Snap question:
A bat and a ball cost $1.10 in total. The bat costs a dollar more than the ball. How much does the ball cost?
Quick, think of an answer.
Is your answer $0.10?
If yes, then like most people who answer this question for the 1st time – it is wrong!
Go back to the question and read it again. If the ball costs $0.10, and the bat costs a dollar more, the bat would be priced at $1.10 instead. The sum of the two will be $1.20.
So the correct answer here is $0.05.
Why do most of us would answer this wrong on the 1st try?
We can blame it on our inherently lazy brains.
The Two Systems in Our Thoughts
Have you heard of the two systems in our thoughts? System 1 and System 2. If you haven’t, let me give you a quick breakdown:
System 1 – the fast, unconscious, automatic, and effortless side of our brains.
System 2 – the slow, conscious, deliberate, and effortful side of our brains.
These two systems of thought are the main idea behind the book “Thinking, Fast and Slow” authored by Nobel Prize winner Daniel Kahneman.
Going back to the bat and ball question: the reason why most of us will get it wrong – is because our thoughts automatically use System 1 to solve it. When the question highlights that the bat costs $1.00 more than the ball, most of us will ignore the words “more than”, and directly associate the cost of the bat to $1.00.
Our brains LOVE shortcuts.
35,000 Decisions Every Day
Yes, you didn’t see it wrongly. No typos from my end either.
It is estimated that an average adult makes around 35,000 decisions in a day! That’s about 36 decisions every single minute in our waking moments (assuming we sleep 8 hours daily).
I was a little surprised when I found out about this number. Then I started to wonder – is that even possible?
Of course, not all decisions are life-changing. Most of the decisions we make daily are routine stuff like what to wear, what to eat, deciding on how to commute to work, which path to step on when walking on the street, etc etc. Most of it is done using System 1, our unconscious side of our brains.
It is also estimated that 98% of our thinking is categorized under System 1. Knowing this, is this a good thing tho?
Preventing Cognitive Overload
Imagine if all the decisions you make, you have to do consciously – what will happen?
- You brain will crash.
- Even if you manage to do it, by the time you made all your decisions, it will be the end of the day and nothing gets done.
Luckily, our brains are naturally designed to prevent such from happening – to prevent the occurrence of what psychologists call cognitive overload. To give some context, cognitive load refers to the used amount of working memory resources. When you exceed the available working memory, that is when cognitive overload happens.
I guess when people say “Not all decisions are created equal.”, this is what they probably meant.
Our Flawed System 1
System 1 does help prevents our brains from crashing, but it’s far from perfect. In his book, Kahneman highlights that System 1 is prone to heuristics and cognitive biases.
Heuristics are simple strategies or mental processes that humans, animals, organizations, and machines use to quickly form judgments, make decisions, and find solutions to complex problems.– Wikipedia.
Cognitive bias is a systematic pattern of deviation from norm or rationality in judgment. Individuals create their own “subjective reality” from their perception of the input. – Wikipedia.
Here are some that are more commonly known:
1. Anchoring Effect
The anchoring effect explains a tendency whereby a person’s decisions are influenced by a particular reference point or ‘anchor’.
One good example of this effect is from a study where two groups of students were asked what was the age of Mahatma Gandhi when he died. The only twist was the question comes with a different anchor:
- Group 1 was asked, “Did Mahatma Gandhi died before or after age 9?”
- Group 2 was asked, “Did Mahatma Gandhi died before or after age 140?”
Both anchor numbers are absurd, but it is enough to influence the students. Group 1 students’ answers were at the average age of 50, whereas group 2’s was averaged at age 67.
A real-life impact of this effect is shown in the use of MSRP (Manufacturer’s Suggested Retail Price) or RRP (Recommended Retail Price) by retailers. With the complexity that comes with the entire product development process (from R&D to putting the final products on shelves), it’s impossible for us average consumers to compute the actual price of any product. By setting MSRP & RRP, retailers with give us an anchor, and any price lower than that will give us the perception of “great value”.
2. Availability Bias
Availability bias is a form of mental shortcut that depends on immediate examples that comes from a person’s mind when evaluating a specific topic. Our minds tend to identify the first thing that we recall as an “answer” or “solution” to our evaluations, because… if it comes first, it must be important. Right?
I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.
Abraham Maslow
I bet that you have seen this familiar quote somewhere before, and I think it depicts the availability bias very well. If the only tool you have in your hand is a hammer, you will subconsciously treat every problem you face like a nail. The thing is – not all problems are nails!
We tend to think of solutions based on what our specializations are. One meme which I find to portray the impact of this bias:
Of course, this meme is specifically on different types of engineering fields. In real life, each of us will have our own school of thought based on our expertise. An accountant might try to solve the problem with numbers, whereas a lawyer might try to justify his way out of it.
3. Substitution Bias
Recall the snap question from the beginning of the post? How most of us ignored the words “more than” in the question and directly associate the cost of the bat to $1.00? Yes… substitution bias is in the works here.
