Tame the inner ape: Phil Slade on emotion in decisions

Emotions can rule our lives, and learning to recognise and control them is the secret to personal and financial success

The discovery of cognitive bias, and its irrational influence on us, is one of the great leaps forward in the science of decision making in the past 50 years. The psychologists Amos Tversky and Daniel Kahneman demonstrated their genius in observing specific, irrational everyday behaviours. If they could repeat and manipulate the behaviours in an experimental setting, they gave it a name. Once they had a name, the behaviour could be explored in a whole new way because we had a brand new set of conceptual keys to unlock new areas of insight.

Loss aversion, status quo bias and sunk cost fallacy are all behavioural constructs that came directly out of their research. More than 350 separate biases have been identified to exist at the time of writing my book Going Apes#!t. Their work opened a whole new world of insight and birthed an entire field of study called behavioural economics. Their revolutionary efforts earned them the Nobel Prize for economics in 2002 and continues to attract accolades more than 50 years after their initial research.

This isn’t the study of the individual differences between “Apes” – our emotional, unconscious and automatic reactivity; this is the study of how irrational all of our Apes can be. As we use the language of cognitive bias, the conceptual keys at our disposal, we can identify many areas of our lives where these irrational biases are influencing our decision making.

Behavioural economics makes the implicit explicit, illuminates the hidden areas of our Ape’s decision making, and gives us specific areas we can focus on to improve our decisions.

However, it’s simply impossible to be constantly aware of all 350 biases all of the time. The very reason we developed these biases in the first place was to make it easier to navigate the world with our limited cognitive capacity. To try to bring them back into our conscious behaviour all the time is counter-intuitive. So what we tend to do is just look at the top three to five biases that impact us the most and focus on training our Ape to better handle these influences.

However, there is another way we can mitigate the effects of cognitive bias. It was an insight we discovered as part of my master’s thesis, a theory of cognitive influence, and it continues to be a large focus of my work to this day.

In short, all biases tend to be reduced by one of three things: emotional regulation, increased awareness or designing our environment in better ways. In order for me to explain this more clearly, I am going to need to momentarily dig deeper into four biases.

Loss aversion

Loss aversion was one of the very first cognitive biases to be uncovered and it remains one of the strongest influences on decision making to this day. Basically, it’s the observation that we weigh potential loss more than opportunity. The pain of taking $50 off you is greater than the joy you get from receiving $50. For instance, imagine you have $5000 worth of travel benefits that you use each year as part of your job (a perk that a lot of university professors use as they travel to conferences). Now, imagine I offered you a pay rise of $7500 if you were willing to give up the travel benefit. Would you accept that deal? Rationally this seems to be a no-brainer. You’re better off with the pay rise, right? But when this exact scenario was offered to a group of university professors in California, almost all rejected the pay rise. The pain of losing something drives decision making.

In their classic 1972 gambling experiment, Tversky and Kahneman showed people only tended to risk the loss of $50 if their potential winnings were at least $100. This showed us the expected hurt from a loss was roughly twice as strong as the expected good felt by an equivalent gain. This is an incredibly robust effect that has been replicated many times in many situations.

Behavioural economics proposes a revolutionary framework for analysing why people make irrational decisions, often to the detriment of themselves and others.

What’s really interesting is when people did experience a loss, the very real pain of that loss actually reversed this effect. So when people lose $50, they’re more likely to take a big risk in order to regain what they’ve lost. They double down on the next bet, even if the odds are stacked against them, and often end up losing even more. It’s as if we say, “It’s already hurt so much, what does it matter if I hurt a little more?” We see this in companies all the time when money is lost on a speculative innovation.

Rather than learning from the experience and cutting their losses, they double down on the idea and end up losing even more.

Loss aversion is based on the survival instinct to avoid pain. It is a deeply emotional bias, rooted in fear and reactivity. Often, in the search to justify poor, loss-averse decisions, we fall prey to another decision-making bias: confirmation bias.

Confirmation (and information) bias

When I was in high school, I decided I wanted to be a musician, and not simply a gigging muso; I wanted to be a composer. At age 14, I was captured by the melancholy of Tomaso Albinoni’s Adagio in G Minor and Antonin Dvorak’s New World Symphony, the majestic sound of Edge’s soaring guitar playing in U2, the raw passion of Miles Davis’s trumpet, the sheer energy of the Seattle grunge movement, and any artist that was in The Blues Brothers. It was an eclectic mix and something I knew was unusual for a boy growing up in the 1990s that were so defined by genre – but it was me.

At 14, I was playing piano for my church. At 15, I started writing pieces for the school choir and concert band, was playing French horn in the Queensland Youth Orchestra and started getting paid for writing 30- and 60-second jingles. At 16, I co-wrote my first musical. At 17, I was asked to tour with Australia’s most popular country music artist as the keys player and also toured my musical to 12 cities across four states. Music was my life. I was going to be a world famous composer. At that point, however, I had to make the decision whether or not to accept an offer into the prestigious Conservatorium of Music in Brisbane (affectionately called the Con). You would think that this would be a no-brainer. I should have just gone and learned from other composers to further my craft, right? Well, not exactly.

