Transcription
Do you think you make your own decisions? Is it easy to manipulate you? Before you answer, let me show you something. I'll describe the characteristics of two persons. For each of them, I will say five words. While I say the words, try to decide who is evil and who is a good person. Please note the first answer that comes to your mind. Okay, ready?
The first person: love, care, ordinary, take, dark.
The second person: dark, take, ordinary, care, love.
I'm sure that most of you thought that the first person is good and the second one is evil. But the words I said for both persons are the same. I simply changed the order of the words, and you made a completely wrong decision.
In order to explain why we can be so easily manipulated and make wrong decisions, I will review the book called "Thinking Fast and Slow" written by Daniel Kahneman. Kahneman is an economist and psychologist who won the Nobel Prize in 2002 for his work in the field of economy. The information in the book is simply mind-blowing. The cost of not reading this book is very high. Regardless of your profession in life, it can save you from making bad decisions and losing tons of money.
The author starts the book by introducing the concepts of system 1 and system 2. In order to make it simple, let me explain it to you this way. There are two people sitting in your brain. The first person is called system 1, and the second person is called system 2. System 1 works automatically, intuitively, involuntarily, and effortlessly. Imagine system 1 is your schoolmate who always talks a lot in the class, does not think before he speaks, knows very little, but rushes to answer every question. In contrast, system 2 is very slow. He requires focusing, computing, analyzing, and taking deliberate actions. System 2 is like another schoolmate who sits in the corner silently, is not very social, usually doesn't speak a lot, but he's very smart.
From an evolutionary point of view, both systems are important. For example, if we didn't have system 1, then we would not be able to run away automatically when we saw a bear. And if we did not have system 2, then we wouldn't be able to focus and solve complex problems. Each system has its own place, but problems happen when we apply the wrong system. The majority of the time, it's system 1 which always gets in front of system 2 and leads us to make wrong decisions. This is mainly because system 2 is very slow, and he doesn't want to wake up and work.
After introducing system 1 and system 2, the author talks about the different biases that cause a contradiction between these two systems. One of the biases that Kahneman talks about is called priming. Priming simply means being exposed to one thing that affects your behavior and decision for the subsequent thing. For example, the small experiment we did at the beginning of the video is a perfect example. The first word primed how you think and make a decision. When you heard the first word for the first person, you were 90% sure that this person was a good person. After the second and third words, you were already 100% sure and made your final decision. Word four and five had almost no impact on your final decision. The same thing happened with the second person.
There's a famous wine experiment where on some days they played French music in the restaurant, and people started to buy more French wine. On other days, they played German music, and people bought more German wine. A simple change of music completely changed the buying behavior of the people.
Now, let's see how we can use priming for our benefit in our daily life. For example, when you wake up and look around in your room, do you see the things that make you feel good and happy? If not, then it will affect your whole day. After you wake up, if you spend 2 minutes and show gratitude for the things you already have, such as your family, your health, and your friends, it can change your attitude about how you handle problems. When you go to an interview or meet someone important, pay close attention to how you say hello, how you handshake, and how you look. As you saw in the above example, the first one or two things are enough for us to make a final decision. If you have a website and you are selling something, then study what the first two things are that your customers see and how it makes them feel.
In order to show the power of priming, I'll give you an example from my own experience. When I was buying a flat, I did not use any real estate agent or any other external services for evaluating the flats. Because of this, I knew that sellers could easily hide some problems from me. So I decided to apply the priming principle to make the sellers act honestly and morally. At the beginning of every conversation with the seller, I always started with this sentence: "Thanks a lot for your time. I hope we reach a fair agreement. At any time, if you feel that I'm being unfair or saying something that is not correct, please stop me, and we'll discuss it again. I simply want a fair and ethical agreement for both of us." This might sound like a simple sentence, but it had a huge impact on the behavior of the sellers. Whenever I started the conversation with this sentence, sellers were very careful about the things they were telling me. During the entire meeting, I could see that they were trying very hard not to lie. In some cases, they even told me about the problems that might happen after 5 years. Two sellers even openly recommended not to buy their flat because they thought that based on my situation, it wouldn't be a good fit for me. This simple sentence did not just save me thousands of dollars; it also turned every meeting into a pleasant experience.
