Arbitrary coherence

The basic idea of arbitrary coherence is this: although initial prices are "arbitrary," once those prices are established in our minds they will shape not only present prices but also future prices.

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Problem Solving

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Predictably Irrational

by Dan Ariely

MORE IDEAS FROM THE BOOK

Humans rarely choose things in absolute terms

We don't have an internal value meter that tells us how much things are worth; we mostly focus on the relative advantage of one thing over another and estimate value accordingly.

For example, we don't know how much a six-cylinder car is worth, but we can assume it's more expensive than the four-cylinder model.)

Corporations and social norms

Money is very often the most expensive way to motivate people. Social norms are not only cheaper but often more effective as well.

If corporations started thinking in terms of social norms they would realize that these norms build loyalty and—more important—make people want to extend themselves to the degree that corporations need today: to be flexible, concerned, and willing to pitch in. That's what a social relationship delivers.

... and we usually don't make best decisions when it comes to it. Why? Because of three irrational quirks in our human nature:

  • We fall in love with what we already have.
  • We focus on what we may lose, rather than what we may gain.
  • We assume other people will see the transaction from the same perspective as we do.

A stereotype is a way of categorizing information, in the hope of predicting experiences. The brain cannot start from scratch at every new situation. It must build on what it has seen before. For that reason, stereotypes are not intrinsically malevolent.

They provide shortcuts in our never-ending attempt to make sense of complicated surroundings. But because a stereotype provides us with spécifie expectations about members of a group, it can also unfavorably influence both our perceptions and our behavior.

Anchoring is a cognitive bias where an individual depends too heavily on an initial piece of information offered to make subsequent judgments during decision making.

Anchoring influences all kinds of purchases. Research found that people who move to a new city generally remain anchored to the prices they paid for housing in their former city.

Why we fall for temptation

Without precommitments, we keep on falling for temptation. Resisting temptation and instilling self-control are general human goals, and repeatedly failing to achieve them is a source of much of our misery.

The struggle for control is all around us: books and magazines, the Radio and television airwaves are choked with messages of self-improvement and help. And yet, we find ourselves again and again in the same predicament: failing over and over to reach our long-term goals.

We are always looking at the things around us in relation to others. We always compare jobs with jobs, vacations with vacations, lovers with lovers, and wines with wines.

We not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable—and avoid comparing things that cannot be compared easily.

When expectations are useful

Expectations are more than the mere anticipation: they enable us to make sense of a conversation in a noisy room, despite the loss of a word here and there, and likewise, to be able to read text messages on our cell phones, despite the fact that some of the words are scrambled.

And although expectations can make us look foolish from time to time, they are also very powerful and useful.

We should pay particular attention to the first decision we make in what is going to be a long stream of decisions.

When we face such a decision, it might seem to us that this is just one decision, with little to no consequences; but in fact, the power of the first decision can have such a long-lasting effect that it will drip into our future decisions for years to come.

The decoy effect

It is a cognitive bias: we tend to have a specific change in preferences between two options when also presented with a third option that is asymmetrically dominated.

This is the secret agent in more decisions than we could imagine. It even helps us decide whom to date—and, ultimately, whom to marry.

Why FREE! make us so happy

Most transactions have an upside and a downside, but when something is FREE ! we forget the downside, FREE ! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is.

And that is because humans are intrinsically afraid of loss. The real allure of FREE ! is tied to this fear. There's no visible possibility of loss when we choose a FREE ! item.

We have an irrational compulsion to keep doors open

It's just the way we're wired. But that doesn't mean we shouldn't try to close them.

We need to drop out of committees that are a waste of our time. We ought to shut them because they draw energy and commitment away keeping doors open from the doors that should be left open—and because they drive us crazy.

Giving up on our long-term goals for immediate gratification, my friends, is procrastination.

Emotions grab hold of us and make us view the world from a different perspective. Procrastination is rooted in the same kind of problem. When we promise to save our money, we are in a cool state. But then the lava flow of hot emotion comes rushing in: just when we promise to save, we see a new car, a mountain bike, or a pair of shoes that we must have.

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RELATED IDEAS

  • Write down 3 existing company goals impacted by the decision;
  • Write down at least 3 realistic alternatives;
  • Write down the most important information you are missing;
  • Write down the impact your decision will have 1 year in the future;
  • Involve a team of 2-6 stakeholders;
  • Write down what was decided, as well as why and how much the team supports the decision;
  • Schedule a decision follow-up in one to two months.
Learn from others' mistakes

Bad decisions never look like bad decisions at the moment.

So, a better strategy and faster way to stock up that "things to avoid" bin is learning from others' mistakes.

It amps up our effort to avoid making dumb decisions.

Want To Make Better Decisions? Do This - Darius Foroux

dariusforoux.com

Each day, we automatically make thousands of choices, from what time to wake up to what to eat.

The problem with this automatic processing is that there are instances when we jump to conclusions that are wrong. 

6 Common Decision-Making Blunders That Could Kill Your Business

entrepreneur.com

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