How to fight mental bias and make better financial decisions | Manasa Savanur | TEDxWUSTL
Summary
TLDRThe speaker reflects on life's ups and downs, drawing parallels to financial risk management. They discuss the 'sunk cost fallacy' and the importance of making conscious decisions to avoid unnecessary losses. The speaker also explores cognitive reflection and its role in overcoming mental fallacies, using meditation as a tool for gaining clarity and making better decisions. The talk concludes with the message that consistent practice, even in simple acts, can lead to significant life improvements.
Takeaways
- 📈 Life and work are full of ups and downs, and these fluctuations can be represented graphically to better understand the complexities of daily experiences.
- 💼 The speaker's profession in Financial Risk Management has influenced their perspective, leading them to view life's events in terms of risk and reward.
- 📊 Just like life, financial markets and various measurable aspects of business also experience cycles of ups and downs.
- ✂️ In finance, 'cutting your losses' is a strategy to recover from downturns more effectively, analogous to making conscious decisions in life to avoid further damage.
- 💡 The 'Sunk Cost Fallacy' is a psychological trap where people continue investing in a failing endeavor due to the resources already sunk into it, rather than evaluating its current and future value.
- 🤔 Cognitive reflection, the ability to critically evaluate one's initial thoughts or instincts, can help overcome mental fallacies like the Sunk Cost Fallacy.
- 📝 The Cognitive Reflection Test, introduced by a 2005 MIT study, is a tool to measure this ability, using questions that require rethinking initial, intuitive answers.
- 🧘♂️ Meditation is suggested as a method to build cognitive reflection and achieve mental clarity, contrary to its common portrayal as a shortcut to relaxation or mystical powers.
- 🌊 An analogy shared by the speaker likens the mind to a lake; calmness allows for greater clarity, similar to how meditation aims to quiet the mind's chatter for better focus and decision-making.
- 🎯 Gamifying meditation, such as visualizing it as a game of Fruit Ninja, can make the practice more approachable and help in training the mind to dismiss distractions.
- 🌀 Breathing is a key component in meditation and yoga, serving as a bridge between voluntary and involuntary actions, much like how the mind can be consciously directed or wander involuntarily.
- 🏋️♀️ Active practice, no matter how small, is essential for gaining clarity and making conscious decisions, which can ultimately lead to achieving long-term goals, including financial ones.
Q & A
What is the speaker's analogy for explaining the complexity of life's experiences?
-The speaker compares life's experiences to a graph, indicating that life has ups and downs and cannot be simply categorized as good or bad.
What does the speaker suggest as a method to deal with continuous downs in life or business?
-The speaker suggests making conscious decisions, such as cutting losses in finance, to recover more easily and with less damage when faced with continuous downs.
What is the term used to describe the tendency to continue a behavior or stick with a decision due to prior investment?
-The term is 'sunk cost fallacy,' which refers to the mistake of continuing an endeavor due to the resources already invested, rather than evaluating the current and future value.
How does the speaker define cognitive reflection?
-Cognitive reflection is defined as the ability to pause and critically evaluate one's initial thoughts or instincts before responding.
What is the purpose of the cognitive reflection test mentioned in the script?
-The cognitive reflection test is designed to measure a person's ability to resist the impulse to respond quickly and instead engage in deeper, more thoughtful consideration.
What is the correct answer to the cognitive reflection test question about the cost of a bat and a ball?
-The correct answer is that the ball costs 5 cents, as the bat costs $1 more than the ball, making the total cost $1.10.
Why did the speaker decide to learn about meditation and its effects?
-The speaker was curious about meditation's benefits and wanted to understand how it could help overcome mental fallacies and improve decision-making.
What is the analogy given by the speaker's yoga teacher to describe the mind during meditation?
-The mind is compared to a lake; when calm and stable, it allows for greater clarity, similar to seeing the bottom of a still lake.
How does the speaker gamify the meditation process to make it more approachable?
