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Examples of unrealistic optimism6/14/2023 ![]() We have touched upon optimism bias in the past. That unwillingness to accept randomness, our need for a pattern, often clouds our judgement when making decisions. At some point you will hit ‘a streak’ of either heads or tails and you will notice that you experience a sort of cognitive dissonance you know that ‘a streak’ at some point is statistically probable but you can’t help but thinking the next toss has to break the streak because for some reason in your head it’s not right. Simply flip a coin and keep track if it’s heads or tails. Our brains automatically want to see patterns when none may exist. It would seem as though we have issues with randomness. ![]() ![]() When they see the outcomes of random processes, they often detect patterns that they think have great meaning but in fact are just due to chance. Unfortunately, people do not have accurate perceptions of what random sequences look like. When events are determined by chance, such as a sequence of coin tosses, people expect the resulting string of heads and tails to be representative of what they think of as random. Use of the representativeness heuristic can cause serious misperceptions of patterns in everyday life. Timing counts too: more recent events have a greater impact on our behavior, and on our fears, than earlier ones. Thus, vivid and easily imagined causes of death (for example, tornadoes) often receive inflated estimates of probability, and less-vivid causes (for example, asthma attacks) receive low estimates, even if they occur with a far greater frequency (here, by a factor of twenty). If you have personally experienced a serious earthquake, you’re more likely to believe that an earthquake is likely than if you read about it in a weekly magazine. If people can easily think of relevant examples, they are far more likely to be frightened and concerned than if they cannot.Īccessibility and salience are closely related to availability, and they are important as well. We assess the likelihood of risks by asking how readily examples come to mind. What did you think about the last time you read about a plane crash? Did you start thinking about you being in a plane crash? Imagine how much it would weigh on your mind if you were set to fly the next day. This is the tendency of our mind to overweigh information that is recent and readily available. The bias occurs because the adjustments are typically insufficient. This process is called ‘anchoring and adjustment.’ You start with some anchor, the number you know, and adjust in the direction you think is appropriate. For example, is the new book a topic I will digest at the same rate? Will I have the same time over those 7 days for reading? I have looked at number of pages but are the number of words per page similar? Problem is, I’ve only compared one factor related to me reading books and now I’ve made a decision without taking into account many other factors which could affect the outcome. Say I borrow a 400-page-book from a friend and I think to myself, the last book I read was about 300 pages and I read it in 5 days so I’ll let my friend know I’ll have her book back to her in 7 days. When we overweigh one piece of information and make assumptions based on it, we call that an anchor. Humans have a tendency to put too much emphasis on one piece of information when making decisions. Let’s take a look at how Thaler and Sunstein explain some of our common mistakes in a chapter aptly called ‘Biases and Blunders.’ Anchoring and Adjustment If we really want to understand how we can nudge people into making better choices, it’s important to understand why they often make such poor ones. But one of the reasons it’s been so influential is because it helps us understand why people sometimes make bad decisions in the first place. It is a fascinating look at how we can create environments or ‘choice architecture’ to help people make better decisions. You would be hard pressed to come across a reading list on behavioral economics that doesn’t mention Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein.
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