Sanjay Bakshi: The Psychology Of Human Misjudgment

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The Psychology Of Human Misjudgment by Sanjay Bakshi via Slide Share

Re?exive vs. Re?ective Brain.

The reason why people get it wrong is because they “jump to conclusions” using the re?exive parts of their brains.

Re?exive Brain is effortless, automatic, fast, but can lend itself to errors.

Its also the reason why you are alive today. Your ancestors, who learnt to run away at the?rst sign of danger, were able to increase their chances of survival until at least they pro-created. If even one of your ancestors had died before pro-creating, you won’t be here today. But you are.

Re?exive brain is VERY useful. But it also leads to mistake.

Human Evolution hasn’t kept pace with rapid change since industrialization.

Re?ective Brain is effortful, reasoned, slow, logical, and less prone to error

Bias # 1 Availability trap (WYSIATI)

Assume today is 27 March 2009 i.e. there are only five days left in the financial year ending on 31 March 2009. One of your friends has approached you to advice him on his investments. He presents you with the following data about his current portfolio:

In addition, your friend also tells you that during 2008-09, he has already realized short-term capital gains of Rs 27 lacs. He now needs Rs 73 lacs by selling part of his portfolio. Which stocks should he sell?

To a man with a hammer everything looks like a nail

This Data is SO boring!

How do we make it more interesting?

Enter Chief Constable of Gwent, Wales

Key Word: GRAPHIC

Sanjay Bakshi: The Psychology Of Human Misjudgment

 

Approximately 3,000 people died in September 11 attacks.

An additional 1,500 died due to increased ROAD Travel because of dread risk.

What caused the dread risk?

The extraordinarily vivid images of the disasters caused mass fear of ?ying.Key word here is VIVID. But there is a general principle at work here. What is it?

VIVIDNESS can SAVE LIVES

VIVIDNESS can KILL TOO

What’s the general principle at work

What’s the general principle at work here?

Human brains tends to drift into working with what’s easily available to it.The human brain tends to drift into working with what’s easily available to it.

“When I’m not near the girl I love, I love the girl I’m near.”

The brain can’t use what it can’t remember…

…or what it is blocked from recognizing under the influence of certain psychological tendencies

The result? Mind tends to over-weigh what’s easily available to it

Tversky-Khaneman video on Availability Bias

“People assess the frequency, probability, or likely cause of an event by the degree to which instances or occurrences of that event are readily “available”in memory.”- Daniel Kahneman

“An event that evokes emotions and is vivid, easily imagined, and specific will be more available than an event that is unemotional in nature, bland,difficult to imagine, or vague.”-Daniel Kahneman

What sort of things tend to be more available in our minds than others?

People remember vivid images

Which is why this presentation is made vivid

a rich and vivid representation of the outcome, whether or not it is emotional, reduces the role of probability in the evaluation of an uncertain prospect.

On Rare Events

“I visited Israel several times during a period in which suicide bombings in buses were relatively common—though of course quite rare in absolute terms. There were altogether 23 bombings between December 2001 and September 2004, which had caused a total of 236 fatalities. The number of daily bus riders in Israel was approximately 1.3 million at that time. For any traveler, the risks were tiny, but that was not how the public felt about it.People avoided buses as much as they could, and many travelers spent their time on the bus anxiously scanning their neighbors for packages or bulky clothes that might hide a bomb. I did not have much occasion to travel on buses, as I was driving a rented car, but I was chagrined to discover that my behavior was also affected. I found that I did not like to stop next to a bus at a red light, and I drove away more quickly than usual when the light changed. I was ashamed of myself, because of course I knew better. I knew that the risk was truly negligible, and that any effect at all on my actions would assign an inordinately high “decision weight” to a minuscule probability. In fact, I was more likely to be injured in a driving accident than by stopping near a bus. But my avoidance of buses was not motivated by a rational concern for survival. What drove me was the experience of the moment:being next to a bus made me think of bombs, and these thoughts were unpleasant. I was avoiding buses because I wanted to think of something else.”

“My experience illustrates how terrorism works and why it is so effective: it induces an availability cascade. An extremely vivid image of death and damage, constantly reinforced by media attention and frequent conversations, becomes highly accessible, especially if it is associated with a specific situation such as the sight of a bus. The emotional arousal is associative, automatic, and uncontrolled, and it produces an impulse for protective action.System 2 may “know” that the probability is low, but this knowledge does not eliminate the self-generated discomfort and the wish to avoid it. System 1 cannot be turned off.”

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