How to Combat Errors of Cognitive Dissonance
People are prone to actively avoiding information contradicting their existing beliefs. People are also very good at lying to themselves. So when we are exposed to information contradicting existing beliefs we develop complex internal monologues explaining away the validity of the new information. Not surprisingly this impedes good decision making.
To overcome this it is important to try and develop the habit of thinking probabilistically instead of absolutely. When you are updating the probabilities of potential outcomes instead of changing a belief it is much easier to properly process new information. One of the keys to effectively processing new information is determining what the base rate is.
The base rate establishes the prior probabilities for the decision at hand based on known evidence. So if you need to guess what suit the first card pulled from a deck of cards will be. There is an equal 25% chance of it being any of the four suits. If the first card pulled is a heart. Then you would update your base rates to 25.5% for clubs, diamonds, and spades, while reducing the probability for hearts to 23.5% prior to the next pull.
Establishing an accurate base rate when trying to make real time decisions is a challenge because people are susceptible to stories. Meaning we tend to ignore numbers when making decisions when also exposed to a narrative explanation, even if the narrative is of minimal relevance to making the decision at hand. So the key to improving decision making is to think past the story and evaluate the data.
When a savvy retailer structures discount offers in a way that makes you feel like the more you spend the more you save. Look past the narrative the retailer is presenting. To the fact you have a certain amount of money you are comfortable spending, your base rate. And no matter how good of a deal the retailer presents. Don’t exceed the amount you wanted to spend even if at first glance the deal appears irresistible.
Conservatism Bias – The Underweighting of New Evidence
Conservatism Bias is not updating your base rate when incoming information indicates you should. Say you become convinced you need a new car. Establishing your base rate as the purchase of a new automobile. While conducting research into purchasing a new car you discover that cars no longer need to be replaced as frequently due to improved quality.
At this point it’s important to update your base rate to account for this new information and realize you don’t need a new car. You may still proceed with purchasing a new car because you want one. It’s important though of developing the habit to recognize you made the purchase because you wanted to not because you needed to.
Thinking probabilistically makes it easier to update your base rate. Because then you are changing an opinion instead of a belief. Helping you avoid errors from making decisions based on common narratives.
In 2007 right before people were about to be crushed by falling home prices. It was common to hear home prices had never fallen on a national basis. Lending terms were favorable to borrowers and real estate professionals were touting the softening as a temporary correction that made it a great time to buy.
Borrowers were finding it harder to obtain financing though, as lenders began encountering financial difficulties. And looking past the surface there were a number of indicators the housing boom wasn’t sustainable given the record levels of outstanding mortgage debt and price to income levels of home purchasers. Potential home buyers who overcame conservatism bias and incorporated this information into their decision making process. Delayed purchasing and achieved a better outcome than their counterparts who decided to move forward with purchases. Like me.
I was lucky because when I recently sold my home I broke even. The fact I wasn’t expecting to stay in the home forever though made the price I paid upfront for it even more important. As recent events have demonstrated. In the short term real estate markets can suffer substantial losses. If I had delayed purchasing a few years after the market dropped. I would have been able to build equity in the home prior to selling it.
Confirmation Bias – Favoring of Information confirming existing beliefs
It feels good to be right. So we vigorously pursue information that makes us feel this way while ignoring information contradicting our existing viewpoint. While challenging, seeking out information that contradicts existing beliefs leads to better decision making.
In this regard being able to shift perspective can be helpful. Think of incoming information as an update rather than something that will make you wrong or right. When incoming information causes a reevaluation of your position, don’t think of it as being wrong. View it as not previously being equipped with the necessary information to make the proper decision.
Maybe you’ve been financially supporting a worthwhile cause you believe in only to find out of financial irregularities at the organization you’ve been supporting. Instead of favoring information the organization subsequently puts out condoning its behavior and maintaining your support. Think of it as having been a helpful update that has led you to target your support to a more worthy candidate.
The trick is to try and eliminate the feel of being threatened. Insecurity from threats is a deep rooted and understandable human emotion. Historically, survival has been dependent on the ability to accurately identify and avoid threats.
Fortunately we live in a day and age were threats frequently come in the form of streams of information challenging existing beliefs. As opposed to being eaten in the woods. Emotionally though it has the same impact. And there is a toll associated with self-questioning. It takes effort. This is why we struggle with updating our beliefs when facts suggest we should. We are not emotionally wired to do this naturally.
To overcome this hurdle try to actively seek out information in opposition to your existing beliefs. When a threat is identified i.e. you are expecting to find information challenging your existing beliefs. It is much easier to process. And the upside is working through the counterpoints to your existing beliefs will help clarify why you feel the way you do. And if you still hold the same opinion you can then feel confident in its soundness given the investment in accounting for opposing viewpoints.
He's published three books. Most recently The World After Covid 19: Coexisting with the Novel Coronavirus.
His musings can be found at stevenlmiller.me. Subscribe to The Pompatus Times for updates.
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