So, next time you're tempted to sell a stock, make a purchase, choose between insurance policies or any other financial decision, pause to examine an alternative to your gut instinct. Your first impression may be rightand if so, it'll withstand the extra scrutiny.
Consider How Your Actions Affect Your Goals
Galef suggests getting in the habit of asking yourself, "What goal am I hoping to achieve here, and is the action I'm currently taking a good way to achieve it?"
As Galef explained, one strategy called pre-hindsight involves imagining that it's June and you haven't achieved your new year's resolution. Are you surprised? Think out each detailed reason you would not be surprised. Each is a cause you might not succeed, and each can be baked into your initial game plan for a more foolproof resolution.
For example, maybe you resolved to save money by bringing your lunch to work every day but one reason you might not succeed is that your officemates love to bond by going out to eat together. Maybe you could initiate an office potluck instead, or resolve to eat brown-bagged lunches with one of your best work friends. Or, if that isn't reasonable, maybe you decide that this resolution isn't realistic and find another area of your budget where you can save money.
Overestimate Your Time Predictions
"Your brain's prediction software has some bugs in it," Galef says. "We systematically under-estimate how much time tasks will take us. That's what cognitive scientists call the 'planning fallacy.'" So, whether your resolution is to apply to grad school, start up a side business or finish an important project at work, counteract your natural instinct to underestimate the time it'll take.
"Once you know about your brain's biases, you can combat them," Galef says, pointing to a technique scientists call "reference class forecasting," in which you estimate how much time a task will take by looking at how much time similar tasks have taken you, or other people, in the past. That way, you'll base your estimates on real data instead of flawed impressions.
Rely on 'If/Then' Statements
Officially speaking, this is called an "implementation intention." Galef suggests framing your resolution as an if/then statement rather than a broad, sweeping hope. For example, instead of vaguely resolving to spend less, you might resolve: "If I have an urge to shop because I had a bad day, then I will make myself a cup of tea and chat with my best friend instead."
Take the Long View
"People who are especially rational about finance don't pay too much attention to short-term randomness [of the stock market], and avoid giving themselves the opportunity to overreact," Galef says. A perfectly rational investor wouldn't be fazed by day-to-day market fluctuations and instead would keep her eye on the long-term end game. But again, we all have emotions, and no one is perfectly rational.
If you are the kind of person who has trouble sitting still when the market swings up or down, you might decide to check your portfolio only at regular, pre-decided intervals rather than on days when there's big breaking news.
Reset the Default
"Studies show that people in general overwhelmingly prefer the option framed as the default," Galef says. For example, she says, "companies with 'opt-out' 401(k) plans have much higher enrollment rates than those with 'opt-in' plans." Once you know that you have an inherent bias toward the status quo, you can ask yourself questions to combat that inclination, such as, "If I weren't already invested in this option, would it still seem like the best choice?"
Don't Do Yourself Any Favors
Everyone's willpower might falter in the face of spending decisions, and that's O.K. Although it isn't pleasant to admit, it doesn't have to be a sign of weakness to accept that your future self won't reliably make the choice your current self most prefers. If anything, accepting that fact can become a sign of strengthbecause then you can navigate around it.
"For example," Galef says, "you may be able to set up a system that automatically deposits some income into your 401(k) or a special savings account, so you don't have to keep repeatedly exercising willpower. Or you may be able to make a pre-commitment using a system like Beeminder or Stickk.com, binding yourself to your own plan the way Odysseus bound himself to the mast of his ship, knowing the sirens would otherwise tempt him to his death."
Embrace Bad News and Examine All Your Biases
One of Galef's favorite rationalists is Charlie Munger, vice chairman of Berkshire Hathaway Corporation. She cites a talk he gave at Harvard Law School years ago in which he warns against many biases, including one he calls Persian Messenger Syndrome, "named after the ancient Persian practice of killing messengers who brought back true but unpleasant news," she explains.
"Instead, he urges people to cultivate a habit of welcoming bad news," Galef says. "Rationality [is] about being aware of the features of your own mind, like the fact that you might instinctively flinch away from bad news, and striving to do what will actually lead to accurate beliefs and good outcomes."
Think About Your Emotional Motivations
"Cognitive science has shown that emotions are essential to rational decision-making," Galef says, so it doesn't make you any more rational to deny what you're feeling. In fact, it could do just the opposite. Some people think their problem is that they can't get themselves to buckle down and work hard on a goal, she says, when "really the problem is that they're not that excited about the goal because they don't actually expect it to make them happy. But they don't realize that because they're not paying attention to their emotional anticipations."
If you find yourself slacking off on one of your goals, take the chance to pause and consider whether there's a deeper reason you're dragging your feet.
Written by Allison Kade for MainStreet