Gumptionade Blog

A Way to Be Wrong Called Loss Aversion

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The hunter makes a hole in a coconut. Bigger than Monkey’s hand, smaller than Monkey’s fist. The hunter fills the coconut halfway with rice—Monkey’s favorite food—and stakes it tight to the ground. Monkey happens by, reaches into the coconut, and grabs a fistful of rice.

Now Monkey is stuck. Now the hunter returns. Will Monkey drop the rice and escape? Maybe not. Maybe Monkey wants rice too much. Monkey is in danger of dying from loss aversion. She bears risk of capture to avoid the pain of losing a fistful of rice. She is caught by her thinking before she is caught by the hunter.

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Loss Aversion. Evolution designed your brain for survival, not self-awareness. GumptionadeDan and Amos both want to see their Jumbos play the Bombers—bitter rivals—tonight. They both live in the same suburb, about an hour’s drive from the Fudge Forum, home of the Jumbos. Dan bought his ninety-five- dollar ticket to the game this morning. Amos bought his a few months ago. It starts to snow around 4:00 p.m. It is soon obvious there will be dangerous weather tonight. The Jumbos and the Bombers will play the game, but Dan and Amos face the disappointment of missing it.

Which of them is more likely to risk the drive? That is to say, which of them is more likely to be wrong? Having bought his ticket this morning, Dan will chase his ninety-five dollars through a blizzard, notwithstanding the fact that on any other weeknight, ninety-five dollars would not be enough to get him to drive all the way downtown and back in a light drizzle.

Dan fails to stop and ask himself two simple questions: “Would I drive through a blizzard if I had been given this ticket?” He would not. “Then why would I do it now?” After all, a ticket is a ticket, regardless of where it came from. That is so logical. People are so psycho-logical.

Dan starts toward downtown and ends up being dropped off at home at 4:00 a.m. by the state police, his car abandoned on the highway, not having gotten within ten miles of the game.

The force of loss aversion made Dan’s imagined pain of regret loom large in his unconscious mind. He accepted great risk to avoid this loss. Wrongness. Where was his common sense? Where was his gumption? Where, Monkey, where?

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In December 1965, Frankie Valli and the Four Seasons reached number three on the Billboard chart with “Let’s Hang On (To What We’ve Got).” This is a cry that originates deep in the human unconscious. Loss aversion was—and is—a subset of death aversion.

To stay alive, Your Hairy Ancestor had to survive the process of getting food and shelter. Loss of food threatened death by starvation. Loss of shelter threatened death by exposure. Movement invited attack by other survivors, including saber-toothed tigers and fellow proto-humans. Replacing lost necessities was uncertain at best and fatal at worst.

The threat of loss received a more powerful response than the opportunity for gain among those individuals who survived long enough to be your ancestor. Reference points laid down a million years ago influence your intuitive response to modern threats, including threats that are more symbolic than actual.

Such as the loss of a ninety-five- dollar Jumbos ticket. Not a life or death matter, but you would think so by what happened. Why don’t you have more common sense? Why can’t you tell the difference between real and symbolic threats? Why this wrongness?

Because, as Leonard Mlodinow neatly put it, evolution designed your brain for survival, not self-awareness.

 

Learn more about ways to be wrong to get yourself on the path to being right more often.

 

[i] “Monkey is in danger...” - Robert Pirsig, Zen and the Art of Motorcycle Maintenance (New York: William Morrow & Company, 1974),303.

[ii] Which of them is more likely to risk the drive? [Chasing Losses]. Daniel Kahneman, Thinking Fast and Slow (New York: Farrar, Straus & Giroux, 2011), 343.

[iii] …evolution designed your brain

A Way to Be Wrong Called Anchoring

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You and several other people are sitting in a room. At the front of the room is a numbered game wheel, the kind you see at a fair. A man spins it. The wheel is rigged to stop on 65. You are not told this.Anchoring, a way to be wrong

It stops on 65. The man asks everyone to write down that number. He then asks you to answer a few questions, including this one: “What percentage of UN member states are African?” [i]

The answer that you and the others give averages out to 45%. The average answer of a different group of people, who saw the wheel land on 10, was only 25%.

Really?

The wheel stopped on                            Resulting Estimate of African UN member states

65                                                                                                 45%

10                                                                                                  25%

Like most of us, you have a weakness in your thinking called anchoring. You can be influenced by an irrelevant number on a game wheel. Your logic about African states and the UN is psycho-logic.

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Disinterested speculation about the UN is one thing, but would anchoring ever affect an important personal decision? Yes. A woman whose maiden name is Brown is more likely to marry another Brown than a Smith or a Jones, despite the fact that there are more Smiths and Joneses out there. People are anchored to their own name. [ii]

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It’s not helpful to be influenced by irrelevant reference points. It’s just normal.

