I was recently brazen enough to sign up for a bahavioral economics course at MIT, which I am in no way prepared for.... So I had to study a bit to get ready.
----> And what I learned was incredible! <-----
THE 7 DUMBEST WAYS OUR BRAINS SCREWS US OVER
AND HOW TO WIN BECAUSE OF IT
AUTHOR:
NIKOLAJ STORM PETERSEN
We feel losses way harder than gains, think 2x the gut punch. It's why I didn't sell glencore plc to realize my loss, even though I would no longer buy it, and it's part of the reason why young Nikolaj chose preserving a little self-esteem, rather than potentially gaining huge self-esteem by talking to girls at BARKOWSI. Smart people like Kahneman and Tversky call this loss aversion.
Words are sneaky bastards. "Cocio, now 50% less sugar" sounds hell of a lot better than, "Cocio, now only 50% sugar". Kahneman and Tversky proved we’ll pick surgery with a “90% survival rate” over “10% death rate,” all day long, even though it’s the same damn thing. They call ir the framing effect.
My junk is my treasure. I refused to sell my old bike for 1500, even though I wouldn’t pay 500 for it on marketplace. Richard Thaler showed owners demand more to sell than they’d pay to buy. He calls it the endowment effect. Lesson: Your stuff isn’t that special. Let it go.
The first number screws you. Normal cars are sold at dealerships, where you compare different cars at different prices. It's apples to apples. Rolls-Royce sell their cars at yacht shows, where after looking at multimillion dollar yachts all day, it suddenly doesn't seem so expensive to pay 500k for a lovely car. In everyday life this psycological phenomena might be me overpaying for an airfryer on black friday, because the tag says "before 1200, now 800". That does not mean i will get 1200 of value from it, and it does not mean it's worth 1200 or even 800 on the open market.
My grandpa got this one right. He used to say "it's cheap if it's worth more". And that's the key, look at utility
You know that feeling when you let your confused freind play GPS, getting to that one bar he wants to show you, and he keeps telling you "It's just arround the corner". It's not right arround the corner, but you keep walking, because you allready went this far. That’s sunk cost fallacy... doubling down on losses "because you allready invested this much money/time/effort". Thaler says we hate wasting past effort. It’s why people stay in dead-end jobs, or investing in bad projects. "no reason to cry over spilt milk"
Yeah yeah, I'll start working out next week. That’s present bias, instant gratification over future gains. Laibson showed we’d take $100 today over $125 in a year. But funny thing is that's only if it's today. If i ask a random person if he would rather have $100 in a month, or $125 in a year, they will most likely act rational, and take the $125. Lesson: Trick yourself into saving, automate decisions, remove future options for doing dumb shit.
Ever stick with a crappy Phone plan / School / Job / Freindship because swithing from what was initially ofered to you felt scary, or a hastle? That’s status quo bias. Madrian showed default 401(k) opt-in skyrocket enrollment, compared to opt out. We resist change from fear or laziness.