Rewards And Penalties - Deepstash

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When Prompting People to Make a Choice, the Consequence of Not Choosing Matters

Rewards And Penalties

Organizations need to understand when to provide a reward to the person making the choice to promote active choice-making, or to initiate a penalty to make them provide a concrete answer.

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Default choices

90% of your daily decisions happen automatically, many shaped by your environment. Thus, most decisions are a habit, not a deliberate choice.

To make smarter choices, design smarter...

Designing your life

Design your life like a choice architect:

  • Encourage smarter decisions you want to do by making them more accessible.
  • Add friction to habits you want to quit, making them less accessible, or remove the option to perform them completely.
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“First, never underestimate the power of inertia. Second, that power can be harnessed.” 

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Cognitive Biases are a collection of faulty and illogical ways of thinking which are hardwired in the brain, most of which we aren’t aware of.

The idea of cognitive biases was invented ...

Hyperbolic Discounting

It's a tendency to heavily weigh the moment which is closer to the present, as compared to something in the near or distant future.

Example: If you are offered a choice of $150 right now or $180 after 30 days, you would be more inclined to choose the money you are offered right now. However, if we take the present moment out of the equation, and put this offer in the distant future, where you are offered $150 in 12 months or $180 in 13 months, your choice is likely to be the latter one.

Common Biases
  • Actor-Observer Bias: the way the explanation of other people’s behaviour tends to focus on the influence of their personality while being less focused on the situation while being just the opposite while explaining one’s own behaviour.
  • Zeigarnik Effect: when something unfinished and incomplete tends to linger in the mind and memory.
  • The IKEA Effect: when our own assembling of an object is placed at a higher value than the other objects.
  • Optimism Bias: makes us underestimate the cost and duration for every project we try to undertake or plan.
  • Availability Bias: makes us believe whatever is more easily available to our consciousness, and is more vivid (or entrenched) in our memory.
Three different sides of risk
  • The odds you will get hit.
  • The average consequences of getting hit.
  • The tail-end consequences of getting hit.

The first two are...

The tail-end consequences

The tail-end consequences of an action or event (those with low-probability, high-impact) are all that matter.

In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk (for example, pandemics and depressions) are what make the pages of history books.