Why Smart People Make Dumb Decisions

February 18th, 2009

Why Smart People Make Dumb Decisions

A good part of how we got to our current economic situation was bad decision
making. In their new book, "SWAY: The irresistible pull of irrational
behavior"by Ori Brafman and Raom Brafman offer explanations for how this
occurs.

The moment we label a person or a situation, we put on blinders to all
evidence that contradicts our diagnosis. And often these labels are assigned
arbitrarily.

A study was done with 2 college economics classes that had a substitute
professor for one day. Students in the class were divided in two groups.
Each got the same biography of the substitute instructor with one
difference. Half had the words "warm person" in the description, half said
"can be a cold person". When the students evaluated the sub-well, you can
guess where this is going. Those with the bio that contained "warm" gave the
guy a good evaluation, versus those with "cold" gave him a poor one. Same
guy-same lecture. One word different in their expectations. Just substitute
"Bernie Maddoff" whose whole scheme was based on referals.

Bernie Maddoff is also an example of "value attribution" as he recruited in
the elite country club crowd. This can work both ways. A woman was walking
down the street in Manhatten and saw a

piece of art wedged between two garage bags on the streets. She kinda liked
it so she grabbed it and hung it on her wall. And eventually sold it at
Sothebys for $1,000,000+. How many others walked by, assuming in the context
of the trash that this painting was also trash? How many good deals have you
missed by broad brushing and rejecting a whole city or market class? Or the
opposite-what many people were doing not too long ago-thinking you just
can't go wrong investing in real estate.

When we find ourselves unsure about whether or not to continue a particular
approach, its useful to ask, "If I were just arriving on the scene and were
given the choice to either jump into this project as its stands now or pass
on it, would I choose to jump in?: If the answer is no then chances are
we've been swayed by the hidden force of commitment. Applies to
relationships, employment and investments.

Reading about the hidden force of commitment makes me understand why my
meditation teacher says that meditating results in better decisions. Its
because meditation helps you to loosen the attachments that keep you
tethered to unhealthy situations.

SWAY also reinforces my commitment to sponsoring the Maple Grove Critical
Thinking Discussion Group. I find it helpful to exercise my critical
thinking skills in areas outside my daily focus on land. If you're
interesting in attending our future programs just send me an email to add to
the notice list. Our March 14th program is "The Fair Tax: April 15th should
be just another spring day" about a proposal to eliminate the income tax.