Fallacies and biases affect the choices you make. In Part One, we looked at some of them in action, and how they translate into our decision-making processes at micro, institutional, and national levels.
Looking in the Mirror
Our brains also actively work to address our shortcomings in response to our environment.
Do you have a profile picture saved on your computer? Let’s try an experiment. Visit this site: Transformer.1 Upload your picture and adjust the settings as necessary. Take a moment to look at yourself in the future. Do you feel any overwhelming desire to do ______? What’s your brain telling you (other than I need to use more moisturizer)?
According to the Proteus effect, “real-world behaviors can be altered by a virtual experience.”2 So if you see an avatar getting fat, you’ll be more motivated to get fit. If you see a car accident, you’ll drive safer. One of the most surprising things Stanford’s virtual reality lab has discovered that our avatars can make us do is to put away money or save for retirement. Even when investors get compound interest explained to them, it’s difficult to rationalize the act of actually receiving the benefits, because the future self is a complete stranger. Seeing an avatar changes that. The Stanford virtual lab team found that seeing a digitally aged picture (by several decades) dissolves all hesitation to save, and in one study, increased contributions to imaginary IRAs by 30 percent.3
One asset management company plans to offer the “age-morphed photos for 401(k) enrollees…effectively introducing customers to their future selves.”4 Hopefully, by now, you’ve recognized that policy as a Nudge, if not a push or a shove.
It’s time to be a more aware decision-maker. So, think about how fallacies and biases affect the choices you make. There are decisions you can make today that may ultimately mean a wrinkle or two less in the photo in the next tab over. Make your brain work consciously for you.
- Automatically deduct portions of your paycheck into savings, retirement or 401(k) plans.
- Review your risk tolerance with your financial advisor, don’t stick to the same investment decisions and allocations just because that’s how they’ve always been (Status Quo bias)
- Don’t make emotional decisions about normal market fluctuations. (Anchoring effect)
- Don’t overestimate how strongly a news event, political announcement, or market shift will affect you in the future (Impact bias).
Note: Please feel free to search for any of the bias/fallacy terms provided in the article for further information.