyond just making profit. If an organization communicate a reason to its people, they can expect better performance and motivate people better. Brain likes concrete and practical over abstract and theoretical. If we know why we are doing something, we do it better. It's important to give people a reason. People can be much more easily persuaded. They know why they should be doing some more valid. There is an ease. The Beta and motivation and performance you can expect. For example, people we want people to recycle, we should give them detailed. In fact, this drusen quarter, it's important. People will read legal apply. But giving reason does not work always and does not work with all people, all the time. Some people and some issues are more influenced by emotion rather than reason. It may not work. Had Jonathan Swift, the Irish writer, once said, You cannot reason a person out of a position he did not risen himself into in the first place. 30. Stress Induced Bias: Stress, induced bias. Stressed in this bias means you tend to make wrong decision when you were under stress. Stress comes from many sources. Do much information, too many choices, too much unpredictability, physical stresses, sleep deprivation, crisis, catastrophe, fear, social isolation, etc, etc. Too many choices from number of toothpaste into number of CT hotels to number of stocks in the stock market. We have many options to select from. Stressful. If we try to consider all options before making the final selection. Later on we will talk about a specific tools to deal with this type of situation. But at this point, let's be aware that this leads to stress and therefore bias. Too much information can cause confusion and stress. Now the new way to centuries to provide excessive inflammation and contradicting imperfection, the old ways is to restrict it. Stress in these biases because our cognitive system is lazy, went under stress. So they make wrong decisions. It's not the same for everybody. It is different for different people. We have our individual limits up to which we can be stress and make wise decisions. Above this, we break down and burnout and as a result, make poor choices. Stress often depends on how we react to a situation rather than the situation itself, because different people react differently to situations. Studies show people who feel they are in control over a stressful situation are the ones who were least effected by it. So it can be mental hack, creating an illusion of control. And you can handle more stress, workaholics or less stressed because they love work. The dream without warning. Few final thoughts on stress induced bias. Decision fatigue is an important thing to understand. Decision-making is a stressful and exhausting activity. Experiments show people have less willpower after making important decisions. They are likely to do stuff they wouldn't do otherwise. After an important decision. Also to decide better, decide less at a time. Take a break, maybe a relaxing walk in-between that helps. Hunger, leads to bad decisions. There's inflammation will come back a few times because it's an important Flaming Gorge. Judges make more informed and balanced decision right after a meal, let's say breakfast or lunch compared to before you. And the difference is pretty high. When you are hungry who tend to make a bad decision. Willpower to do mental analysis falls to 0 when blood sugar level is low. It's very scientific because brain consumes a lot of sugar. Don't make any important decisions when you are tired or hungry. Because you may regret later. During sales or corporate presentations, make sure that the key decision-makers are not tired or hungry, they are well-respected. Also, the room should be properly climate controlled and there should not be any external noise or disturbances are any sources its strengths, then you can expect a robust, good decision from those new presentation. 31. In Group & Out Group: In-group and out-group bias. During thousands of years of human evolution, only way to survive was to be part of a group. Therefore, we easily identify ourselves as parts of various groups. That's an instinct. We have. Ethnicities, sports teams, Hobbes companies, leading us to be more agreeable with other group members. A survival instinct. For example, when the referee or words the penalty shudder to the opponent team, we all agree that it was wrong and unjust decision. Whereas the opponent team supporters saying it's the right decisions. When someone is not from a group, he thinks everyone in that group are diseases. For example, Indians think all Americans are more or less the same. Americans thing. All Indians are more or less the same. But no American will ever think that all Americans are the same or no Indian will bring all Indians are the same. So when you are part of a group, you know that there are differences among different members in that group. But when you are looking at another group, do you that group appears Homogeneous. It appears everybody in that group are the same, which is somewhat of a stereotype. You are more prone to stereotype and entire group if you're not part of that group. So if we're not working for Google or Microsoft, we see them as an outgroup. We may think all Google employees or Microsoft employees are very similar. But bad view will change if we join these companies. Our views on people from other religion is also largely based on this in-group, out-group fallacy. In-group bias leads to organizational blindness, also called group think. It's a very common decision related by it. When members of an organization provide disproportionate amount of supports for other members views and ideas, hence, failed to catch all obvious distortions and mistakes. Meaning old group starts thinking as one individual. That's a problem. Often, outsiders can provide a more balanced perspective leading to correct decisions in cases of organization of blindness which are presenting more or less equivalent. This is a role often played by outside consultants. 