Recently, I have made a bad choice due to the sunk cost fallacy. I have had to let unworn clothes clutter my closet just because they were very expensive. I have also followed on plans I was dreading because I had already bought tickets. The effect of the sunk cost fallacy was that I continued consuming and pursuing options because I had invested money in them. I did not wear expensive clothes just because they were expensive. I just let them clutter in my closet. I felt that wearing clothes made me the guilt of wasting money. This was a bad choice. The reframing tactics we discussed would have helped. They would have let me understand that what is done is done. I would understand that nothing can be done to bring back used money.
The most difficult decision that I have had to make recently was to choose between two career options after completing my 12th standard program. Making the decision was made difficult by the fact that I was not financially stable. My parents were not able to afford to admit me to a private engineering university. I was selected for the business course, although I was interested in engineering from the very beginning. I had to drop the idea of joining a private engineering university for a college in my town with a low fee structure. Still, my parents could not afford the fees for that college. So, I eventually decided to join the business program as it was all my parents could afford to pay the fees for.
A heuristic is a mental shortcut that can allow a person to solve problems and make quick and efficient judgments. I mostly use the “availability” heuristic. This type of heuristic involves making decisions based on how easy it is to bring something into mind. I learned this type of heuristic from the conditions I consider when choosing my mode of transport to school. For example, I might have to choose between riding the bus or take the taxi to school. I might suddenly remember that the standard route for the bus is under construction. This means that the bus might be slow and make me be late for classes. So, I decide to take the taxi and leave earlier as it can use an alternative route. However, my heuristic has biases in that I might imagine things that are not in tune with reality or what might really not have happened even if I did not use the heuristic.
Recently, I have held the belief that those people who are left-handed are more creative than right-handed ones. Whenever I encounter a person who is both left-handed and creative, I place greater importance on the evidence as it supports my belief. I might also be tempted to seek proof that backs up my belief and discount examples that do not support the idea. This can affect me in case I am the hiring officer in a company. I might disregard the person with the required qualifications for a job to hire the person who fits my belief according to confirmation bias. To avoid going the same path, I would avoid interpreting information in a way that only supports my existing beliefs.
I was able to convince one of my employed friends that he was overconfident. He thought that he was invaluable to his employer because almost all workmates could do his job. He showed his overconfidence by going to work late because he thought he was never going to be fired. He was also overly demanding about getting a pay raise and threatening to quit the job if his demands were never met. My strategy to convince him was successful as I told him the negative impacts that his overconfidence would result in. I told him that he was risking losing his job due to overconfidence. The strategy would also work for me if tables overturned because I based arguments on universality, without bias.
One of the instances in which I used reason-based choice to justify a decision that could have been analyzed more is that one of my professors in last semester’s finance course accused me of having plagiarized my assignment because I had not cited and referenced it. Due to this accusation, I reasoned and decided to write a response letter to the professor defending myself against the accusation. Also, I cited each sentence of the entire assignment indicating where I got the ideas for the assignment. This reasoning was successful as I escaped the wrath of the professor. I analyzed the choice by considering losing time citing each sentence of my assignment and writing a response letter to my professor to avoid the risk of getting a failing grade.
During my free time, I run a fruit stall in my town. I am myopic to the profits I can get from my small business. It is hard to be long-sighted about the expected profits from my fruit kiosk. I consider this decision important to avoid disappointment in the future when I do not attain my highly-set expectations. Competition from hawkers is one of the factors that make me decide to be myopic in my small business. I have had to adjust my prices from time to time, as a tactic to try and reign in my myopia so that I can attract buyers. I do this according to the prices that my competitors sell at. Therefore, I am myopic about the profits of my fruit business.
The best tricks that I use to overcome self-control problems are Confidence, Willpower, and Motivation. The more I want a goal, the likely I am willing to make the sacrifices and efforts required to achieve it. The strength of my commitment to something depends on its value to me. That is being motivated. People with weak self-confidence easily develop doubts about their ability to accomplish the task at hand. This is why I consider being self-confident. Willpower represents the psychological energy or strength that can be used to resist temptations so as to work towards one’s goal. Self-control depends on a limited resource that operates like energy or strength. With willpower, I follow the principle, “do one thing and do it well.”