Substitution bias is a tendency of our brains to substitute a more complex question for a simpler one.
In what Kahneman termed as their “best-known and most controversial” experiment – “The Linda Problem“, subjects were told about a young, single, outspoken, and intelligent student named Linda. Subjects were also told that Linda was very concerned with discrimination and social justice.
Kahneman then asked the subjects which is more likely?:
- Is Linda a bank teller?
- Is Linda a bank teller and an active feminist?
The responses were overwhelmingly skewed towards “Linda is a bank teller and an active feminist”, although it violates the law of probability. Think about it… every feminist bank teller is still a bank teller – right?
Here, our System 1 has substituted the entire question to: “Is Linda a feminist?”, ignoring her occupation altogether.
4. Loss Aversion
Loss aversion is the tendency to prefer avoiding losses to acquiring equivalent gains.
For example, if we were to plot a perceived value of gain or loss vs. strict numerical value of gain or loss in a graph, it will be something like below:
The example of this graph shows the impact of a $0.05 increment/decrement, but it actually applies to any amount. A $100 loss will impact you more than a $100 gain. A 10% drop in your overall stock portfolio will make you more miserable than the excitement it gives you when you encounter an equivalent gain.
Companies are often masters in understanding our tendency towards loss aversion. You’ve probably encountered many deals that have “Limited time offer” or “Few units left, grab it now!”. These “deals” create a sense of urgency and scarcity towards it and give potential buyers like us the feeling that we are “losing out” if we did not buy it immediately.
The thing is… most of the time, these “great deals” aren’t actually that great at all. With this awareness, hopefully, we can be more rational towards spending our hard-earned cash.
5. Framing Effect
If you’re at a store looking for anti-bacterial disinfectant wipes, and you came across two companies advertising their products as below:
- Product A: “Kills 99.9% of germs and viruses!”
- Product B: “Only 0.01% of germs and viruses will survive!”
Which would you choose? Most likely you would go with Product A.
Why is this?
Well, I guess not many would want to have the feeling that there are germs and viruses “surviving” after disinfecting any surfaces, even though both products are advertising the exact same thing!
This brings us to the framing effect. This is a cognitive bias where people decide on options based on whether the options are presented with a positive or negative connotation.
From the earlier example given, the company that sells Product B made a huge mistake by marketing their product via the negative frame. Examples aside, companies and large corporations hardly make such mistakes. Similar to loss aversion, they too are masters in this field, framing their product to be as positive as possible in the eyes of the customers. It’s only fair that we consumers do our own due diligence before any purchase decisions.
6. Sunk Cost
One day, you are at the pet store, and you are looking to get a pet for your son/daughter. You came across an adorable little herbivore lizard called the green iguana. It doesn’t cost that much, so you might decide to get it – not know that several months later – this adorable little lizard will grow to 5 feet long.
This short story here is adapted from one of the episodes from Seth Godin‘s podcast – Akimbo. Full podcast embedded as below:
What will you do with the 5ft long green iguana?
Should you let it go? But it’s been with us for a while now, and the bond we now have. We can’t simply let go of family… right?
Should you continue to keep it? But it’s so huge now…
We all have some form of “green iguana” in our lives. We all have our own sunk cost.
Sunk cost, in economics, is a cost that has already been incurred and cannot be recovered. It’s the reason why we will sit through an entire movie, no matter how sh*tty it is, because we have already paid for it. It’s also the reason why we feel guilty for not finishing that book after reading it halfway through. Our tendency to recuperate our sunk cost is there, as futile as the effort may seem.
It’s also impacting the bigger decisions we made in our lives. We might one day realize that the degree we decided to take on when we are 18 years old… is not what we wanted to do in life. Some might be “awaken” after 20 years working on the undesirable career path, but fear to take any action to move away from it.
We are so heavily invested, we are afraid to lose all the effort that we have already put in.
The thing you earned, that you depend on, that was hard to do–it’s a gift from your former self. Just because you have a law degree, a travel agency or the ability to do calligraphy in Cyrillic doesn’t mean that your future self is obligated to accept that gift.
Seth Godin
This is just the tip of the iceberg for our System 1 flaws, many more to be explored.
Amongst all these, it is sunk cost that hits me the deepest. I have spent my entire career so far working as an engineer, and have stayed the course. Not to say that this is a bad decision in any way, it is still a great career path for many.
When I started to explore the endless possibilities that we humans can achieve, it makes me realize that – engineering is only one of many possible paths that one could take. I recalled from somewhere I read that to be really good at something, it’ll take around 7 years or so of practice, might even take lesser time than that. So imagine that a person starts working at 20, and retires at 60 – instead of sticking to a single mastery for 40 years, why not break it down to 5 different sets of masteries instead?
This is one of the reasons why I have started this blog, as an avenue for me to explore something which is out of my existing expertise. It might or might not work, but the least I can do is try. That’s all that matters.
This is post #13.
Thank you for reading. If you think this post might be useful to someone else, please do share it with them. Follow me on Facebook or Twitter to get the latest updates.