32. Incentive Induced Bias: Incentive induced bias. Do not train bys to learning by force and harshness, but lead them by what amuses them so that they may better discover the vent of their minds. Later, Greek philosopher, do not ask a barber if you need a haircut. In some US university campuses, when students were rewarded for killing rats, they started breeding them. In China. When village people were rewarded to find pieces of dinosaur bones, they started breaking a large bone into pieces so that they could earn more money. Behaviors are influenced by underlying incentives. Lawyers opposed longer litigation. Bankers issue risky loans because their incentive depends on number of loans they issue. Doctors recommend expensive procedures that way this turn more money. Enterpreneurs propose Rosie sales forecast so that they get money from investors. In all cases, our decisions get biased by the incentives. Get. Consultants often say what CEOs want to hear rather than what the realities. Their general DAG doses is very complicated. And they recommend equally complex solution which warrants a hefty fee. You hardly see consultants given simple solutions are saying, Oh, nothing is needed, you don't need me anymore. Incentive system should ensure skin in the game. In ancient Rome. They engineer's where made to stand below the bridges. They constructed right after the bridges open. That means if the bridge breaks, they would be the ones to die for. So they had an incentive to make us strong bridge. If a construction worker is paid by hours, the project will take longer. Because that way they could earn more money. If sensationalizing mundane events helps TV ratings, the news will be exaggerated. Maybe with red color. That's why we get so much of breaking news every day. Before taking anyone's advice, check it if he or she gets benefited from it. Remember, if the bonus of a manager depends on the quarterly performance, he will prefer short-term benefit over long-term health of the company. If bank manager or in smaller by giving out more loans, more bad loans will be dispersed. There are various cases of bank managers not working for a company for more than three years. Because during this period they gave a lot of long-term loans. When it comes to banks getting their money back, the manager is out of the bank and he isn't. A data type of that type of things happens. Wisely. Design incentive structure in most cases lead to superior performance. Reassuring people and giving orders work much less than convincing people to see what is in their own best interest. To try to make a system when everyone has a skin in the game. Meaning if somebody's advising you to do something, you have to see if their advice is right. He also gets benefited, the person giving advice. And if the advice is wrong, he also gets hard by the wrong advice. 33. Narrative Fallacy: Narrative fallacy, sense-making, hindsight bias, and outcome bias. We like stories. We like to summarize, and we'd like to simplify. That is to reduce the dimensions of matter. Nassim Taleb, writer, love for compact stories make us overlook, ignore, simplify, and over-interpret facts. To create a syllable narrative. We're almost incapable of seeing expense of facts without forcing a logical explanation. That makes sense and deals as a compact story. However, a lot of the sense making stories are too simplistic and float. We learned nothing from them except a false view or narrative of the world. Not for stories are so much that in a dark to tell stories so that they can sell more. Media. People make up stories to sell random news. Everything seems stupid when it fans. Theodore Dostoevsky, russian writer. Events that are completely random, misinterpreted as logically linked. Inventive stories are built around why ado product failed, why stock market crashed, why startup became unicorn and so forth. But those are completely fictions. Business case studies provide a delusional sense of clarity and a causal relationship between the actions and outcomes, providing a false sense of understanding to the readers. What works for one company in the past in one gaze may not work for another company in and other gaze. Because there are many, many factors that determines all the outcomes that happens. It stuff to make predictions, especially about the future. Yogi Berra, American baseball coach. The world is lot less predictable than we think it is. And it happens due to hindsight bias. In hindsight, everything seems so obvious as we make causal story by stitching bits and pieces of supporting facts. While league booting the vast majority of other facts, we're biased by the outcome. Bill Gates made thousands of prediction over the years. One of them was that of a global pandemic. Now that the pandemic is actually happen, it makes a great story about his ability to predict the future. Where to, as we're not even aware of his other Mireille predictions, hindsight bias. History is also a story written by historians using their sense-making and imagination. It's based on evidence says that has survived. Remember, a lot of old facts are lost or destroyed or deliberately ignored. Never judge a decision purely by the outcome. Remember, good decisions can often lead to bad outcomes due to many unpredictable and random vectors and vice versa. Meaning, bad decisions may lead to a good outcome every now and then. Good stories give meaning to events. In 1980, experiment, some businessmen weekly truck full of stereo speakers in Harvard campus. The speakers were being sold from a truck surreptitiously behind a dorm as if some stolen goods were being sold. The students created a story on their own. That's stolen speakers were getting sold. And therefore they were getting sold at a dark, cheap price. So everybody came and bought the speakers. I didn't reality, speakers costed more than what the price was in local store. Tomorrow, there is a strong chance that the stock market will go up. If it doesn't, it's likely to stay flat or may even go down. It will be range bound. A typical specialists, a prediction of stock market. If you read or newspaper, re-watch old programs, you will find how often predictions of gurus and economists were wrong. And I'll often they quickly change the stories, freed outcome. You would be surprised. Be skeptical. Look for alternative explanations. Question conventional wisdom and wisely accepted explanations. They could be just stories. Think about general results like randomness, chances, et cetera. Rather than specific reasons like E.coli caused B be caused to C, etc. Consider the possibility of other outcomes that didn't happen but could easily happen. You can learn more deadweight. Be aware of randomness. Remember the success story you here. Certainly not the way it actually happened, but rather it's the way it sounds the best. In every story we hear. There are a lot of In part and connecting dots. To make it more attractive and memorable. Something happened in the past does not mean it will happen again. You can't learn much from another company. Stellar success or failure. If some decision give positive or negative results before, does not mean similar decisions again, will give similar results. Uncertainties and randomness play important roles in any outcome. 