Hacking Evolution To Make Smart Financial Decisions
Not Worth The Risk
If I was to give you $1000 right now with no strings attached I wonder how you choose to spend it? Would you make wise choices, perhaps saving or investing it? Would you pay off some debts or buy any family car? Maybe the only answer is simply one long pool party until the cash runs out!
Lets say that after receiving your $1000, I then offer you two options. Option one: flip a coin, if it lands on heads I give you an additional $1000, but it lands on tales you getting no extra. Option two: I simply give you an extra $500, again with no strings attached. Which option do you choose?
According to Yale Professor of Cognitive Science, Laurie Santos, the majority of us would …show more content…
Option two: you simple hand back $500.
Dr Santos found that this time the majority of people would choose to flip the coin and take the risk. Even though the amounts of money and really the choices is given add up to exactly the same outcomes as the first experiment, we choose totally differently.
When there is again involved we play it safe, only risk losing something we are more inclined to roll the dice.
An Evolution Of Irrational Thinking
Dr Santos tracked this behaviour through 35 million years of evolution in the behaviour of today's primates. This irrational thinking, therefore, is part of our brains wiring.
And it makes sense when you think about it. How can an incredibly intelligent race as human beings are be so consistently dumb when it comes to making financial decisions? The recent crisis of credit being the obvious modern example.
How Does This Help us?
The first way of solving any problem is acknowledging that there is one. Once we know that there's a problem we can look at the causes and adopt habits to help us
Not Worth The Risk
If I was to give you $1000 right now with no strings attached I wonder how you choose to spend it? Would you make wise choices, perhaps saving or investing it? Would you pay off some debts or buy any family car? Maybe the only answer is simply one long pool party until the cash runs out!
Lets say that after receiving your $1000, I then offer you two options. Option one: flip a coin, if it lands on heads I give you an additional $1000, but it lands on tales you getting no extra. Option two: I simply give you an extra $500, again with no strings attached. Which option do you choose?
According to Yale Professor of Cognitive Science, Laurie Santos, the majority of us would …show more content…
Option two: you simple hand back $500.
Dr Santos found that this time the majority of people would choose to flip the coin and take the risk. Even though the amounts of money and really the choices is given add up to exactly the same outcomes as the first experiment, we choose totally differently.
When there is again involved we play it safe, only risk losing something we are more inclined to roll the dice.
An Evolution Of Irrational Thinking
Dr Santos tracked this behaviour through 35 million years of evolution in the behaviour of today's primates. This irrational thinking, therefore, is part of our brains wiring.
And it makes sense when you think about it. How can an incredibly intelligent race as human beings are be so consistently dumb when it comes to making financial decisions? The recent crisis of credit being the obvious modern example.
How Does This Help us?
The first way of solving any problem is acknowledging that there is one. Once we know that there's a problem we can look at the causes and adopt habits to help us