We're often persuaded to go with certain options because we become emotionally attached to an idea, which is where the power of branding comes in. Many of you may be familiar with the famous cola blind tasting experiment where both the direct exposure to the drink and the indirect one, the brand, contributed to the mental experience of taste.
When we make decisions about things that matter — like buying a house, or picking investment options — we'd love to think we coolly weigh our options to understand what's at stake. But that's often not the case. Our unconscious assumptions and biases have a stronger hold on us than we know.
“As a result, many of our most basic assumptions about ourselves, and society, are false,” says Leonard Mlodinov in Subliminal. The influence of our unconscious mind impacts our collective decision-making as well. Mlodinov uses the financial world as an example.
Since money is very important to us, each individual should be motivated to make financial decisions based exclusively on conscious and rational deliberation. That's why the foundations of classical economic theory are build on the idea that people do just that — that they behave rationally, in accordance with the guiding principle of self-interest.
While no one has figured out how to devise a general economic theory that takes into account the fact that “rationally” is not how people act, plenty of economic studies have demonstrated the societal implications of our collective deviation from the cold calculations of the conscious mind.
Doing our due diligence before picking a stock should come before gravitating toward one whose name is easy to pronounce. But rather than looking at business environment and company's financials as Warren Buffett would recommend, the ease of pronunciation ends up affecting decisions.
The ease with which a person can process information (such as the name of a stock) does exert an unconscious effect on people's assessment of that information.
Research on IPOs data bears this — the stocks with the ticker symbols that are easier to pronounce initially fare better, which might prompt some to choose such a name. This effect wears off over time as people get used to the symbol and the company's reputation and track record, or how it's done in the recent past, come into play.
Mlodinov mentions the influence of other extraneous factors, like sunshine, as having a positive influence over our actions. The city weather impacts human trading on Wall Street, as well. More studies conducted in casinos demonstrated that people are more generous with tips when they're winning.
But we should also be conscious of how our minds seek patterns, thus look for connections in data where none exist. Which is why researchers repeated the weather and trading study in cities other than New York and found that the positive correlation to sunshine stood.
The clincher, however predictable the correlation, is that individual buying and selling based on the observation would not work (as we could not reach a large enough sample of trades.) Something to keep in mind as our weather patterns become increasingly more uncertain and more trading is algorithmic.
We're aware only of our conscious influences, and so have only partial information. As a result, our view of ourselves and our motivations, and of society is like a jigsaw puzzle with most of the pieces missing. We fill in blanks and make guesses, but the truth about us is far more complex and subtle than that which can be understood as the straightforward calculations of conscious and rational minds.
We perceive, we remember our experience, we make judgements, we act — and in all these endeavors we are influenced by factors we aren't aware of.
Our brain processes information in two parallel tiers, one conscious and one unconscious. Often we also mistake a frame problem for an information problem. Instead of asking relevant questions about a situation or issue, our brain fills in using information stored in our mental database, says Duncan Watts in Everything is Obvious* once you know the answer.
The “filling in” process is instant and so effortless that we are rarely aware it is happening at all. We don't know that something is missing because it doesn't reach out attention threshold. There's a system we can use to figure out why people behave the way they do. To understand why we do what we do, we must look at incentives, for starters.
When someone gifts something, it creates a future obligation psychologically, for example. While on the surface this would make no sense, “It is just rational according to a different set of premises we were unfamiliar with before,” says Watts.
To understand behavior we need to figure out the underlying incentives, motivations, opportunities, and perceptions. At least this is how we think we think, rationally. But understanding when it comes to human behavior is complex.
Rationalizing human behavior is precisely an exercise in simulating, in our mind's eye, what it would be like to be the person whose behavior we are trying to understand. Only when we can imagine this simulated version of ourselves responding in the manner of the individual in question do we really feel that we have understood the behavior in question.
And yet… our mental simulations have a tendency to ignore certain types of factors that turn out to be important.
The reason is that when we think about how we think, we instinctively emphasize consciously accessible costs and benefits such as those associated with motivations, preferences, and beliefs — the kinds of factors that predominate in social scientists' models of rationality.
Defaults, by contrast, are a part of the environment in which the decision makes operates, and so affect behavior in a way that is largely invisible to the conscious mind, and therefore largely absent from our commonsense explanations of behavior.
Common sense is not that common, after all. This is why priming a person with positive associations and reducing uncertainty help motivate action. In Pre-Suasion social psychologist Robert Cialdini calls “openers” the anchors or primers we use, because they have the dual function of starting the process and clearing the way for the persuasive part.
Our social connections are also strong motivating factors. The environment where we have existing relationships triggers a universal principle of identity to influence us.
All the evidence from psychology and behavioral research taken together point to how many factors that influence our decisions and affect our behaviors are outside our conscious mind — even as we may rationalize after the fact. There's more going on than meets the eye — we have framing, anchoring, priming, availability, loss aversion, and overconfidence issues.
“What would I eliminate if I had a magic wand? Overconfidence,” says Daniel Kahneman. The author of the best seller Thinking Fast and Slow and winner of the Nobel prize in economics:
... is downbeat about the capacity of his brand of psychology to effect change in the world. I imagine he would simply argue he’s a realist about human nature. And, indeed, studies showing that “skilled” analysts are hopeless at predicting the price of shares have yet to translate into mass sackings or even reduced bonuses on Wall Street or in the City. The same goes for evidence that the influence of a high-quality CEO on the performance of a company is barely greater than chance.
That may well be, but until then, there's a simple way to investigate whether it's our unconscious driving us, or we're making a conscious effort to understand things, and that is by asking questions — saying, “Can I fix it?” is better than stating “I will Fix it!” for our overconfidence.