34. Post Hoc Fallacy: Post hoc fallacy. My doctor asked her to quit smoking. Men to don't do that. A friend of mine died after quitting smoking. Anonymous joke. Talk. Ergo propter hoc in Latin means this. Therefore, because of this, it's a fallacy called postdoc fallacy. When two back-to-back events happen, the former is seen as the cause for the ladder. Many products sales and many decisions we make are based on these post-hoc fallacy as it appeals to our causal thinking. As we have discussed, the part where we spoke about human brain and cognition. Causality is a fundamental trade of human brain. It tries to implying causality. And when something happened right after something else. He thinks that there is a causality in between. There is a famous case where a power balanced hologram best lead begin with normal range. Between 200712. When people including sportsmen towards the product enhance athletic abilities. You use the Power Bracelet when you are already training for something. In your performance improves. You thought it was due to the bracelet but it was not due to the breast let it was because you were training hard. Later in a randomized double-blind trial, it was proven that this bracelet had nothing to do with enhanced performance. That's how many products sell. Where people are already trying to improve their performance or diet, or a hill or whatever, they buy a product and it improves. They thought it is because of the post-hoc fallacy and action. Many causal reasoning. We do. Our due to this post-hoc fallacy. Sometimes people get better after taking medicine. People think it is because of Medicine correlates the common flu. It has been shown that even if somebody didn't take a medicine to the common flu, they will still get paid. In some cases it's a placebo effect that your brain acts as if it gets impacted by the medicine where he did. Placebo buttons, meaning buttons that don't work. I put in elevator. You entered and then hit the button to close the door. The door closes, but there is no connection between that button and the door. The door automatically closes. Similarly, you're crossing a road, you hit a button to change the signal, to read. The signal changes and you feel it's because of you hitting the button. But the signal and the button has no connection. It gives you a false sense of relaxation, Introduction. Certain policy change happens and GDP grows. People think it's because of that policy. Politician says it's because of the policy, but that does not necessarily mean it's because of the policy. There could be so many other factors that are causing that GDP to change. It's important to understand that post-hoc fallacy is a very common fallacy in our personal and professional lives. It influences our decision-making all the time. We have to be very critical and analytical and evaluating the actual effect of actions. Whenever possible, we have to be open to try alternative action to check the validity of the cause effect from checking is the important part. 35. Say Something Syndrome: Say some things syndrome. If you have nothing to say, say nothing. Mark Twin, writer. We have seen a great increase in the number of people working in media, academia, and industries. That has foiled an explosive growth in discussions and opinions on all possible subjects. Unfortunately, a large part of it is unnecessary. Confusing. Use less nice. With the progress of science and technology and growth of wealth and prosperity. Large number of professionals and emerged with the sole purpose or burdening us with their comments and opinions. In most cases, they have little to lose if they're wrong. But people who follow them and listen to them have a lot to lose. Those professionals have driven by words, it's gone. Say something syndrome. Not everything is knowledge, not whatever people say it's valid. But our brain has a tendency to first believe, then unbelief. And as a result, little bit remains and causes damage. So it's better to not listen to anything that is unreliable. It's not a new phenomenon. It's been happening for quite some time. In 19 thirties, a few scientists in Vienna formed what is famously called Vienna Circle to fight what they call pseudo scientists, who were using the progress of science to say Laney ideas, as scientific. Vienna Circle stated through their manifesto that only deductive, that is based on axioms or inductive based on experience. Evidences should be accepted, rest ignored. Later on in this course, we will talk in detail about these types of evidence when it will be clear what they mean by it. But for now, it's important to not say anything if you have no objective information on the topic. And also to ignore most of the scores. Unless you have reason to believe it is coming from a reliable source. 