Read Aloud the Text Content

This audio was created by Woord's Text to Speech service by content creators from all around the world.

Text Content or SSML code:

HOW TO MAKE BETTER DECISIONS AND AVOID ANXIETY Cognitive Biases – How to Make Better Decisions In the famous book Thinking Fast and Slow, Daniel Kahneman discusses how often our brain can play tricks on us and cause us to come to the wrong conclusions. This is particularly true when we’re forced to make a decision quickly or when high emotions are at play and it’s the result of some flaws in the way we think known as ‘cognitive biases’. Understanding these biases not only again demonstrates the importance of ‘keeping your cool’ in frightening situations but also helps you to better employ logic and reason when faced with tough and imminent decisions… Here are some examples of common cognitive biases. Gambler’s Fallacy The gambler’s fallacy is a common misconception that we make when gambling – and it’s responsible for a lot of lost money. The belief here is that when you’ve thrown heads 5 times in a row that the next time you throw a coin it must be tails. Why? Because the odds of throwing heads 6 times in a row are miniscule. Of course, if you remove emotion from the equation and think logically, you’ll realize that actually there is still a 50/50 chance. That never changes! Risk Aversion Risk aversion describes our general distaste for risks. The point here is that we will go out of our way to take a risk even when it’s a good idea. If entering a competition gives you a 50% chance of losing $5 and a 50% chance of gaining $12 then you should of course enter – but you may still feel anxious to! Confirmation Bias This is our simple tendency to seek out information that confirms our expectations and our beliefs. Likewise, we are more inclined to believe information that confirms our hypotheses. In fact, you should really seek to find information that disproves your beliefs in order to challenge them and grow as a person. Functional Fixedness In functional fixedness, we find it difficult to think of an object in a different context to its primary use. For example, if you need firewood then you might not think to use a hammer – because a hammer is a hammer and not ‘wood’. Of course, there is often benefit to thinking outside the box and using tools and objects for other purposes, so it pays to be able to step back and think in this way. Hindsight Bias Hindsight bias is a bias that causes us to think of past events as being more predictable or easier than they really were in reality. Armed with new information, old decisions now seem less challenging and this can prevent us from properly preparing for future challenges! Contrast Effect This is the tendency to view things in comparison to other things rather than judging them on their own merit. For example, if you have a mortgage worth $260,000 and you end up paying an extra $1k then you might feel that it doesn’t really matter. But if you’re buying a chocolate bar and it costs an extra $1k then of course that’s going to feel like a very bad deal. In reality though, it’s the same amount of money you’ve lost!