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OPINION17 May 2016

BE Bites: the subconscious influence of optimism

Behavioural economics Finance Opinion UK

One of the most effective ways to help people grasp – and become more aware of the existence of – our cognitive biases and systematic errors is to illustrate how they themselves are affected by bias says Crawford Hollingworth.

Two of the fathers of behavioural science, psychologists Amos Tversky and Nobel Prize winner Daniel Kahneman became convinced of the existence of many of the cognitive biases they identified by testing for their presence in supposed experts– statisticians and economists who should in theory be more rational.

Prudential, in a recent campaign called ‘Bring Your Challenges', has been doing something similar – bringing to life various biases such as loss aversion, discounting the future and illusion of wealth in the context of financial planning – with real-life, interactive experiments involving hundreds of people to show how these biases hinder our saving and planning for the future. To help it in this it joined forces with behavioural scientist Dan Gilbert – a professor of psychology at Harvard University.

For example, one experiment illustrates Optimism Bias – our tendency to overestimate our likelihood of experiencing good events in our future lives, and underestimate the likelihood of suffering from negative events in our lives.

Common examples include how most of us tend to think we will remain in good health, that we will meet the love of our lives (and never divorce), or that projects will be cheaper and quicker to complete than we imagine. They asked hundreds of participants in their live experiment, to pick something that had happened in their past and something that might happen in the future.

The positive events were put on yellow magnets and the negative ones on blue. Participants placed the magnets, 20,000 in total, on two oversize boards – one for the past and another for the future – and stood back to look at the overall picture.

Watch the experiment HERE in this 1 minute video to see what happened!

This simple exercise brilliantly illustrates optimism bias through use of colour. When people thought about the past, 60% of the events they picked out were positive. However, looking to the future, 84% were positive (see figure below). Prudential wanted to highlight that we need to be prepared for the negative events in the future and prepare, save and plan for them, as well as plan for the positive things.


Source: Prudential.com; Bring Your Challenges.

We often witness the subconscious influence of biases such as optimism bias in both our clients’ and their customers’ behaviour. Once identified we can develop ways to counter these natural tendencies that can lead to less than optimal decision-making.

Crawford Hollingworth is founder of The Behavioural Architects

@RESEARCH LIVE

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