Your brain does a lot of work without asking your permission. It’s good that you don’t forget to breathe. But anchoring and other glitches in your automatic thinking weaken your common sense.

Here is a checklist to help you overcome these glitches and make better decisions right now.

Learn more about ways to be wrong to get yourself on the path to being right more often.

 

 

[i] What percentage of UN member states are African? Daniel Kahneman, Thinking Fast and Slow (New York: Farrar, Straus & Giroux, 2011), 119–20. 130 

[ii] People are anchored to their own name. Leonard Mlodinow, Subliminal: How Your Unconscious Mind Rules Your Behavior (New York: Pantheon Books, 2012), 19.

Pull Up The Anchor Before You Set Sail

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The Simple Key to Success That Almost Everyone Overlooks: Pull Up Your Anchor Before You Set Sail

Man muss immer umkehren” (Invert, always invert) [i]

-Mathematician Carl Jacobi (expressing the idea that many hard problems can be solved by turning them upside down)

 

“If my job was to pick a group of ten stocks in the Dow Jones Industrial Average that would outperform the average itself,” Warren Buffett once said, “I would try to pick the ten or fifteen worst performers and take them out of the sample and work with the residual.” [ii] He inverts to solve a hard problem. Warren Buffett starts towards success by first noticing and removing failure.

"Pull up your anchor before you set sail" Robert B. O'Connor, GumptionadeYou are the captain of your ship. For heaven’s sake, pull up your anchor before you set sail. You want to have more money? Look first at how to spend less. Making more money depends a great deal on factors outside of your control. Spending less does not. Start there. Invert.

You want to lose weight? Look first at how you gain weight. Do you eat too much when you are upset? Do you drink soda? Do you require that dieting be painless? Invert. Start your weight-losing plan by identifying and removing your worst weight-gaining behaviors.

You want your best customers to spend more? Look first at how to prevent them from spending less. Find out what they don’t like about doing business with you and remove that. Then add things they might buy.

How can you find someone to love you? Start by removing the things that make you hard to love.

Invert your normal behavior. Instead of looking for what might work, look for what hasn’t. Look for the predictable causes of failure. Start with a To-Don’t list.

Pull up your anchor before you set sail.

 

Notes:

[i] “Man muss immer umkehren” (Invert) “Wikipedia contributors, “Carl Gustav Jacob Jacobi,” Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/w/index.php?title=Carl_Gustav_Jacob_Jacobi&oldid=626833898. Accessed March 18, 2015.

[ii] “…pick the ten or fifteen worst performers and take them out of the sample, and work with the residual.” Frederick F. Reichheld, The Loyalty Effect (Boston: Harvard Business School Press, 1996), 190.

The Shortcut to Happiness: Be Less Miserable (part 2)

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Competitive cyclists will tell you that the best way to ride faster is not by strengthening your leg muscles.  The best way to ride faster is to lose weight: lighter bicycle or lighter cyclist, either one will do. Remove what is holding you back before you add anything.

The most reliable way to increase your happiness is to remove something from your life that makes you unhappy. I gave twelve candidates for removal in my post of October 24, 2014. Here are twelve more:

12 More Reliable Ways to Be Miserable

  1. Never be wrong.
  2. Worry about things you cannot control.
  3. Don’t forgive yourself, or anybody else.
  4. Be bored.
  5. Refuse any sort of exercise.
  6. Do not count your blessings.
  7. Never laugh at yourself.
  8. Go into debt to buy luxuries.
  9. Covet what you don’t have.
  10. Pay no attention to what you eat.
  11. Don’t help other people.
  12. Compare yourself with others.

Life gives you your portion of misery regardless of what you do. Eliminating additional, self-inflicted misery is the simplest way to be happier.

 

The Shortcut to Happiness: Be Less Miserable (part 1)

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Much is written and said about how to be happy. Practice your faith. Spend time with people who care about you. Get a dog. Count your blessings. Help somebody. Cultivate a hobby. Laugh more.

Good ideas, all. But they may not work for you. The most reliable way to increase your happiness is to be less miserable: remove something from your life that makes you unhappy.

Here are some candidates:

12 Reliable Ways to Be Miserable

  1. Live for praise and gratitude.
  2. Commute a long way to work by automobile.
  3. Expect people to change.
  4. Don’t get really, really good at some little thing.
  5. Isolate yourself from others.
  6. Spread yourself a mile wide and an inch deep (aka “crazy busy”).
  7. Be full of regret.
  8. Stay in a toxic relationship
  9. Don’t sleep enough.
  10. Live in the past, or the future.
  11. Procrastinate on the important things.
  12. Find a job you don’t enjoy and stick with it (bonus: abusive boss)

Life gives you your portion of misery regardless of what you do. Eliminating additional, self-inflicted misery is the simplest way to be happier.