Behaviouronomics

What does the future look like for an eighteen-year-old student who finds himself on a hospital bed wrapped up in bandages? My guess is that life careening off course would have been the least of concerns when he was fighting for his life.

In his senior year of high school, Dan was an active member of an Israeli youth movement. On a Friday afternoon, while preparing fireworks for a traditional nighttime ceremony, a large magnesium flare accidentally exploded near him causing third-degree burns over 70 percent of his body.

The next three years found me wrapped in bandages in a hospital, recalls Dan, “and then emerging into public only occasionally, dressed in a tight synthetic suit and mask that made me look like a crooked version of Spiderman.”
[Read more…] about Behaviouronomics: The Peak End Rule

How many times have you stepped into a public bathroom and felt disgusted by puddles of spilled over liquid around the porcelain urinal?

We all know that it’s the result of men relieving themselves carelessly. When people know they aren’t required to clean their own mess, they’re least bothered about aiming properly to minimize the spillage.

Maybe putting up notices like – Please piss responsibly – would help. But we know most people don’t heed to such requests. So the architects of Schiphol Airport in Amsterdam came up with a brilliant strategy. They put a fly in each urinal.
[Read more…] about The Illusion of Free Will

Most people learn about probability concepts through examples of coins and dice. But that rarely helps in developing an intuitive mind for probabilities. The cure for it is to leverage the idea of natural frequencies.

The day remains deeply etched in my memory. I was in the fifth standard and the maths teacher had introduced the concept of percentages that day. It sounded freakishly alien and I just couldn’t fathom it. I literally had tears in my eyes because it seemed that everybody in the class understood it except me.

The teacher had repeated the definition – percentage is when you normalize any ratio to base of hundred – at least a dozen times in the class that day. It didn’t help.

Then my father explained, “Look. When you divide something in two equal parts, each part is called half, right? Instead of calling it half, let’s call it 50 percent. Now, when you divide something in four equal parts each portion is one fourth, correct? Let’s call that 25 percent.”

[Read more…] about Behaviouronomics: Probability Blindness

Most investors are too early to sell their winning stocks and too reluctant to let go of their losing stocks. This tendency is more pronounced when people get fixated on the stock price alone and forget about the quality of the underlying business.

I remember this conversation I once had with Ashish, my ex-colleague, a few years back.

“Man, stock market is too risky.” Ashish shook his head.

“What makes you say that?” I quizzed him.

“I bought DLF stocks in 2008 for 1 lakh, and now they’re down by 90 percent. But my DLF flat appreciated by 20 percent in the same time. Such an irony that it’s the same company where the stock is a loser, but their product is profitable. I sold the flat recently.” He said.

[Read more…] about Behaviouronomics: Disposition Effect

What happens when there is a conflict between what we see and what we hear? Apparently, instead of getting confused, our brain has a strange ability to construct a story which resolves the conflict. Unfortunately, that story is usually far from reality.

Who charges a hundred bucks for a ten-second magic trick?

In my case, it was a petrol pump attendant. He turned five 100-rupee bills into four bills in under ten seconds. Interestingly, I didn’t realize that he was showing me magic and was pocketing that missing 100-rupee note for his unsolicited magic services. In other words, he cheated me.

Demonetization was still a few years away and I didn’t like paying the fuel surcharge on my credit card, so cash was my favourite mode of payment in those days. When the vanishing money incidence happened 3-4 times in a row within a span of few months, and when I read an email forward about how some petrol pump attendants were scamming unsuspecting customers with their sleight of hand, I decided that I would keenly observe my next transaction at the petrol pump.
[Read more…] about Behaviouronomics: McGurk Effect