36. Regression to the Mean: The regression to the mean. It's often seen in sports that as soon as a player or a team, Ampere's on the cover of leading sports magazine. After a series of good performances. Their performance certainly tanks. Why does that happen? It happened with so much frequency that sometimes some people would not like their photo on the cover of leading sports magazine like Sports Illustrated, it's often referred to as the SIP genes. The reason behind the Sports Illustrated Jinx is a case of regression to the mean. Before we explain why it happens, let's take a look at another case of IT. In Israel, Air Force instructors found out that after a few good maneuvers, if rookie pilots where commended for their good performance, their performance got worse. Whereas if the rookie pilots did badly, they were scolded for it. Their performance improved. That resulted then to think that scolding work better. Then praising Daniel Kahneman, the famous psychologists to explain to them why it felt that way. The reason behind the two cases discussed in the previous two slides, Sports Illustrated Jinx and why flight instructors thoughts scalding was more effective is the regression to the mean. What is regression to the mean? British mathematician Francis Galton found out that in a series of random events, extreme events, both highs and lows, generally followed by events that are closer to the average as if it is regressing to the average. That's why he called it regression to the mean. Look at this schematic to your right where the randomness events are shown as sign light curve. For simplicity, in reality doesn't happen with that liberal regularity. But you can see that generally the tendencies after a very high event generally comes down. And after a very low event at some point it has to go up so that the average is maintained. A batsman can be expected to go forward a few low scores after a few high schools. So that is why after the great performances, the picture of player comes to the cover of a magazine than it is natural for them to perform more averagely. Similarly, in case of flight instructors, somebody, seven rookie pilots, they do some great maneuverings. Their performance is expected to get worse. Similarly, if somebody do some bad performance, their performance is expected to date better if just by natural randomness without any scolding and breezy. But May 1 think that it is because of that I'm holding or appraising their performance is changing. And that's what is a common source of misjudgment in data interpretation. Experienced scientists are constantly fear these straps that leads to wrong causal interpretation. As we saw in the previous two cases. Here are a few common examples of regression to the mean. Lowest performing employees were put in a skill development program and their performance improved. Don't think it is because of the program. It could be just regression to mean and nothing to do with the program. Company's profit and share price decline for a while, its performance was bad for a while, so they hired a consultant, work for some time and shortly thereafter, both profit and share pricing through. And people thought it's because of the great advice of the consultant, but it could be just due to regression towards me. After a few bad ears. It can expect to do a few better years. Sports steam often sign players after a great few games. Lead, go up, play it after a bad patch. Then the player goes to another daemon starts playing while, or the new player starts paying warning. It could be regression to the mean. Fighting an employee's has serious implications of regression to the mean. Finding somebody after a couple of bad years of performance are promoting an employee just after one Goodyear could be a bad decision. As both could be both bad and good performance could be just driven by randomness and external factors. You may regret your decisions later. 37. Overconfidence Bias: Over-confidence bias. Overconfidence bias is a common source of your rationality in decision-making. It's also one of the biases that is covered in great details in behavioral finance and behavioral economics. Because a lot of our economic decision or irrationality comes from over-confidence. If you ask a group of a 100 people about their ability to drive, 90% will say that they are above average. If you ask a lot of university professors and these studies have been done across the board in various areas, 90% professors will think they're above average. It's impossible for 90% to be above average. If you ask 100 people to finish a task AT will predict that they will finish it at average or faster time. That's again not possible, but that's tendency we all have. When asked a question about our abilities. We overestimate our abilities. Most long-term predictions of economists are wrong. Do you do a hindsight bias, which gives us an impression that we know something that in reality we don't. We over estimate our knowledge. And that leads to over-confidence and overconfidence bias. All large projects. Incomplete. Vd, big cost over to shoot and time overruns. Yet, we constantly make mistakes in terms of forecasting how quickly we will finish the project. Over-confidence leads to taking too much task, too much risk, and consequently big losses and financial ruins. In some cases, we put higher probabilities of desired events than undesired ones. That's why if we can plot a level of over-confidence, it will go hand in hand with cost of mistakes. What can we do about over-confidence? First, be aware that our natural instinct is to be over-confident. Also, over-confidence is a socially valued trait. That's why people try to be over-confident. In some cases. When asked if we are above average, drivers or lawyer or professor, we have to compare ourselves with others before giving an answer. And that comparison needs to be objective. One of the common problem due to overconfidence is planning fallacy has no project's finished on time within budget. We have to remember wide planning that things that can go wrong will go wrong. Murphy's law, we have to be a bit pessimistic while planning or forecasting. Looking at somebody else's forecasts, we have to be skeptical. You have to remember, everybody is trying to sell over-confidence. Financial variances often arise due to over-confidence and ignoring risks. Best way to estimate risk. Prevent over-confidence is to look at best rate. This term will keep coming back in different sections. Best rate is historical averages and probabilities of similar things. If you were asked to write a book, you will quickly think that you can finish it in so and so date. Look at how long historically people take to finish a book like that. Similarly, if we were asked to make a field, just look at how long people take to make such a film. Those are all base rates and there are ways to find information. Then give your answer. For example, if you are asked that what, whether you're an above average driver tried to look at the distribution of people's driving ability and try to place yourself in terms of where do you fall before giving an answer. These are ways if you can overcome over-confidence.