Heuristics is the ability of the mind (brain) to take mental shortcuts in decision making. For instance; we associate clarity with distance. The clearer an object seems the closer we think it is and likewise.
This mental shortcut is ingrained in us and in as much as we can’t do much about it, we must educate our mind and understand that this mental shortcut can sometimes be flawed.
Pilots are thought not to rely on their vision but on objective based inferences. We should borrow this thinking concept and base our decision making skills on quantitative/qualitative analysis, properly weighing out alternatives.
Another instance will be; whenever you see a person with their hood up in a dark alley and you decide to subtly walk past a bit faster, your brain has probably used a heuristic to evaluate the situation instead of a full thought-out deliberation process
Heuristics is a psychological trap that undermine decision making. We should be aware of this traps so that we can best know how to overcome them so our decisions can be sound and not biased.
Anchoring Trap
In this scenario, the mind gives too much weight to past events and not enough weight to other factors. This is a ploy most marketers use in selling items for exaggerated prices.
For instance, when you go to a store to buy a shirt. If the first shirt you see is priced at N 100,000 and the second shirt is priced at N 20,000 your brain is wired to see the price of the second shirt as cheap. Whereas, if you had seen the second shirt only you wouldn’t think of it as cheap.
The anchor (first price) has influenced your opinion.
Assuming the price of the shirt is not given and the seller tells you the price, you start to bargain and make a counteroffer (usually mid-range) based on the proposed price he tendered, not considering other factors as to what the shirt is worth, alternatives and what is attainable elsewhere.
What is happening is that your brain automatically tells you that a price a little lesser than what he proposed will be a better offer not considering other information.
Another example will be if I asked you what you think the price of bitcoin will be in 3 months. The first thing you will do is try to know what the price is today and make a smart guess on what you think it will be in 3 months based on what it is today not considering other factors.
This is an effective strategy marketer’s use and how do we overcome this anchoring trap?
– Be open minded and analyse problems from different directions (perspectives) weighing all the several alternatives.
– Think about any decision on your own before soliciting for other people’s opinion so you don’t base your decision based on their anchors (ideas)
– Before going into any negotiation always think about it entirely and what you intend to pitch as a price so your negotiation will not be based on their offer (anchor)
We can also use this anchor to our own advantage. If we are the seller we can pitch a high price that we can defend so our buyers start negotiation based on this anchor.
The status Quo Trap
As humans we are sometimes scared of change and always like to operate within our comfort. The status quo trap is when we choose to play safe with our decisions because we are scared of what the outcome will be if we took a different path not considering if the decision we are playing safe with is still a viable option.
Our brain is wired to “stay in the boat even if it’s sinking than try to swim in the ocean”.
An example will be saving your money in a low profit yielding savings account rather than investing in a high income earning investment opportunity with a degree of risk.
Also, sticking with popular brands even if there are cheaper and less popular brands that offer the same product/quality.
How do we overcome this and use it to our own benefit?
– Clearly state your objective (goal)
– Never consider the status quo as your only alternative
– Understand that sometimes the status quo may be the best alternative but you don’t want to choose it because it’s comfortable but because it’s better than other alternatives
– Weigh your alternatives based on the present and the future
– If the status quo isn’t the status quo, would you still be plying that route?
– Do not over- exaggerate the cost of other decisions.
– Do not sit on the hedge if you have other alternatives that are better than the status quo. Force yourself to choose.
I’ll continue this series in a later blog post. Be sure to look out for the part 2 of heuristics as a flawed thinking concept.
The Soil.