Have you ever heard the saying that when you are confronted with a multiple-choice question on an exam and you are hesitant to change your answer after writing down the answer, it is best not to change your choice? A survey of students conducted by some research institutes showed that as many as 75% of students thought it was better not to change their answers. Even some educators hold the same view. However, this is not the case. When you're unsure about your answer, changing your answer may be a better option mechanically.
Psychologist Justin Kruger has counted that the results of the answering process of 1,561 college students show that when students change their answers, they have a 51% chance of choosing the correct answer and only a 25% chance of changing the wrong answer!From this objective statistical result, we can know that people's subjective thoughts often have blind spots that even they do not know. Further, whether it is an exam just now, or a big or small event in life, there is a mind that we can deliberately learn, not only rely on intuition, but also have the ability to think objectively.
People tend not to change their answers, and there is a psychological factor behind this. One such mindset is called loss aversion, where people avoid making changes because they fear that changing an answer may miss the correct answer. However, maintaining the status quo is not always correct, as some institutions have studied the weaknesses of free throws in football. Statistically, players tend to shoot the ball into the middle instead of the posts on either side of the penalty kick. Therefore, if you are a goalkeeper, the odds of choosing to stand in the middle to block the ball when you make a free throw will be higher. However, if the ball ends up flying towards the left and right posts and the goalkeeper stays still, there will be more criticism after the game. If you pounce on both sides, even if you don't block the ball, at least it looks like you are unlucky and guessed the wrong side. Therefore, when faced with life's multiple choice questions, we can all be affected by the emotions of the moment. However, emotions can fluctuate, so it's better to try to think objectively.
Recently, a striking book, The Economics of Choice, was published on September 28, 2023. The goal of this book is to answer these choices from an economic perspective. The author of this work is Eric Angner, a professor of philosophy and an expert with a Ph.D. in economics who has studied topics related to the science and philosophy of happiness. He hopes that through his research, he can help people gain more happiness and joy on the road of life. In this book, Eric Angner lists many of the questions that people care about, and provides decision-making methods and answers to these questions from an economic perspective. Next, I will share three knowledge points in the book that can be applied immediately, and combine them into three questions for you to think about:
1.How can I avoid ruining my life?
2.How to maximize your chances of getting rich?
3.Why is it that even if you understand the truth of accumulating wealth, you may not have the opportunity to become rich?
The book Economics of Choice provides us with in-depth insights and practical guidance to help us better understand and cope with life's choices. If you are interested in these questions, this book is undoubtedly a great book to read.
First of all, let's take a look at that mysterious and powerful being - intuition. Have you ever had the experience of intuition guiding your decision at a critical moment?Some say it's the sixth sense, but it seems to me to be more like wisdom that we distill from our experiences in life. Note, however, that from an economic perspective, learning from these experiences and distilling intuition is much more difficult than most people think.
Why is this so?There are three main reasons. First, we tend to have a confirmation bias mentality, which means that we are more inclined to focus only on information that aligns with our views. Second, we may be making the error of hindsight, which is that when we look back, we exaggerate the importance of past experiences. Finally, and most importantly, we all have an overconfidence bias in our nature. Overconfidence here does not refer to a person being arrogant or arrogant, but rather a cognitive bias in behavioral economics, in which we tend to think that what we have is better and that our ideas are more correct.
As an example, there is an experiment that scores a person's driving skills, and it turns out that 90% of people think their driving skills are better than more than half of them. But from an objective point of view, this is clearly unreasonable. So why are so many people overconfident in their driving skills?This is because we tend to only see our own strengths and weaknesses and ignore our own shortcomings and weaknesses.
Therefore, we need to be vigilant at all times to avoid being misled by our intuition. We need to learn from past experiences and constantly adjust our thinking and behavior habits. Only in this way can we go further and more steadily on the road of life.
