Following yesterday’s post, I thought I’d share a bit more about irrational behavior. The following attributes won’t help as much at the tables in Vegas, but they can save, or make, you more money in a lot of other situations. Much of this information comes from reading Sway: The Irresistible Pull of Irrational Behavior by Ori and Ram Brafman. An incredibly interesting read that I would highly recommend if you’re interested in this kind of stuff.
Value Attribution
Human beings have a lot of stimuli thrown at them. Sights, sounds, textures, tastes and smells bombard every second of every day people. We couldn’t possibly process all of the information as it arises, so instead we use shortcuts. These shortcuts can be good or bad. We label a strange dog that growls and bears his teeth at us as dangerous. That helps keep us alive. But, this system of judging unknowns based on our own history and preconceptions can also be harmful. If you saw a Chippendale desk sitting on the curb next to trash cans, waiting to be picked up, you would assign it a totally different value than if you saw that same desk at a Sotheby’s auction.
Fortunately or unfortunately, value attribution applies equally to people. For example, in 2007 the Washington Post hired Joshua Bell, one of the best violinists alive, to play an impromptu concert at the L’Enfant Plaza subway station in Washington D.C. Instead of his usual tuxedo, Mr. Bell wore blue jeans and a baseball cap, though he did bring along the same $3.5 million Stradivarius he performs with in concerts. Surprisingly, even though passerby would have had to pay hundreds of dollars to see one of Mr. Bell’s performances at Carnegie Hall, no one stopped to listen, save one woman who recognized him.
At the other end of the spectrum, people often blindly follow those who are highly regarded, even if all evidence points to the fact that they are dead wrong. Charles Dawson’s “Piltdown Man” is a perfect example. Dawson, a well-respected British Fellow at the Geological Society of London, was able to convince much of the British scientific community that he had found the “missing link” right in Britain. Even though the chimpanzee jawbone he had filed down and the medieval skull he had painted brown were, to an objective eye, plainly not what Dawson represented them to be, it took nearly 40 years for the scientific community at large to admit they were hoaxed.
Once we place a certain value on something, any subsequent information we receive is interpreted in light of that initial valuation. Imagine you’re in a car accident and you hire a lawyer. If the highly regarded expert witness your lawyer hires first tells you your injury is worth $500k, any opinion by the insurance company’s expert is deemed less credible, flawed, spurious, or insulting. This can happen even where the initial valuation is completely arbitrary. What’s more, once a value is attributed, commitment can rear its ugly head again. For example, if you’re a lawyer and a client comes to you to negotiate a claim, and you tell him that claim is worth $500k, he can get committed to that number, even if you arbitrarily picked it. The more committed he gets to that number, the harder it will be to persuade him to accept a lower, even if more reasonable, number.
Additionally, as the Brafman brothers state in Sway, “we may turn down a pitch or idea that is presented by the ‘wrong’ person or blindly follow the advice of someone who is highly regarded.” In any dealing, it’s important to be weary of either of these possibilities. In any negotiation, you would be wise to ask yourself, “Do I dislike this offer because I can’t stand the other negotiator, or is the offer actually reasonable? Am I agreeing to an unreasonable offer because the other side is so charming? Is my highly regarded expert witness way off on this one?”
Diagnosis Bias
Human beings have an innate tendency to overestimate our ability to form an objective opinion. In every new experience, from a first date to a job interview to listening to a guest speaker, we use diagnostic labels to help us simplify all the new information we’re receiving. The simplicity comes from ignoring all the things we think don’t make a difference. The problem comes from the fact that once we apply that label, we don’t notice the things that don’t fit within that label. When we buy a new car with a stiff “Sport Suspension”, we don’t notice that the ride is really bumpy until an objective third party tells us.
While we can never fully overcome the diagnosis bias, we can take a cue from Odysseus, who had his men tie him to his ship’s mast so he would not follow the siren’s song to his demise, and set limits for ourselves. If we know we tend to overestimate our own abilities, if we know we’re overly optimistic about the future, and if we know we tend to ignore all evidence that contradicts what we want to believe, we can set up systems to try to prevent these things. Systematically list out contradictory evidence and the positions the other side is likely to take. Don’t dismiss arguments you think are frivolous; instead take the time to critically analyze them. Put yourself in the other party’s shoes and think about why they would put forth that argument and what’s behind it.
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