How Cognitive Bias Affects Your Finances
“Our beliefs are not true in themselves, but they become true in our experience if we believe them…When you change your beliefs about money, you can master money.
You can make a conscious decision
to change your beliefs
and create more money in your life.
The choice is up to you.”
~Marc Allen, author of The Magical Path, Creating the Life of Your Dreams
Fellow blogger and Boston University grad, Darcy Jacobsen wrote about cognitive bias and it’s influence in the workplace (read full piece here). Taking two of her points and applying them in a broader sense… how our cognitive biases influence our beliefs and thus our finances:
Bias #4: “The Confirmation Bias”
People tend to ignore information which does not fit with their beliefs while they weigh agreeable information more heavily.
What it means to you: This is a great bias to remember when performance review time rolls around. Managers will be creating evaluations that fit with their beliefs about employees, and possibly discarding critical information. Make sure you provide managers with as much diverse, crowdsourced data about employee performance as possible, to avoid a single point of failure around this bias.
What it means to your finances: If your belief is “I never have enough money”, you will look for evidence to support this belief and filter our evidence that disproves it. How about the fact that you probably have food in your fridge and gas in your car… or a Fridge and a Car!
Bias #8: “The Spacing Effect”
Information is better recalled if exposure to it is repeated over a longer span of time, rather than occurring only once or grouped together in time.
What it means to you: This means that your initiatives should be focused on long-term, iterative campaigns and programs to induce change, with many “touches” to encourage learning and information retention, rather than one-time, “big-bang” events, awards or announcements.
What it means to your finances: The VAST majority of our money beliefs are formed in childhood, so we have been “touching” these beliefs for a long time. Writing a new belief of abundance and ease which initiates a “long-term , iterative campaign” which will encourage you to learn and retain a new way of believing and creating. Try changing from a belief of scarcity and victim-hood to one of empowerment and abundance, “Everything I need to create financial abundance is already inside of me.” (Find more new beliefs and ways to uncover your traps here)