It's easy to fall into the trap of overconfidence, just as you can't completely avoid blind spots in the fog. Scholars have even called overconfidence the mother of all biases, which shows how far-reaching it is. If overconfidence can't be completely avoided, why should we be wary?Because you can avoid getting into a difficult situation in your life because of this. Warren Buffett once proposed a concept called "circle of competence", which is the range of things that everyone is familiar with, including knowing what things and how to deal with them. However, in emphasizing the expansion of the circle of competence, people often ignore Buffett's original reminder of the importance of knowing the boundaries of one's circle of competence. No one's circle of competence is infinite, so it is necessary for us to take the time to master the boundaries of our circle of competence. It doesn't matter the size of the circle of competence, the important thing is to know that the boundaries are in**.
To put it simply, you have to know what you are capable of, let alone brag about what you are capable of, otherwise you will be taking risks that you cannot afford to do. Just like investing in stock selection, some people will believe that they should be able to make long-term profits because of the high returns in the short term, and ignore that you may just encounter the opportunity of a big swing. As a result, this confidence bias leads to investing too much money later on, and if you lose money once, you have to start all over again. In my observation, you will know from a point of view, when the overall stage, you will see many people share their stock selection results, experience, how to grasp the trend, etc., how to choose a good one, etc., and so on, and when the overall is concerned, you will see many people sharing their experience of losing money, in fact, this is caused by the ups and downs of the overall trend. Everyone's profits also go up and down, in fact, there is no direct relationship with what they really learn.
Therefore, the author also reminds that in order to avoid overconfidence, we should practice cultivating so-called cognitive humility and not be overly complacent about everything we can master. Don't think that your circle of competence is very large, as for how to cultivate cognition, the humble book puts forward many angles. Oh, and I've put together two questions that can help us put the brakes on our decisions and reduce the bias of overconfidence. When you are choosing things and making decisions, you can use the thinking tool of negative thinking to take the initiative to ask yourself, what could be wrong in my thoughts?Again, you should look at the opposing ideas to understand why they think the way they do, and why your own ideas are different from theirs. In the process of thinking about this pros and cons question, you are calibrating the subjective probabilities, so that the answers that you originally subjectively believed will be more objective. In general, to grasp a principle, overconfidence is a deviation in human nature, I will definitely be overconfident, the only thing I can do is to be as humble as possible, to avoid making a big mistake, ruining life to understand overconfidence.
Next, let's explore the second question, how to maximize your wealth growth opportunities and prepare for the new year. In this fascinating topic of getting rich, first of all, we need to consider a key question: Suppose you have just entered society, have zero net worth, and your income is just beginning to accumulate, in such a situation, do you think you will be on the side of the minority or the side of the majority in terms of your probability of financial success in the future?
If you think you're going to be that special case, go back and revisit the "overconfidence" chapter mentioned earlier. If you think you're going to be on the side of the majority, it might be feasible to take an economist's approach to get rich!In the process of studying economics, you will definitely come across a concept called "marginal idea". For example, the "diminishing marginal effect" you often hear is one of the so-called margins in economics. Basically, the concept is that the added utility of each additional unit decreases. Take eating fried chicken, for example, when you eat the first.
In the third and fourth blocks, you will find that it is more and more difficult to swallow, which is the diminishing utility.
Similarly, adding $100,000 is not the same for someone who has $1 million as adding $100,000 for someone who has $10 million. Why do we need to explain this concept in the first place?Because if you know that you are not going to be that special minority, then the way you should learn to get rich is the "marginal idea" that works for most people, not the way to make a profit that only works for a particular special case of getting rich quick or only for those with deep pockets.
After understanding the truth of this layer, you will feel reasonable when you look at the advice on getting rich in the book, the author is from the perspective of economics to put forward 4 suggestions for most people to get rich, respectively.
1. Save as much as you can. 2. Investment index**. 3. Be cautious in borrowing. 4. Increase financial skills. It sounds boring, but from an objective point of view, it is. These seemingly ordinary suggestions are the way that most people who do not have special resources can accumulate stable wealth in the long term without relying too much on luck. As for these 4, because they are all very simple and easy to understand, so on my side, I will quickly summarize the content of the book for you.