Priming can also be negative. For example, when you constantly criticize yourself and say, "You're not good enough," "You can't do that," you're priming yourself for failure. You don't notice it, but these words turn into a behavior very quickly. Priming works on a subconscious level, and you completely fail to see its effects. For example, research shows that asking people simply to read words associated with impolite behavior subsequently influenced them to behave rudely and interrupt another's conversation. Now, just think for a moment: if simply reading impolite words influences your behavior badly, then can you imagine what negative thoughts do to you? Thoughts are much more powerful than reading words because they involve imagination and emotions.
Now, let's talk about loss aversion bias. Imagine I come to you and offer you to play a game in which I'm going to flip a coin, and if you win, I will give you $10,000. But if you lose, you will give me $10,000. You have a 50% chance to win and a 50% chance to lose. Would you play such a game? I'm sure your answer would be no. Even though the amount of money you are going to win and lose is equal, I have to offer a much higher reward in order to make you play such a game. The amount of space for negative emotions on our brain is three times larger than the space for positive emotions. Negative feelings coming from the loss are much stronger than the positive ones coming from the gain. Putting it even shorter, we simply hate losing, and that creates loss aversion bias.
Let's see how we can use this knowledge in our favor. For example, if you are convincing someone to do something, then don't always talk about the gains they will get. Also, tell them about the losses they will face. Loss aversion can be very dangerous and limit us from acting, especially when it comes to starting a new idea or business. When we think about the risks we will face, we get paralyzed. One way to reduce the effects of loss aversion is to look at the long-term benefits rather than focusing on the short-term and its problems.
Sunk cost. Sunk cost is any past cost that has already been paid and cannot be recovered. For example, let's say you buy a ticket to a concert. On the day of the event, you catch a cold. Even though you are sick, you decide to go to the concert because otherwise, you would have wasted your money. The exact same thing happens with our business or project. Despite the losses, we continue putting money and effort into the business just because we've spent money on it in the past. We continue staying in a bad relationship because we have spent so much effort to build it. Logically speaking, what you spent until this point has no correlation with the future success or failure of your business or relationship, right?
Now, you might think that you are logical and your past spending does not affect your future decisions. If this is the case, then why do you still keep all those clothes you don't wear? They occupy tons of space in your wardrobe, but you don't want to throw them away because you paid good money for them. Why don't you throw away the old furniture that occupies a big space in your room? Is it worth something, or is it just you paid money for it in the past? Why don't you throw away the candies you bought in the past, even though you're on a diet right now? In order to make all these decisions, we need system 2 to work, but unfortunately, it's too lazy.
Framing bias. Let's say you feel sick and go to the doctor. After the checkup, the doctor tells you that there is a 10% chance that you will die. Then you go to another doctor, and this one tells you that there is a 90% chance that you will live. From the statistical point of view, both doctors told you absolutely the same thing. However, you would feel much worse when you hear that you have a 10% chance to die. This is called framing. Kahneman says that the choices we make are heavily influenced by the way they are introduced to us. Different wordings, settings, and situations will have a powerful effect on how we make decisions. It works as a physical frame on a picture. If you put the painting in a red frame, it brings out the red in the painting. Putting the same painting in a blue frame brings out the blue.
The halo effect. Attractive people are perceived to be smarter, funnier, and more likable than less attractive ones. If two women committed the exact same crime, we tend to give lighter punishment to the more attractive one. It makes absolutely no sense, but our system 1 gets influenced by the physical appearance and other irrelevant characteristics that have nothing to do with the decision we are making. For example, if an employer views the applicant as attractive or likable, they are more likely to also rate the individual as intelligent, competent, and qualified. So next time when you're choosing a business partner or when you're taking advice from someone, ask yourself if the person really has valuable skills and knowledge, or if you are being impacted by their appearance and other irrelevant things such as a nicer car, rich lifestyle, etc.
