How Cognitive Biases Cause us to Overspend with Amanda Montell
Apr 12, 2024
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Amanda Montell, author and podcast host, discusses cognitive biases and how they impact our finances and everyday lives with the hosts. They explore impulsive spending behaviors, the role of biases in decision-making, the pitfalls of overconfidence bias, the cult of consumerism, and the influence of societal status on financial choices.
Understanding cognitive biases like confirmation bias and sunk cost fallacy can improve decision-making in finances and personal life.
Embracing Shine Theory counters zero sum bias by promoting collaboration and support among women.
Awareness of overconfidence bias helps strike a balance between confidence and rational decision-making, preventing financial missteps.
Deep dives
The Impact of Cognitive Biases on Decision Making
Cognitive biases, such as confirmation bias and the sunk cost fallacy, influence decision-making in various aspects of life. These mental shortcuts, once beneficial in early human brains, can now hinder decision-making due to information overload in the digital age. Understanding and identifying these biases can lead to improved decision-making, whether in financial choices or personal relationships.
Constructive Responses to Zero Sum Bias
Zero sum bias leads individuals to believe that others' gains result in their losses, stemming from historical scarcity of resources. Women often compare themselves upwards, hindering collaboration and self-esteem. Embracing Shine Theory counters this bias by fostering support and connections with successful individuals, fostering collaboration and personal growth.
Navigating Overconfidence Bias in Decision-Making
Overconfidence bias entails overestimating one's abilities and successes, potentially leading to risky decisions. While overconfidence can drive innovation and progress by instilling nerve and drive, it can also result in financial missteps or unrealistic pursuits. Acknowledging this bias can help individuals maintain a balance between confidence and rational decision-making.
Consumerism and Cults
Consumerism is likened to a cult, where the pursuit of material possessions is portrayed as offering spiritual or existential transcendence. The speaker reflects on the societal conditioning that encourages competitiveness and ownership, highlighting how consumerism fuels selfishness and comparison. She emphasizes the false promise perpetuated by consumer culture, equating material acquisition with a sense of superiority and immortality.
Cognitive Biases and Purchases
The podcast delves into the influence of cognitive biases on purchasing behavior. Examples include a $130 LED lamp purchase driven by declineism, a tendency to believe life is progressively worsening. Another illustration involves the status quo bias, where individuals resist changing or upgrading despite potential benefits. The discussion underscores how recognizing and addressing cognitive biases can lead to more informed and intentional consumer decisions.
“I deserve to buy this!” But are you really deserving of it? If you’re someone who thinks adding more items to your cart at checkout is going to solve all of your problems, then you deserve to hear this episode. Jen and Jill, together with Amanda Montell, author of acclaimed books such as Wordslut and Cultish, and a podcast host, talk about cognitive biases and their influence on not just our finances but on our everyday lives!
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