One example of a social heuristic is the tit-for-tat heuristic. This is used by people to decide whether to cooperate in or to defect a behavior. A person may use this type of social heuristic to cooperate in the first round and in subsequent rounds but reciprocate their partners’ cooperation action or defection in the previous round. This type of heuristic is investigated using a prisoner’s dilemma in game theory, in which there is substantial evidence that the heuristic is used, resulting in intuitive reciprocation. Now that I know the principle at play in this heuristic, I do not fall for it anymore.
The recent encounter with an algorithm is that of the Facebook Company. The Facebook algorithm tries to control or optimize the presentation and order of posts so that users can see what is most relevant to them. Rather than just publishing content chronologically, ads and posts are presented based on what Facebook sees as relevant to the user. The algorithm did an objectively good job as it maintained Facebook as the number one platform for consumers and marketers. The main algorithmic decision by Facebook was to make news feeds more personal. Having this decision made me feel a sense of confidentiality and security for posts. This would positively affect my future interactions with family and friends on this platform.
On December 12, 2019, my two friends and I were to go swimming at the beach. I expected to enjoy the day with my friends to the fullest. Before that day, I bought a very good, expensive phone that I would use to take photos that I would post on social platforms. I predicted happiness. However, the duration of happiness did not last as I expected. Unluckily, on my way to meeting my friends so that we can start our adventure, I was robbed of my phone and all the money that I had. This resulted in a communication breakdown as I could not call my friends to tell them what had happened. I had nothing to 8do other than going back home. This experience taught me that it is not good to be overexcited about something before it happens.
I have recently been involved in group decision making to determine the outcomes of the group. It was a business group whose purpose was to open a branch of a mini-mart in town. We had to determine the factors to consider from the experience we had when we opened the first branch of the mini-mart. To make the decision, we focused on the challenges that would be incurred with the mini-mart. I considered some outside factors that would affect the decision. These included competitors, legal, political, demographic, and technological factors.
I have recently witnessed a manager in an organization who was overconfident. He could use his position to mock the contributions of junior employees in the organization. He made decisions prematurely. He thought that it was hard for him to get fired. He fired the junior employees under him with no valid reasons. This was hurting the organization as employees worked with fear of being fired, which caused them to do things they did not have to do. I and anyone else would fear speaking up and convince him that he was overconfident because of his senior position in the organization. Employees would not do that with the fear of being fired. To overcome this issue in the future, I would teach the leaders qualities of good leadership and successful leaders, one of them being confidence but not overconfidence.
Some of the examples of nudges are product placement, default options, and the use of technology. For product placement, to encourage healthy eating, healthy options could be made more easily available. This can include monitoring school lunches to reduce the number of unhealthy options. Default options are a powerful way to encourage take-up rates of desirable options. Technology can be left to make important decisions for people. With the knowledge of nudges, I notice an effective attempt to influence my behavior. The nudges are designed to benefit and profit everyone.
Nudging others’ behaviors is good, but I am not fully comfortable with it. It is important to move away from short-term, politically motivated initiatives that are not based on reliable evidence and do not help people to make long-term changes in behavior. It is not reasonable for organizations and governments to try to change our behavior without our active awareness. To make people comfortable with nudges, governments should ensure that the people are informed when they are being exposed to them. They should also show an understanding of how people think, behave, and make decisions.
The behavioral financial tip that I would share is that investors should avoid high self-rating. This is considered to be overconfidence. It can get them into trouble that they may require resources to get themselves out of. This can help in improving financial decisions. An investor who is confident can trade more frequently than others and believe that they have better market information than others. This can result in subpar portfolio performance, which may be a result of increased losses, commissions, and taxes. It is, therefore, important to be aware of behavioral investing, your own, and others. This can help in saving more money and being careful before taking an investment move.
Mental accounting is the class concept that I think will have the most impact on my life, both short term, and long term. It is useful to me and any other person in general. For me, I can learn how to make sound decisions by first accounting mentally to know how well I can spend money. For example, it can help me to know how to spend the money that I did not expect to get, for example, “birthday money.” To explain the concept to a 5-year old child or my grandmother, I would tell them that it is a concept that individuals use to classify money, and that explains their decision-making in their investment and spending behaviors.
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