Session 4 : The Present trap & the Overconfidence trap Flashcards
What is overconfidence in decision-making ?
Overconfidence is the tendency to overestimate one’s knowledge, abilities, or chances of success, often leading to poor decisions.
Example: In war, both sides believe they can win, even though only one side will succeed.
N.B : People often trust their instincts and intuition, but this can lead to overconfidence, especially when careful reasoning is required
What is myside bias ?
Myside bias is the tendency to favor information that aligns with one’s pre-existing beliefs and dismiss information that contradicts them.
Example: Forensic scientists might let a suspect’s confession influence their judgment when analyzing fingerprints.
N.B : Myside bias is a form of confirmation bias and leads to selective attention and searching for evidence that supports one’s beliefs
What are cognitive and belief fixation ?
Cognitive Fixation: Becoming stuck on one way of thinking, resistant to changing perspectives.
Belief Fixation: Strongly holding onto a belief, making it difficult to accept conflicting information.
Example: A person might refuse to change their opinion on a subject even when presented with new evidence.
N.B : These types of fixation are reinforced by selective attention and selective searching behavior
What is the present trap in decision-making ?
The present trap refers to prioritizing immediate gratification over long-term benefits, often underestimating future costs.
Example: People underestimate how their current actions, like unhealthy eating, will impact their future health.
N.B : Causes include over-optimism about the future, lack of connection with future selves, and failure to act on awareness of future consequences
Marshmallow Experiment
What is the marshmallow experiment, and what does it demonstrate about decision-making ?
The marshmallow experiment tested delayed gratification by offering children a choice between one immediate marshmallow or two if they waited. It shows how socio-economic environments impact self-control and decision-making.
N.B : Reliable environments increase delayed gratification, and individuals are more likely to wait when their reputation is at stake
What is the planning fallacy ?
The planning fallacy is the tendency to underestimate the time, costs, and risks of a task, while overestimating its benefits.
Example: A project manager might plan to finish a project in 6 months, but it ends up taking a year due to unexpected delays.
N.B : Optimism makes us focus on success, ignoring potential obstacles
What is overprecision ?
Overprecision occurs when people are too confident in the accuracy of their predictions, even if their outlook is pessimistic.
Example: A business leader might be overly certain about their company’s growth rate, leading to flawed strategic decisions
Why do people underestimate their competitors, and what is the consequence?
People often ignore their competitors’ potential and focus solely on their own strengths, leading to failure to anticipate challenges.
Example: A company might dismiss a smaller rival, only to be overtaken by them later
How does optimism affect leadership and decision-making?
Optimism is essential for leaders, as it drives success, but too much optimism can lead to ignoring potential risks.
N.B : Optimism is useful when focusing on things within one’s control, but dangerous when applied to uncontrollable external factors
What is the time horizon trap?
The time horizon trap is when individuals or companies favor immediate rewards over larger, delayed benefits, leading to short-termism.
Example: A company might focus on meeting quarterly earnings targets at the expense of long-term innovation.
N.B : Public companies often prioritize short-term results due to stock market pressures, but some try to attract long-term investors by avoiding practices like issuing earnings forecasts
What is present bias?
Present bias is the tendency to prefer smaller immediate rewards over larger delayed ones, even when waiting would be more beneficial.
Example: In a study, people were more likely to choose $100 today rather than $102 tomorrow, showing a preference for immediate gratification.
N.B : Present bias leads to inconsistent preferences over time, affecting long-term decision-making
How can individuals improve their decision-making? (3 points)
- Take care of your brain (diet, exercise, sleep).
- Be mindful of default modes and biases.
- Use self-control contracts and social accountability to overcome challenges.
N.B : Environmental changes, like involving friends in decisions or substituting rewards, can also improve self-discipline and decision-making
What strategies can help improve decision-making? (4 points)
- Take Care of Your Brain:
Maintain a healthy brain through a balanced diet, regular exercise, and mental stimulation.
Example : Regular aerobic exercise has been shown to improve cognitive functions such as memory and problem-solving skills. - Be Mindful of Default Modes:
Recognize that your mind has default modes and biases that may influence your decisions. Actively counteract these biases by questioning assumptions.
Example: If you tend to stick to familiar habits, make an effort to consider alternative approaches before making decisions. - Optimize Sleep:
Ensure regular and adequate sleep by maintaining a consistent bedtime routine. Good sleep improves cognitive function and decision-making.
Example: A person who gets 8 hours of sleep consistently will be more alert and make better decisions than someone sleep-deprived. - Change Your Environment:
Modify your environment to support better decisions, using tools like reward substitution or self-control contracts. You can also involve others for accountability.
Strategies:
- Reward Substitution: Replace bad habits with more positive ones by using a different, motivating reward.
Example: Replace late-night junk food with a healthy snack as a reward for staying on task.
- Self-Control Contracts: Create agreements with yourself to improve discipline.
Example: Make a contract to save a certain amount of money each month and involve a friend to hold you accountable. - Social Accountability: Share your goals with others so they can help keep you on track.
Example: Telling a friend you plan to exercise 3 times a week increases your likelihood of sticking to that plan. - Tailored Self-Change: Use a self-change approach that suits your personal habits and preferences.
Example: If you’re motivated by rewards, set small rewards for every milestone you achieve in a new habit
