“This is your system 1 talking. Slow down and let your system 2 take control.”
We can simplify the brain into two systems, System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control. How does the noun ‘vomit’ make you feel? Your immediate reaction is disgust and discomfort. I bet your reaction would be different if I used ‘pillow’ instead. Your System 1 quickly associates words with mental imagery that evokes emotions, all without deliberate mental effort on your part.
System 2 allocates attention to challenging mental activities such as learning a new language.
Our first reactions to stimuli are governed by our System 1 which is not always ideal. A spider may pop up in the bathroom sink and you will then proceed to shrieking and scrambling for any suitable large object to obliterate the invader. Carrying the spider outside with a sheet of paper and avoiding the hysteria and violence would be more of a System 2 approach.
“They were primed to find flaws, and this is exactly what they found.”
Our environment changes the way we think. If I were to teleport you to a Nandos with the aroma of peri-peri chicken, Southern African art adorning the walls, and the familiar laminate tables, we would expect the arousal of your appetite. Similar to if you lay in bed, you will feel tired and going to a library will help you to concentrate.
“Plans are best case scenarios. Let’s avoid anchoring plans when we forecast actual outcomes. Thinking about ways the plan goes wrong is one way to do it.”
Plans tell us what should happen in the future. Consider this, you are the new employee at Summi. I set you a target of “200,000 email subscribers in 2 days”, I then ask you “how many emails subscribers do you think you can get in 2 days?” You and I both know the target is outrageously optimistic, bordering on impossible, however this seemly useless snippet of information will influence your answer to my question.
You know a realistic answer may be 20 email subscribers without paid marketing but you will give a larger estimate such as 200. The number 200,000 is random and has no validity in theory, yet it will cause you to revise your expectations because it has become your anchor.
Beware of the aptly named anchoring effect, especially when forecasting the future because we can attach ourselves to flawed forecasts, plans and strategies even when actual outcomes would suggest otherwise.
You are now the owner of a stationary store. If I tell you that pens sell more than rubbers but you discover rubbers sell more than pens, do not believe that something is wrong with the pens immediately. You do not know how I came to my conclusion or whether the market for rubbers is booming due to increased demand for pencils.
“Let’s not fall for the outcome bias. This was a stupid decision even though it worked out well.”
You spring into the driver’s seat, wrench the key and slam the accelerator pedal. Your trip is a jumble of sharp turns, hard braking and dragging pauses at traffic light signals. After the dentist looks at your teeth for a few minutes and proceeds to billing you £30, you come to a realisation. You did not fasten your seatbelt.
Not wearing a seatbelt was a bad decision. In a crash you are twice as likely to die if you do not wear a seatbelt. On this occasion you were lucky but will you be tempted not to wear your seatbelt in the future?
To elaborate on our false substitution of luck with skill, we could conduct the following experiment. You and I are told to bet on a horse race. Neither of us have any information other than the names of the horses. We make our bets and then we are told that my horse won.
If I was asked the question of whether I am a better gambler than you, I will probably say yes. However, the outcome was entirely based on luck, skill was not involved because we knew nothing about the horses other than their names. The correct answer is that we are of the same ability, I just happened to be luckier. If we want to know whether someone is good at something, then we must have evidence of repeated success to limit the impact of luck on the outcome. We must also be vigilant not to confuse luck with skill. Once is often not enough.
“This is an availability cascade: a nonevent that is inflated by the media and the public until it fills our TV screens and becomes all anyone is talking about.”
Remember Bitcoin?
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