First of all, we should value saving as much as we protect lives. Because savings are like our capital lifeline, not only providing us with the principal of investment, but also providing us with a solid backing when the economic storm comes. It's like a ship in the ocean, only with sufficient reserves can cope with sudden storms and waves.
Second, investing in an index** is a smart choice. This is to track the performance of a specific index, such as the S&P 500 index. A large amount of data has proven that its returns outperform most ** and professional investment managers. And, more importantly, investing in index** doesn't require you to have deep investment knowledge, just a basic understanding to get started. It's like finding a cash cow, as long as you know how to operate simply, you can continue to get benefits.
Let's talk about borrowing. Borrowing is not a predator, it can be an accelerator for our wealth accumulation if we look at it with prudence. By borrowing wisely to invest or start a business, we can grow our wealth faster. But over-borrowing is like dancing on the edge of a cliff, and if you are not careful, you can fall into the abyss of debt. Therefore, we must always keep a clear head and make sure that borrowing is within a manageable range.
Finally, improving our financial skills is the key to our long-term wealth accumulation. Financial literacy is like a navigator's compass, which can help us better control money so that they can create more wealth for us. This is an important step towards financial freedom and an integral part of our life's journey.
After understanding these 4 simple principles, we can then think about the next question, why is it so simple that it is still difficult to become rich?Again, we will interpret it from the economic knowledge in this book, but we must first state that the author's perspective is not to discuss the gap between the rich and the poor, or the unfair distribution of resources, he mentioned the reasons that will still affect most people, to answer this why it is difficult, we must start with the availability factor, you think about it now, when it comes to wolves, do you think wolves will like to attack humans?It seems to be, but according to the book, wolves attack people much less often than they generally think, and most of the time, if it is not a problem of invading the floor, wolves will not actively attack humans. But why do we have an intuition that wolves attack people like that?The author thinks that this is related to the role of **, the wild wolf in the movie.
For example, in the story of Little Red Riding Hood, the wolf is the character of the bad guy, and like the movie Frozen, the wolf is also the character of the bad guy, these propaganda will make people think that the wolf is an animal that likes to attack people!And this kind of situation that makes us think that it is more likely to happen because of the repetition of promotional messages is the so-called availability bias!After hearing so many stories about wolves attacking humans, we have a gut feeling that wolves attack people, and they probably love to attack people. To put it simply, if you receive a certain kind of information from time to time, or even be **, the next time you want to think of something related to that information, you will intuitively think of the answer related to that information, okay!So the answer to why it's so hard for us to be rich is because all parties will only report stories about getting rich that can attract traffic. Either it's a short-term high profit, or the method is very special, and these stories will be attractive as soon as they appear. As for those prosaic methods that suit the majority of people to get rich, or examples of special methods that also take special methods but fail, they rarely appear in the eyes of the public because there is very little relationship between traffic or algorithms. As a result, I think it is a serious problem today, that the method of getting rich that most people receive is a special case for a few, and the method of getting rich that is suitable for the majority has really become a special case.
So why is it so hard for most people to become rich?Thinking about it from an economic point of view, one of the reasons is the availability bias. When a person has watched too many special stories to get rich, he will think that is the way he should get rich, but by the time he sobers up, he may have missed a large period of opportunity to use time to get out of compound interest!The above is what I interpret through the book Choice Economics, and I would like to mention the explanation of the original version, which means that it is to use economics to understand the world and solve problems through simple concepts, not just about choice. Speaking of which, although economics is a discipline, it is actually a science that studies the laws of human behavior, and it has long been deeply rooted in your life.
It is very helpful for a person to understand the world, how to make the right investment choices or daily life decisions, which is also where I think economics is helpful, it can make people invest wisely, and they can also live soberly in this world. Today, in addition to allowing you to rethink your own ideas from the three questions just mentioned, you can get new concepts. It also makes you more interested in economics!Economics