7.

1 Cognitive Biases
Hello, and welcome to the last chapter, dedicated to irrationality. Do you remember how I tried to
convince you in the first week that most of the time it’s not reason that guides us through life? Well, all
these 5 weeks I’ve been trying to make the rational percentage grow. This week we take a look at the
dark side.

Sometimes our mind is tricking us into doing stuff that is not necessarily right. Like when we want to lose
weight and we start a diet, but at the end of a long day of starving we give in and we eat not one, but
three hamburgers, with fries. Dan Ariely calls that the “What the Hell!” effect.

You may say that everybody’s got his or her moments of being a little irrational, but sometimes there is a
pattern in the way our mind tricks us, meaning that the same “illusion” happens to most people most of
the time. These patterns are called cognitive biases, and they are like secret shortcut circuits in our
brains that explain a lot of our awkward behavior. The fact that the same bias can be encountered at
most of the people made knowing them a good tool to predict future behavior.

The term was coined by the famous duo – Daniel Kahneman and Amos Tversky in 1972, and their
research opened the door for amazing progress in Psychology, Economics, Marketing, Organizational
Behavior, and even Criminology. The list of cognitive biases is ever expanding and each of them is based
on interesting experiments that show the deep secrets of the human mind. You can find a good list on
Wikipedia. One of the most popular authors in this field is the Behavioral Economics Professor Dan
Ariely, whose books, MOOC, and Wall Street Journal column have tremendous success. This
evangelization is actually very beneficial, as cognitive biases, pretty much like fallacies and riddles, lose
some of their power once you know them.

Like in the case of generalization, evolutionary psychologists found prehistoric reasons for the
development of these secret shortcuts in our brains. The thing is that, even after our current
environment made most of them obsolete, they still function at full capacity. For instance, what did our
ancestors risk to lose in an action that could also result in a gain? Like attacking the neighbor tribe. Well,
they risked to lose pretty much everything. Their lives, their wives, important stuff like that. So,
Evolutionary Psychology explains that those who didn’t like to risk a loss lived on to pass their genes to
the next generation. Hence, loss aversion, a well-documented cognitive bias that makes us 2.5 times
more are affected by a loss than by a gain of the same value. That’s why now, if you get a 100 Euros raise
you’ll be somehow glad, not enthusiastic, but glad, but if your boss cuts your salary with 100 Euros you’ll
be outraged.

Basically, what I’m saying is that a big chunk of your life is not controlled by you; it’s controlled by the
some parasite softwares in your head, cognitive biases. So, pay attention to the following list:

Illusion of control: it’s when you think you can influence events that are actually beyond your control. In
casinos, people throw dices with more force when they need a high number and gently when they need
a small one. Serena Williams admitted that she doesn’t change OR wash her socks during an entire
tournament. She also bounces the ball five times before her first serve and twice before her second. I
have a good friend, who helped me a lot with this course, and I thank him so much, who doesn’t want to
watch any more matches of the Romanian national football team with me since we were together at the
stadium when Denmark beat us 5 to 2, 11 years ago.

The force of the throw has no way to influence the outcome on the dice, Serena’s dirty socks cannot
make her play better, and my friend and I cannot influence the result of a football mach. Still, most of us
believe we have this control.

Availability heuristic is the tendency to overestimate the probability of events that you remember better
or that are more present in the media. Because of the recent airplane disasters, people often think that
air is the riskiest way to travel. Actually, according to all statistics, it’s by far the safest. Safer even than
trains, and much, much safer than cars.

What animal do you think kills more people? Sharks or deer? If you think Jaws versus Bambi, you will
guess wrong. In the US there is zero or maximum one shark kill per year. Deer, on the other hand, cause
highway accidents with more than 100 victims every year.

The IKEA Effect – if you put effort into something, of you make the thing yourself, with your hands, you
will value it more. The name of the bias comes from an experiment in which researches had subjects to
assemble some IKEA furniture, then had a sale with both IKEA items assembled by the subjects and pre-
assembled IKEA furniture. Results showed that the subjects were willing to pay more for the ones
they’ve made themselves.

The fascination of free is the fascination generated by the price zero. In Math zero is a number. A special
one, but just a number. As soon as zero becomes a price, minds get clouded and people start creating
mobs. In a fun and sweet experiment, Dan Ariely used Hershey kisses, an average quality chocolate, and
Lindor, a high end chocolate from Lindt. They were offered at the entrance of a store at a heavily
discounted price, Hershey kisses for 1 cent (from about 7, a 6 cents discount), and Lindor at 15 cents
(from about 35, a 20 cents discount), but you could buy just one piece. People behaved rationally and
chose the better chocolate, which had the bigger discount: 73% of them chose Lindor. The next day, each
bonbon was supplementary discounted just one more cent: Hersheys for 0 (at a 7 cents discount) and
Lindor 14 cents (at a 21 cents discount). This shouldn’t change a lot the decision, should it? It’s just 1
cent. The discounts were almost the same, for Lindor 3 times bigger. But now Hersheys were free. And
free is magic. 69% of the subjects chose the free Hershey kiss, comparing to only 27% a day before.

Many of you may be familiar with the Long Night of Museums, a night when all museums are free. It
happens in Bucharest, too. The Natural History Museum is a very nice museum, pretty close to this
school, with a normal visitor rate and a not so expensive ticket. The full ticket is about 4 Euros. Then, why
did all these people queue for 5 hours to see it during the night? Because it was free. Was it? How much
would you want to get paid for waiting in line for 5 hours? I would ask for more than 4 Euros.

So, the mind is playing tricks on us, huh? More biases next unit.