- Brainpower is a limited resource so we use things to be more efficient, such as heuristics
- We notice changes more than facts; but the changes need to meet a perception threshold
- Sunk costs (money spent that cannot be retrieved) drives our consumption
- Consumption related to Sunk Costs dissipate over time
- To an “econ”, money in fungible and budgeting is irrelevant
- When we are losing, we favor small bets with long odds over larger bets with better odds
- We tend to diminish the value of future pleasures (“Ice cream now? Yum! Ice cream next year? Meh.”)
- “Theory-induced blindness” is being blind because you have a reasonable theory
- Self-control is about conflict, conflict takes two to exist
- Behavioral solutions are good for behavioral problems
- Windfalls should be reallocated rather than splurged
- People do not make large purchases often enough to gain useful experience
- The 2008 housing bubble was so painful because people were leveraged against their equity; the 2000 tech crash was much less painful because few had leverage their paper gains
- We get very defensive when we start losing money
- “Secret sales”–unadvertised sales–are bad for revenue because the customer was willing to pay full price when they walked in
- People think about rebates differently than a discount
- “… the perceived fairness of an action depends not only on who it helps or harms, but also on how it is framed.”
- Removing discounts is usually perceived as more fair than raising prices
- “Unfair” maneuvers are less noticeable so are not well noticed when competition follows suit
- “Paradigms change only once experts believe there are a large number of anomalies that are not explained by the current paradigm.”
- “Inside views” lock our perspective to the team’s optimism
- “Outside views” let us reference other, similar projects
- It is important to reward people for making good decisions based on the information available at the time, regardless of subsequent learnings
- (This is really important in business and with children. Punishing either for not knowing something damages confidence.)
- In the “beauty contest” game, it is important to ask who the other players are so you can guess at their beauty standards
- Stock market trading volumes should be lower if everyone is rational
- “But nothing attracts attention more than a good fight.”
- “When people are given what they consider to be unfair offers, they can get angry enough to punish the other party, even at some cost to themselves.”
- Fallacies of decision making:
- People are overconfident.
- People make forecasts that are too extreme.
- The winner’s curse. The auction winner is the one who most overvalued the object.
- The false consensus effect. People tend to think that other people share their preferences. (“Everyone is just like me”)
- Present bias.
- People become risk seeking when they are way ahead (“house money”) or way behind (“breakeven”)
- People are more risk adverse in public than in private
- It is more common to lie through omission than commission
- “By convincing his fellow contestant that picking split would be his only hope of getting money, Nick ensured that he wouldn’t be alone in choosing the split ball.”
- Softening risks can be more beneficial than boosting payouts
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