Chapter 19 - Human Behavior

System 1 Thinking

Quick, intuitive and emotional thinking

System 2 Thinking

Deliberate, logical, and cognitively taxing thinking

How Systems Work Together

• System 1 is prone to errors but very useful

• System 2 better for more complex situations

Heuristics

Shortcut to simplify decision making process

Cognitive Bias

Systematic errors arising from use of heuristics

3 Key Heuristics

• Representativeness

• Availability

• Anchoring & Adjustment

Representativeness Bias

Overgeneralizing from few observations

Biases that arise from Representativeness

• Gambler’s Fallacy

Gambler’s Fallacy

Belief that likelihood of random event occurring is based on past events

Availability Bias

Placing emphasis on how easily you can recall something rather than frequency

Biases that arise from Availability Bias (2)

• Validity Effect

• False Consensus Effect

Validity Effect

Pandemic (Rare but Recent)

False Consensus Effect

Assuming others think like us

Anchoring & Adjustment

Relying too much on first piece of information

Bias that arise from Anchoring & Adjustment

• Planning Fallacy

Planning Fallacy

Underestimating time, cost and risk to complete tasks

Default Bias

Tendency to pick easiest option

Loss Aversion

Tendency to avoid losses rather than acquire equal gain

Friction Costs

Barriers preventing action

Ostrich Effect

When people fall off track and don’t face reality

Overconfidence Bias

Overestimating your own abilities

Social Proof

Desire to be like others and copy their actions

Status Quo Bias

Preference for things to remain same

Emotions

Intuitive feeling as distinguished from reasoning or knowledge

Why Emotions Play Important Role in Decision Making (2)

• Show your values

• Can inform and interfere decision making process

Values

What is important to you

Categories of Emotions

• Integral

• Incidental

Integral Emotions (2)

• Arise from choice or judgement being asked to make

• Can inform decision making process

Incidental Emotions (2)

• Emotions that carry over from situations

• Can interfere with decision making

The Change Process (6)

• Pre-contemplation (Denial)

• Contemplation

• Preparation

• Action

• Maintenance

• Relapse (Termination)

Pre-contemplation (Denial)

Unaware of problems in behavior, change required is not in radar, cannot be persuaded

Contemplation

Recognize behaviour is a problem, unsure about changing, lacking confidence to do so

Preparation

Accept change and make plan, build confidence

Action

Take action and set plan in motion

Maintenance

New behaviour have become habit, usually at 6 month mark

Relapse (Termination)

Change is permanent or go back to old ways

Debias Techniques

• Modify Decision Maker

• Modify Environment

Modify Decision Maker

Shift from system 1-2 thinking

Modify Environment

Modifies environment so system 1 thinking will yield better results

Techniques to Engage System 2 (Modify Decision Making)

• Education

• Outsider Opinion

• Tools & Models

• Emotion Regulation

Techniques to Modify Environment

• Nudges

• Choice Architecture

• Mental Accounting

• Tools/Automatic Processes