-The speaker compares meditation to the game Fruit Ninja, where one must slice through thoughts as they arise without letting them distract from the goal of meditation.
What role does the breath play in meditation according to the speaker?
-The breath is used as a focal point in meditation because it can be both voluntary and involuntary, similar to the mind's ability to focus or wander with thoughts.
What is the speaker's final advice on achieving clarity and making conscious decisions?
-The speaker advises to practice, no matter how small, and to actively engage in conscious decision-making, even in seemingly mundane activities like saving for retirement.
Outlines
📈 Life's Peaks and Valleys in Risk Management
The speaker uses the metaphor of a graph to describe the fluctuating nature of life's experiences, emphasizing that life is not simply binary in terms of good or bad. They delve into their career in Financial Risk Management, where they've learned to view life's events through the lens of risk and reward. The speaker highlights the concept of 'cutting losses' in finance as a strategy to manage downturns, using personal anecdotes to illustrate the difficulty of making the decision to quit an unprofitable endeavor. They introduce the 'sunk cost fallacy,' a cognitive bias that leads people to continue investing in failing projects due to the resources already sunk into them. The paragraph concludes with an introduction to cognitive reflection as a tool to combat such fallacies, with a simple yet deceptive question to test the audience's cognitive reflection skills.
🧘♂️ Meditation and the Power of Cognitive Reflection
The speaker discusses the concept of cognitive reflection further, likening it to the mental reflection taught in yoga. They share their personal journey of skepticism and curiosity towards meditation, which led them to a yoga ashram. Through this experience, they discovered that meditation is about achieving clarity of mind, akin to calming the ripples in a lake to see its depths. They explain that meditation is not about instant relaxation or mystical powers, but a practice to stop the 'chatter of the mind.' The speaker also shares their struggle with meditation and how they gamified the process to overcome the initial hurdle, using the analogy of playing 'Fruit Ninja' to stay focused and dismiss intrusive thoughts. They emphasize the importance of identifying distractions and refocusing on the goal, which is a skill that can be developed with practice.
🌱 Cultivating Mindfulness and Clarity Through Practice
In the final paragraph, the speaker addresses the common misconceptions about meditation and the importance of practice, no matter how small. They explain that while physical activities like tennis or swimming can provide short-term distraction, they do not offer the same long-term mental clarity that meditation can. The speaker discusses the role of breath in meditation, highlighting its dual nature as both a voluntary and involuntary function, much like the mind. They suggest that being aware of and controlling one's breath can help in training the mind to focus and dismiss unwanted thoughts. The paragraph concludes with a call to action, encouraging the audience to make conscious decisions and practice mindfulness to handle life's ups and downs with more ease and grace.
Mindmap
Keywords
💡Ups and Downs
💡Financial Risk Management
💡Cutting Losses
💡Sunk Cost Fallacy
💡Cognitive Reflection
💡Meditation
💡Yoga
💡Clarity
💡Conscious Decisions
💡Gamification
💡Breath
Highlights
The speaker introduces the concept of life's ups and downs and the difficulty in expressing them in words, suggesting a graph as a more accurate representation.
The speaker's work in Financial Risk Management has influenced their perspective on life, viewing everything in terms of risk and reward.
The ups and downs in finance are compared to various measurable phenomena such as the stock market and app user numbers.
The concept of 'cutting losses' in finance is introduced as a strategy for dealing with persistent downswings.
The speaker discusses the difficulty of quitting a project or behavior due to the sunk cost fallacy, where past investments influence current decisions.
Cognitive reflection is presented as a tool to help overcome the sunk cost fallacy and make better decisions.
The cognitive reflection test, introduced by a 2005 MIT study, is used to illustrate the concept of cognitive reflection.
A specific question from the cognitive reflection test is shared to demonstrate how it requires reevaluation of initial instincts.
The speaker shares their personal journey of seeking understanding of meditation and its benefits beyond popular misconceptions.
