Yes You ARE Making Irrational Decisions: What to Do About It
From National Public Radio with thanks to Don Philbin, mediator and arbitrator in San Antonio, Texas for posting it to the Commercial and Industry Arbitration and Mediation Group on LinkedIn.
People Make Irrational Choices
Kahneman was surprised by the pure visceral power of his own certainty. He eventually coined a phrase for it: "illusion of validity."
It's a problem that afflicts us all, says Kahneman, who won the 2002 Nobel Prize in economics for his work on this subject. From stockbrokers to baseball scouts, people have a huge amount of confidence in their own judgment, even in the face of evidence that their judgment is wrong.
But that mistake is just one of many cognitive errors identified by Kahneman and his frequent collaborator, psychologist Amos Tversky. For more than a decade, the two worked together cataloging the ways the human mind systematically misjudges the world around it.
For instance, Kahneman and Tversky identified "anchoring bias." It turns out that whenever you are exposed to a number, you are influenced by that number whether you intend to be influenced or not.
This is why, for example, the minimum payments suggested on your credit card bill tend to be low. That number frames your expectation, so you pay less of the bill than you might otherwise, your interest continues to grow, and your credit card company makes more money than if you had not had your expectations influenced by the low number.
Through their research, Kahneman and Tversky identified dozens of these biases and errors in judgment, which together painted a certain picture of the human animal. Human beings, it turns out, don't always make good decisions, and frequently the choices they do make aren't in their best interest.
Continue reading (or listen to the broadcast) here.
Want to avoid the cognitive errors that result in sub-optimal negotiated resolutions? Check out my power point presentations on cognitive biases here.
