An expert in behavioral economics reveals how human nature could be working against you--and how you can get back on track.
Collin Camerer, the Kirby Professor of Behavioral Finance and Economics at Caltech, literally wrote the book on behavioral game theory. He's worked at Kellogg, Wharton, and UChicago's Booth school of business, researching the intersections between cognitive psychology and economics.
What does he have to do with you? Camerer says the progress in behavioral game theory can be used to make you more productive, and help you understand why, at one time or another, you may feel stuck.
According to Camerer, here are three common problems you may encounter.
1) You believe your own hype. Camerer says that people are really good at learning things from experience, but with one hinderance: confirmation bias.
"People like to make excuses like: 'well it worked three times last year.' And unless you keep a track-record where you record how many times it didn't work, you'll tend to only focus on the things that worked out," Camerer says. "There's also this natural tendency to suppress the memories of failures."
This sort of selective memory process creates illusions of perpetual success, which ultimately allow people's failings to persist—something that research shows is common to pathological gamblers.
Camerer adds that there's a simple way to protect against this: keep track. If you're trying a new strategy, be empirical. Chronicle it through multiple iterations so that you're making decisions based on hard facts rather than your deceptive memory.
2) You give yourself too many options. If you overwhelm people with choices about things outside of their expertise, Camerer says they'll often try to put off the decision, or resolve not to make it at all if they don't have to.
"We have some FMRI data that indicates, if you show people a set of things with too many choices, the part of the brain that encodes reward and value seem to shut down," Camerer says. "The brain goes: oh man, 20 things, I don't know how to process that."
He added that there's a study that shows, if a company offers its employees just two savings plans, roughly 60 percent of them will make a proactive selection. But as the number of plans they can choose from gets closer and closer to a number like 20, only 40 to 50 percent of them will make the decision, the rest of them opting for the cheapest plan, the default plan, or going with what one of their friends has decided to go with.
"If you make people use too much working memory for a choice that they're not really familiar with, they'll likely just resort to choice procrastination," Camerer says.
The best way around this: keep it simple. Rather than giving your employees or customers 20 options they know nothing about, give them access to someone with expertise so that they feel like they're making an informed decision.
3) You fall victim to instant gratification. A new area of psychology that behavioral economists are just beginning to understand is something called time preference, Camerer says. It basically boils down to how people evaluate the utility of having something right now versus having it in the future.
"There's evidence that the people have a big bias for having things right away," Camerer says. "We think that it's probably driven by the fact that, if things are available right now—like within literally the grasp of your hands—if you have a clear mental image—this sort of immediacy gets overvalued by an emotional system."
Studies from the 1960s show that children who were better at delaying their gratification went on to become more educated and earn more income, suggesting that delaying instant gratification could be a key component of leading a successful life.
And if it's something that you're not naturally very good at, don't worry, Camerer says there's hope.
"There's some beautiful new brain evidence that says, if you try to make the future seem as vivid as the present, you can promote delayed gratification," Camerer says. He suggests that, if people envision themselves with a desired object or outcome in the future—if they take the time to actually fantasize about the moment—they can keep their need for instant gratification at bay.