The Psychology Of Human Misjudgment Part II by Sanjay Bakshi
Bias # 2: Perceptual contrast
Cialdini’s Sharon
“Dear Mother and Dad, Since I left for college I have been remiss in writing and I am sorry for my thoughtlessness in not having written before.“I will bring you up to date now, but before you read on, please sit down. You are not to read any further unless you are sitting down, okay?
“Well, then, I am getting along pretty well now. The skull fracture and the concussion I got when I jumped out the window of my dormitory when it caught on ?re shortly after my arrival here is pretty well healed now…
“I only spent two weeks in the hospital and now I can see almost normally and only get those sick headaches once a day…
“Fortunately, the ?re in the dormitory, and my jump, was witnessed by an attendant at the gas station near the dorm, and he was the one who called the Fire Department and the ambulance…
He also visited me in the hospital and since I had nowhere to live because of the burnt-out dormitory, he was kind enough to invite me to share his apartment with him. Its really a basement room, but its kind of cute. He is a very ?ne boy, and we have fallen deeply in love and are planning to get married. We haven’t set the exact date yet, but it will be before…
…my pregnancy begins to show. Yes, Mother and Dad, I am pregnant. I know how much you are looking forward to being grandparents and I knowyou will welcome the baby and give it the same love and devotion and tender care you gave me when I was a child…
“The reason for the delay in our marriage is that my boyfriend has a minor infection which prevents us from passing our premarital blood tests and Icarelessly caught it from him…
“I know that you will welcome him into our family with open arms. He is kind and, although not well educated, he is ambitious…
“Now that I have brought you up to date, I want to tell you that there was no dormitory ?re, I did not have a concussion or skull fracture, I was not in the hospital, I am not pregnant, I am not engaged, I am not infected, and there is no boyfriend. “However, I am getting a “D” in American History and an “F”in Chemistry, and I want you to see those marks in their proper perspective.Your loving daughter, Sharon.”
What will happen if you put this in your mouth and then…
and then you put this in your mouth?
Dan Airely
Decoys in comparables
Example of 2nd most expensive wine on the menu – the most expensive is the decoy which is supposed to make the 2nd most expensive (and very pro?table for the restaurant) wine look better than the cheaper ones and good value compared to the most expensive one.
Buying a Lamp Buying a Car
In availability bias – this was about anchoring – You were anchoring to price of lamp and price of car and NOT anchoring to wealth
Here its about contrast – high contrast – the Rs 1000 saving on a lamp looks BIG but SMALL in a car
Experiments show that average wine sales increase substantially by having the $150bottle listed right next to the $95 bottle. Moreover, the sales increase happens not because of a rise in sales of the $150 bottle but due to a rise in sales of the $95 bottle.The role of the $150 bottle is to act as a decoy to make the $95 bottle appear more desirable.The way to sell a lot of $800 shoes is to display some $1,200 shoes next to them…
Averaging down is a good idea but like most good ideas, if they are carried to the extreme, become bad ideas…Blind averaging down can be injurious to your (?nancial) health.Just because a stock has fallen 80%, doesn’t necessarily make it cheap and worthy of averaging down
Catching a Falling Knife
Blind averaging down can cause grave harm if you do it with the wrong kind of stock.
Beware of Little Expenses for A Small Leak will Sink a great ship
Here is another example…Small things add up
When compared with a LARGE investment, They LOOK small, but they add up and become BIG.
How would the Buy-and Hold Strategy do?
How would the Buy-and Hold Strategy do?
Tax-paying investors will realize a far, far greater sum from a single investment that compounds internally at a given rate than from a succession of investments compounding at the same rate.
Is a Rs 10 stock cheaper than a Rs 100 one?
Stock splits can’t make people richer?
How could exchanging a Rs 100 note for ten Rs 10 notes make you rich?
If you put a frog in boiling hot water, it will instantly jump out and escape
But if you put a frog in lukewarm water and slowly boil it, it will slowly boil to death!
While there is no truth to this story whatsoever, the human equivalent of the boiling frog is there in all of us…
“Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny.”
Killing Me Softly…
Digital camera’s killed the photographic ?lm business.
But it did not happen in a day, or a month, or a quarter.
It was slow, painful (for ?lms)….
See full PDF below.
