In this, the first in a series of behavioural videos, Neil Bage from Suitable Strategies shares a video featuring Professor John Maule who looks at behavioural concepts and more specifically, how humans make decisions.
In order for us to get through our day-to-day lives, we sometimes need to react ‘automatically’ to things around us; the speeding car as we step off the pavement or to the subtle change in tone of voice of an angry partner. This automatic, intuitive way of thinking, not under any voluntary control, is very different to the need to slow down and deliberately work out a complex decision. These two systems that the brain uses to process information are called System 1 thinking and System 2 thinking.
System 1 is our automatic system:
It’s fast, automatic, frequent, emotional, unconscious. Often works unnoticed.
System 2 is our effortful system:
It’s your conscious, reasoning self that has beliefs, makes choices and decides what to think about and what to do.
We often think that we are making rational decisions and that we use System 2 more often that we actually do. The fact is, System 1 is a force to be reckoned with and it takes effort and awareness to tell System 1 to be quiet and use System 2 to truly think rationally.
The human brain is capable of the most incredible things. For example, it can calculate the speed, distance and trajectory of a thrown ball in order to catch it. This is an extremely complex calculation yet it happens in milliseconds. It's system one thinking in action. However, even though the brain is super-clever, it does have some major limitations, especially when it comes to making decisions.
Because we’re human, we’re subject to what psychologists call “cognitive biases”; the annoying glitches in our thinking that cause us to make questionable decisions and often reach incorrect conclusions. Over time, we’ve needed better and more efficient ways to solve problems and make decisions, so we developed mental tricks and a variety of short-cuts which allow us to make better decisions faster.
Psychologists believe that our cognitive biases help us process information more efficiently, especially in dangerous situations. It allows us to spot dangers and react quickly without trying to figure out if that tiger is going to attack us!
Still, our cognitive biases can lead us to make serious mistakes so it’s wise to at least be made aware of them. When it comes to investing for your future, there are some cognitive biases that will have a greater impact on your financial well-being than others.
Through Bambooing, we show people how their cognitive biases affect their financial future, and why these need to be understood. Only then can consumers make sure that they are in a position to make better financial decisions.