Anchoring. Let's say you want to buy a leather jacket and find a very nice one in the shop. You check the price and see that it is $400 and think that that's expensive. So you decide to put it back. But when you put it back, you noticed that you had checked the wrong price, and the real price is actually $250. Suddenly, the jacket will look cheaper to you because of the initial number you saw, even if it was a wrong number. This is called anchoring. Humans tend to rely heavily on the first piece of information they hear or see and then make further judgments. This is one of the reasons why car dealerships put their most expensive models at the front of the display room so that when you pass them and see other normal priced cars, they suddenly look cheap to you. Again, logically speaking, previous numbers or things we see should not influence our decisions, but they do a lot. One way to protect yourself against anchoring is to have a limit in your mind before you start doing work. For example, if you're going shopping, set a mental amount for how much you'd be willing to pay and then check the price tag. If it's more than your limit, you're out of luck.
The endowment effect. The endowment effect is an emotional bias that says that once we own something or have a feeling of ownership, we irrationally overvalue it regardless of its objective value. This is the principle behind test driving cars and letting consumers play with the products. The longer people spend interacting with the product, the greater the sense of ownership becomes. The same thing goes for free trials with software products and online services too. The more time people spend using and customizing them, the greater the sense of ownership becomes, and the harder it is to give up. The endowment effect is one of the reasons we love IKEA furniture. When we buy furniture from IKEA, we spend time building it, and all of a sudden, it becomes something we created, and because of that, we love it even more. The endowment bias influences our decisions a lot. So always ask yourself if the things you are supporting are worth supporting, or if it is because it's yours. Is your old IKEA furniture you want to sell worth the price you are asking, or are you being influenced by the endowment effect? Is the idea you are defending in your team really a good idea, or are you supporting it because it came from you?
Confirmation bias. Three years ago, I was trading on one of the trading platforms, and after several days, I read somewhere that the company that I was trading with was a scam. So I jumped on my computer and typed this search: "Is this company a scam?" And guess what? I found a bunch of people saying that it was a scam. So I panicked and withdrew all my money, even lost a lot of money because I exited my positions early. After several days, I was researching other trading platforms and realized that there are many similar bad comments for the majority of these companies, which started to look suspicious because not all of them could be bad. Later, I learned that the company was not a scam. It's just that I Googled a biased question and only read bad comments that supported my suspicions and beliefs. In psychology, this kind of behavior is called confirmation bias.
Confirmation bias is the tendency to search for and find evidence that supports our opinions, beliefs, and disregard the rest. We humans interpret all new information in a way that our previous beliefs and conclusions stay intact. Simply to say, we forget that a coin has two sides and only focus on one side which supports our beliefs. If you want to believe in something, you will find evidence to support it. You can even find videos telling you that the Earth is flat if you believe in Flat Earth theory. Confirmation bias affects all of us, and it is everywhere. For example, people generally prefer to spend more time looking at information that supports their political point of view while neglecting the rest of the information that contradicts their view. Confirmation bias can cause doctors to search for new information in a manner to confirm their initial diagnoses while ignoring the signs that can prove their diagnoses wrong.
It's very difficult to combat confirmation bias. However, we can reduce its dangers by following the next three steps:
1. Accept that it exists. To solve a problem, you first need to accept that you have a problem.
2. Always seek contrary advice. It's usually painful to listen to someone who has the opposite view, but it can help you see the red flags. Maybe your greatest business idea really sucks, but you want it to succeed so bad that you only see the positive signs and ignore the lack of demand and go ahead without validating the idea and testing it properly.
3. Don't ask confirming questions, as I did in the example above. Try asking more neutral questions instead.
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