How to fight mental bias and make better financial decisions | Manasa Savanur | TEDxWUSTL

Summary

The 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.