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.

Outlines

00:00

📈 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.

05:00

🧘‍♂️ 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.

10:01

🌱 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.

Keywords

💡Ups and Downs

The phrase 'ups and downs' is used metaphorically to describe the fluctuating nature of life, indicating that there are both positive and negative experiences in everyday life. In the video's context, it's used to introduce the concept of life's variability and to draw a parallel with the volatility seen in financial markets and personal experiences.

💡Financial Risk Management

Financial Risk Management refers to the process of identifying, evaluating, and mitigating financial risks. In the script, it is mentioned as the speaker's field of work, which influences their perspective on life's uncertainties and decision-making processes, highlighting the theme of assessing and managing risks in both personal and professional life.

💡Cutting Losses

Cutting losses is a financial term that means selling an investment to prevent further decline in its value. The speaker uses this concept to illustrate the idea of making conscious decisions to prevent further damage in various aspects of life, such as ending a failing project or relationship to avoid greater losses.

💡Sunk Cost Fallacy

The sunk cost fallacy is a cognitive bias where people continue an action based on the money or effort already invested, rather than evaluating the current and future value of that action. The script discusses this fallacy to emphasize the importance of making decisions based on current circumstances rather than past investments.

💡Cognitive Reflection

Cognitive reflection is the ability to think deeply and critically before reacting. It is introduced in the script as a method to overcome mental fallacies like the sunk cost fallacy. The concept is linked to the cognitive reflection test, which includes questions that require more than a first-glance answer, symbolizing the need for deeper thought in life decisions.

💡Meditation

Meditation is a practice of focusing the mind and achieving mental clarity. The speaker discusses their personal journey with meditation, which was initially misunderstood but later embraced as a tool for gaining clarity and overcoming mental fallacies. It is presented as a means to train the mind to focus and make better decisions.

💡Yoga

Yoga is a physical, mental, and spiritual practice that originated in ancient India. In the script, yoga is mentioned in the context of meditation and the pursuit of mental clarity. The speaker's journey to understand yoga and its true definition highlights the broader theme of seeking deeper understanding and overcoming misconceptions.

💡Clarity

Clarity, in the context of the video, refers to the mental state of being clear-headed and focused. The speaker uses the analogy of a lake to explain how meditation can provide clarity by calming the mind's 'ripples'. Clarity is presented as a goal of both meditation and cognitive reflection, allowing for better decision-making.

💡Conscious Decisions

Conscious decisions are choices made deliberately and with awareness of the potential outcomes. The script emphasizes the importance of making such decisions in life and finance, suggesting that they can lead to better outcomes and a more graceful handling of life's ups and downs.

💡Gamification

Gamification is the application of game-design elements in non-game contexts to make an activity more engaging. The speaker describes using gamification to overcome the initial struggle with meditation, comparing it to playing a game of 'Fruit Ninja', which helps in training the mind to focus and dismiss distractions.

💡Breath

Breath is highlighted as a key element in both yoga and meditation practices. The script explains that focusing on breath is a technique to control both voluntary and involuntary functions of the body, serving as a bridge between the physical and mental aspects of practice. It is used as a tool to achieve mental focus and clarity.

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]