Sometimes I wonder about my behavior. Why do I make certain decisions? What warranted certain actions? Why do I think the way I do sometimes? So let’s really ask this question: why do we make the decisions we do? By studying our behavior, we are better able to see how our decisions are formed, and more importantly, how our decisions involving money are constructed.
Psychological research has helped us better understand not only how our decisions are formed, but also how they are manipulated. There are a number of biases that affect our judgment and perception, and thus our resulting decisions. One such bias is called Confirmation Bias. This is the notion that we seek out confirmation for our decisions or beliefs. I am sure we have all done this at some point. (Actually, multiple times over and over). However, we might not always recognize it.
One example revealing the confirmation bias could show up when you are looking to buy a new car. In researching your next new ride, you might have read about, had friends tell you, or even noticed for yourself, that a particular car manufacturer is better than any others. Therefore, a bias towards this particular manufacturer begins to form; but there’s a catch. This manufacturer sells cars at a very high price compared to others. You start to research other cars due to your limited budget. However, frustration sets in and it is difficult to trust any articles or individuals, who try to explain that other carmakers are equally suitable to your favorite manufacturer. This is the confirmation bias at work. You have a bias towards a certain make of car and although you are presented with evidence that could help you save money by purchasing a different make, you prefer to stick with the original selection.
The confirmation bias can be seen in other decisions as well. You might find it in making purchases for brand name vs. store brand items, “justifying” certain unnecessary purchases, or simply buying things that you don’t necessarily need.
So how do we combat our confirmation bias? The key is to read articles, think, and discuss the conflicting point of view. Part of the problem is that we tend to side with what we know, and forget to research the unknown. We should acknowledge and think about each and every action we make involving money and consider the arguments against our bias. Is that brand-name product really that much better than the store brand? Do I really need this 10th pair of boots? Humans are creatures of habit by nature and we tend to be insistent in our way of thinking. Nevertheless, we need to stop and think about the other side of the coin to help ourselves make better decisions.
It will take practice to stop and think about each purchase you make. And it will take some training to get yourself to think in terms that allow you to change your tendencies. Confirmation bias is ingrained in our psychological nature, so it is not going to be a walk in the park to stop and change how we behave on autopilot. When we finally start to break down our thinking process, and discover how the confirmation bias affects our actions, we will be able to reverse the affects. Once you can see your pattern of thinking, it is much easier to change it. If you are not aware that a change needs to be made, how are you expected to change? If we can start to make those changes, and think in different terms, we will ultimately be helping ourselves to save money!
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Financial Sisterhood TM, 2016