Before I accepted the offer, I attended a concert that showcased pieces from that year’s graduating cohort. I was so excited. I had dreamed of being a part of this community for most of my high school life. This concert was going to illuminate the pathway

to the glittering and celebrated career that awaited me. A celebration of great artistry and all that was good, passionate and beautiful.

It was a disaster. A cold, intellectual, mathematical disaster. For example, in one piece, the student composer had borrowed more than 100 alarm clocks from every person he could find and set all of their alarms to go off within a three-minute period. And that was it. Three minutes of random alarms going off on stage. Another piece had someone banging a gong incessantly while a poetry student read random passages from some obscure philosophical text. I could go on, but you get the drift. It was an ode to the absurd, a blatant abuse of the language of music and complete intellectual wankery. In that moment, I wanted nothing to do with any of it. I made a snap judgement. My Ape was not going to let me be anywhere near those fools.

From that point on, I noticed every reason under the sun that justified my decision to snub the pretentious self-indulgence that was in every sense of the word “the Con”. I counted all the successful artists that never studied at an institution. I made a list of all of the students I knew that did go to a music institution and never made it (and there are a lot of those). I made fun of the fact that I, at 16, was already more prolific and making more money out of music than most graduates were years after they’d graduated.

All I was doing in these months was searching for information that already confirmed my decision, and ignoring or dismissing any evidence that would suggest an alternative. This is confirmation bias and information bias in action. I make a decision, then give more weight to information that confirms that choice, less weight to anything contradictory, then feel more confident with my decision simply because I collect more information, irrespective of whether or not that information was right.

Confirmation bias and information bias, it happens all the time … everywhere.

Sunk cost fallacy

America in the 1950s. Eisenhower is president, Elvis is shaking his pelvis, Martin Luther King is in full voice, Marilyn Monroe is bursting onto the silver screen, and Route 66 is the most popular road in the western world. The road was an ode to the car and everything that made America great. It was more than just a highway. It was a destination; a microcosm of American culture. The road linked the main streets of hundreds of towns across the states and the resulting traffic was a boon for entrepreneurs up and down the length of the highway.

In 1956, a wiry man by the name of Clive Orchid was sitting at his desk of a successful accounting firm in Chicago that his father had started and he now owned, dreaming of a better life. Inspired by the economic boom that Route 66 was enabling, he sold his accountancy practice and, with his wife and young family, moved to a small town on Route 66 to start a simple bed-and-breakfast. It was wildly successful and with so much demand that Clive eventually decided to build a 100- bed hotel right there on the most popular road in America.

This was a significant move. He sank all of the money he had left in savings into the project and, to save on costs, he also project-managed the entire build, which led to a serious drain on his time and his marriage. Two years into the four-year project, things were looking good. The building was out of the ground and you could really start to see what the end result was going to look like. Then it happened. The state announced it was going to build a new interstate that was going to bypass the town.

Clive faced a big decision. Did he stop the build,

sell the land and start again somewhere else? Or did he double-down on advertising and trust America’s love affair with the car and the road would continue to draw travellers? He knew the first option made more sense, but he had invested so much time and money into the venture that it felt right to just keep going and make it work. On top of that, they’d spent a lot of time building relationships in the community, and his building project was a source of employment for many of the young men of the town. It would seem unconscionable to stop now. Clive and his wife had simply sunk too much of their time, money and emotional energy to stop now. There was too much sunk cost.

I believe one of the big industries suffering from the sunk cost fallacy at present is large, prestigious universities. The reality is the interstate highway of micro-qualifications is coming, but the investment in PhD programs and long-term study pathways is so strong that universities think they’re smart enough to trade off their trusted brands and offer some online alternatives. Time will tell, of course, but the sunk cost of time, history and personal relationships may be too much for many to notice the slow transition of many sandstone institutions into ghost towns, until it’s too late. This leads us to our final cognitive bias we’re going to explore and, to be honest, one of my favourites.

Anchoring

Anchoring is the process where our value of one thing is influenced by preceding the assessment of value by another number. When we have to estimate a value that we don’t know, our Apes grab onto some unrelated number as a reference. There is a very simple activity that I do with people when trying to explain the concept of anchoring. I simply hand out a card that has two questions on it. What is unknown to the participants is, while the cards on the surface all look the same, they have one crucial difference. On half of the cards, the first question reads, “Do you think Gandhi was older than 35 when he died?”, and the first question on the other half reads, “Do you think Gandhi was older than 105 when he died?” The second question on both is the same: “How old do you think Gandhi was when he died?”

After everyone has written down their estimate, I get each group to meet together to figure out the average age of Gandhi’s death. Of the thousands of times I’ve done this experiment, it’s never failed.

The 105 group’s average is always 10 to 20 years higher than the average of the 35 group. They have been anchored to the number presented in the first question. They think they’re making a completely uninfluenced guess but, in the absence of knowing the real answer, their Apes are using whatever numerical information they can access to make what they feel is the best choice. This is anchoring and it’s fascinating.

You can also see this effect in stores when the price for an item one day is $2.50, and on the next day the price tag reads $6 reduced to $3. When people are anchored to the $6, it flies off the shelf, even though the day before it was cheaper. You find anchoring everywhere. Where I find it most fascinating is during financial negotiations.