No big introduction this time, because as time goes by, writing is becoming more and more "easy", and it is especially easy for me to produce a huge number of characters, so I am just going to get to the point right away. Here are another 3 concepts, about which awareness can give each of us a lot. Especially to younger people, teenagers, who soon are going to make the most important decisions in their lives. There we go:

1. Self-serving bias

Have you had any luck doing something lately? Something went according to plan in your life? You wanted to do something, so you planned it, and it worked really well. Great. Well done! It happened thanks to you, right?

Is there anything that has gone wrong lately? You had these great plans and ideas (go running, get up or go to bed earlier, start reading this new book), but... you didn't. Why? What has thwarted your plans? Surely it didn't work, because of some external factors like the weather, kids, friends, work, right?

Sometimes it is probably the case that we manage something, because we wanted it so much that no external factors were able to stop us. Other times it is also the case that we don't care enough about something and we don't overcome these external factors in order to do something. However, I want to draw attention to a rather interesting phenomenon whose presence in our human nature is a fact. This is the so-called self-serving bias, which is that we tend to look at ourselves through a glass that seems to always work to our advantage. We are convinced that when something succeeds, when we are successful, we owe the main merit to ourselves. We are the direct cause of that success. When something turns out to be a failure, it is natural for us to blame external factors.

Knowing about this process can give us a lot if we react appropriately in different situations. Well, imagine a boss who considers all the company's successes to be his credit. Employees should thank you for having a job! Again, they need to be paid again! How dare they ask for benefits when they get paid for their work?! I'm exaggerating, but are you sure none of the bosses think so? I think there'd be a few. When something goes wrong in one of the projects, the guilty one has to be found among the employees or on the client side. Find them and punish them somehow, right? No one will want to work for such a boss. I don't want to work for such a boss either. The point is that each one of us is a "boss" in his or her life, so each one of us has a lot of work to do here, not to be someone who succumbs to this inclination, but someone who consciously acts against it. Humility and sincerity has to be the foundation, and all sincerity starts with sincerity in front of yourself, so this is a good place to start and ask yourself these questions from time to time: "Can it be that this failure is actually my fault?" or "Should I really focus on who is to blame?" and "Are my merits so great?" and "How can I make the people involved in this project feel appreciated and motivated?".

2. Framing effect

You've got $3000 on your account.

  • Would you accept an offer that would give you a 50% chance to lose $300 and a 50% chance to win $500?

A lot of people would reject that offer. How about this?

  • Would you accept an offer that would give you a 50% chance to have $2700 on your account and 50% chance to have $3500 on your account?

The second offer sounds much better, doesn't it? Many people would accept this second offer while rejecting the first one because of a phenomenon called "framing effect". Both offers are identical and differ only in the way they are formulated. We are faced with a choice and somehow we automatically count it in our heads and we think that 500-300= 200 and 3500-2700= 800. 800 > 200, so it seems more profitable. We are so clever that the choice is almost obvious to us. So we see that it has for us, as people, a lot to do with how the information on which we are based is formulated.

It is similar, for example, in a shop when choosing products - we prefer to buy things that are "99% fat-free" rather than "containing 1% fat". When you look for chocolate on the shelf, you only see information about how much cocoa is in the bar. Nobody advertises their chocolate with information about how much of their chocolate doesn't have "cocoa" in it at all, because that would be a marketing suicide.

The examples can be multiplied, in principle it is enough to look around, because this method is used on a daily basis by banks, shops, services and applications that we use. It is worth knowing about it, so as not to be fooled by it and look at the information presented to us from an appropriate perspective.

3. Context effect

Let's just say you want to buy headphones for work, but you're not sure about the model, and your budget is also very undefined. You go into the shop (or into the shop page) and look...

  • Model 1 ($229)
  • Model 2 ($339)
  • Model 3 ($439)
  • Model 4 ($890)

Which model would you choose based on this set of information? Research shows that the vast majority of us would choose model no. 3. Some of us might choose model no. 2, while almost no people would buy models no. 1 and 4. Interesting, right? After all, we don't have information about the specifications of these products yet, but we already have our strong favourites. It is even more interesting when we enrich our scenario, e.g. in this way:

  • Model nr 5 (110 zł)
  • Model nr 1 (229 zł)
  • Model nr 2 (339 zł)
  • Model nr 3 (439 zł)
  • Model nr 4 (890 zł)
  • Model nr 6 (1389 zł)

I added 2 new models with different prices. The initial 4 models have not changed at all, but the way we see each of the initially presented models is completely different from our evaluations a few seconds ago. The No. 1 model suddenly ceased to seem so tacky to us, because next to it we see the No. 5 model, which is much cheaper - so it must be much worse too. However, model no. 4 is not so exclusive, because with model no. 6 it seems to be cheap... so maybe we can afford it after all? Maybe it's worth adding $400 to our favourite from the first scenario, model no. 3 and buy a decent model no. 4? See how our reason can quickly be tricked? This is a fantastic example of how deceptive our natural reasoning can be. We tell ourselves something, using some kind of bad arguments - this price is great because other prices are higher, lower, too high, too low and so on.

Another example of this effect, which will allow us to look at the matter a little wider, is a study by Norbert Schwarz and Gerald Clore, who asked a group of people to express their level of satisfaction with their lives - but they did it on a rainy day in one case and on a sunny day in another. People expressed more satisfaction with their lives when asked about it on a sunny day. However, when the weather was mentioned, the answers were balanced. So we see that the environment can influence our perception, but when we see the relevant factors, the effect of the context almost disappears.

That's it in the second post of this series! As always, I will appreciate and respond to any comment or suggestion! Thank you for reading.

Oskar Pilch
@osk_are

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Oskar Pilch
About
Oskar Pilch
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Our CFO with a background as a Product Manager. He writes about business, investing, and finance. Passionate about entrepreneurship and personal finance. NBA fan, Bitcoin holder, also writes about health and lifestyle.