Meditation is described as a process for gaining clarity, rather than a means to instant relaxation or mystical powers.
The speaker's experience with gamifying meditation to overcome the initial struggle of focusing the mind.
The importance of identifying and dismissing intrusive thoughts during meditation is emphasized.
Transcripts
[Applause]
life has its ups and
downs every single day so when someone
asked me how my day went instead of
explaining it in words I had this urge
to drop like a graph because it's not
just good or bad you know there's
there's so many things sometimes it's
exciting there's UPS there Downs so this
is what my average work day looks like
when you extend this to all the years in
my life so far there have been a few
defining moments which have changed the
way I think I work in Financial Risk
Management and you know how people say
you eventually become your job I think
that's slowly happening to me now I look
at everything in terms of risk and
reward do you know what else has ups and
downs the stock market the number of new
users of an app the quarterly revenue of
a
company anything that can be measured
over a period of time has its ups and
downs these ups and downs and finance is
handled in a slightly different way we
think big companies have a lot of tools
and Technology they do but today let's
see how we can deal with these ups and
downs so let me give you an example for
some reason when these Downs keep
getting down it's difficult to come back
up so what if I told you that if you
make conscious decisions you can come
back up much more easily and with less
damage in finance it's called cutting
your losses if you invested
$10,000 in let's say a side project 3
years ago and if it has not been going
as per plan would you continue it most
probably yes you would put in more
effort thinking that you were the
problem and you'll put in more time more
effort and that's great I'm not saying
you should quit and we all know quitters
don't win and winners don't quit right
or maybe sometimes just maybe it is a
good idea to quit but I'm saying this
only because if you're making losses not
otherwise so the question would be when
do you want to quit when things are not
working or when things are really not
working just because you invested in
something 3 years ago does not mean you
need to continue with it when you
continue a behavior or stick with a
decision just because you've invested
resources or time or money it is called
the S cost
fallacy now the S cost fallacy can play
a lot of tricks with you most times we
think just a little more effort and
we'll get what we wanted
you can keep doing it but it's not easy
to decide if you should stay invested or
not for example a lot of times we end up
staying in a toxic relationship just
because you've been with that person for
too long or like studying something for
four years despite knowing in the first
year that it's not for you but we still
stick with it now how do we deal with
sankos fallacy or any other mental
fallacy which does not allow us to make
the right decisions for ourselves I got
my answer when I came across this
interesting research which suggests that
cognitive reflection can help reduce
some cost
Behavior now what is cognitive
reflection it sounds very similar to the
mental reflection our yoga teacher talks
about right but what is the definition
of it in 2005 a study at
MIT popularized the ter term cognitive
reflection it is the ability to pause
and critically evaluate your initial
thoughts or instincts before you respond
but how do we quantify or measure
cognitive
reflection in the same study the
professor had something called the
cognitive reflection test it had just
three questions and today I would like
to share one of them with you so the
question is a b and a ball cost $110 in
total the bat costs $1 more than the
ball how much does the ball
cost 10
cents yeah that's what you would think
initially but $1 more than 10 cents is
$110 C the so the bat itself would be
110 right so the total would go up to
$120 so what's the right
answer right the ball is 5 cents
so the thing is it's not a difficult
question it's a pretty straightforward
question but it's not easy it requires
you to give it another thought and
that's how most things in life are it's
simple but not
easy it's okay if you do not get it
right just like everything else we can
build a cognitive reflection like any
other muszle of your body now for all
matters of the mind if you want to build
Focus or improve patience or be more
mindful people generally recommend
meditation but in popular culture and
media especially social media too these
days meditation is often misrepresented
and
oversimplified as a means to get instant
relaxation or even mystical Powers I had
my doubts about meditation too but I was
also extremely
curious so I did what most people people
in movies do and I packed my bags and
went straight to a yoga asham now as a
23-year-old I perfectly understood the
financial concept of no risk no
reward so I took this huge risk I quit
my first job in just a year and decided
to go after understanding how meditation
Works how to get over fallacies and then
I finally understood that
meditation is nothing like what we see
in the movies and this took me a yoga
teacher certification and a master's
degree in finance to
realiz because it's not understandable
When someone tells you you need to
practice you need to see it for yourself
so it takes time be patient and what I
learned is especially through this one
analogy my yoga teacher
gave think of your mind like a lake if
there are too many disturbances
or ripples you cannot see what lies at
the bottom but if the water is more calm
and stable you can see much more
clearly that is how you get
clarity the process of getting this
Clarity is what meditation is all about
this was initially told by patanjali the
guy who wrote The Yoga sutras himself
yoga n yoga is to stop the chatter of
the Mind
that's the definition of yoga guys but
when we think of yoga all we think is
ASAS right and the physical practices
but this is the actual definition now it
sounds easy and nice but when you sit
down to meditate it's a real struggle
and it was a struggle for me as well so
I had to gamify the process because I've
heard so many benefits of it but I
couldn't even get to Step One of this so
I decided to gamify the process and I
think of meditation as playing a game of
Fruit Ninja imagine your phone fruits
dropping from the top and your finger is
Like a Knife slicing the fruits making
sure it doesn't hit the bottom of the
page similarly when you sit down to
meditate you have random thoughts
popping up in your head and you sit
there patiently saying not now I'm here
to meditate another thought pops up and
you say not now I'm here to meditate and
you keep reiterating and that is how you
train your
mind the distractions are always going
to be
there but it is your ability to identify
the
distraction and move on towards your
goal which is what will help you there
are two steps here one when a random
intrusive thought pops up you got to
First identify it as something that is
taking you away from your goal and step
two is taking action towards it and not
continuing with a thought or pattern now
again it's it's all simple and and sure
we can do it but not a lot of people
practice meditation though it's free and
I wondered why and I wouldn't do it
myself either initially and then I
realized that there are a few tricks you
need if you want to go down this path
the tricks most yogis use is the breath
that's why in most yoga classes or
meditation classes every 5 minutes the
yoga teacher keeps saying watch your
breath so
boring but why the breath and why not
watch a digestive system or something
else well as we all know the body has
voluntary and involuntary functions
moving your hand is voluntary digestion
is involuntary but breathing can be both
voluntary and involuntary the body can
breathe on its own
thankfully but we can also hold our
breath we can time our inhale and exhale
and above all be aware of it if you
think about that it's very similar to
how the mind works you can use your mind
to focus on
something read a subject read a paper
and we do a lot of things consciously
but the mind can also and it will every
now and then through random thoughts
unwanted thoughts like fear anxiety
thoughts of insecurity
self-doubt now some people say I don't
need meditation you know what I rather
play tennis or go swimming and that will
help me relax my
mind fair but what you're essentially
doing is you're just distracting
yourself it works well in the short term
but you'll see
yourself being caught up in in similar
mind traps every now and then so how do
we go forward and what is yoga the only
answer no it's not of course it's
not but the key is to
practice no matter how small the
practice
is no matter how simple your process of
gaining Clarity is it needs to be in the
physical world not just reading because
reading is a passive practice and you
need to actively indulge in taking
conscious decisions even if it is as
small as saying your thought later let
me focus on my goal initially it's you
just saying no to your thought and
focusing on your breath but eventually
you'll see that it just becomes like
second nature every time you get a
thought that does not help you in your
goal you'll easily be able to get rid of
it and focus even on your finan
financial goals which can be as boring
as watching your breath as boring as
saving up for retirement or saving up
for that side project you wanted to
start now Clarity and reflection and all
of these things they may not get you
instant wealth but it will help you make
conscious decisions which can get you
there eventually it can help you handle
the ups and downs of life with a bit
more ease and a bit more grace thank you
[Applause]
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