psychology en-US 3 Survival Instincts That Harm Investors <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-survival-instincts-that-harm-investors" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="broken piggy bank" title="broken piggy bank" class="imagecache imagecache-250w" width="250" height="230" /></a> </div> </div> </div> <p>I remember as a kid how my inclination toward saving hurt me. One day, during a neighborhood gathering, a boy named Chuck was dispensing malted milk candies to his friends, me included.</p> <p>The other kids ate the candy as soon as they got theirs, but I ate a few pieces and stored the rest. So, when Chuck noticed that I hadn't consumed my portion, he said he wouldn't give me as much in the second round of candy distribution. (See also: <a href="">Delayed Gratification and the Secret to Will Power</a>)</p> <p>Back then, my desire to set aside a gift for another day worked against me. Later, as a teen and adult, saving tendencies became advantageous to my financial well-being.</p> <p>Similarly, primitive instincts that ensure our survival in some circumstances can work against us in modern-day scenarios. There are three areas in which our natural tendencies, embedded in our psyches from the days of our <a href="">hunter-gatherer ancestors</a>, may detract from investing success.</p> <h2>1. Consume Right Away</h2> <p>As a kid, I may have been healthier than others by limiting consumption of candy at one sitting. But in leaner times, millenniums before packaged candy and grocery stores were commonplace, eating immediately after trapping or gathering food was essential to survival and strength. Otherwise, items would spoil and the effort to hunt and gather was wasted.</p> <p>Today, the instinct to consume right away rather than set aside for consumption years or decades later can hurt our investing success, former <a href="">Wall Street Journal personal-finance writer Jonathan Clements</a> once told me. Put simply, our focus on short-term survival causes us to spend now. As a result, we often don't have money to take care of long-term needs. (See also: <a href="">Is Instant Gratification Financially Responsible?</a>)</p> <p>We need to overcome the instinct to spend on immediate and pressing concerns, leaving us the cash to save for financial goals, such as our children's education or our retirement. A first and very important step to successful investing is to consume less than you earn and set aside money for the future.</p> <h2>2. Favor What Is Popular</h2> <p>Many experts point to the &quot;<a href="">herd instinct</a>&quot; as a detriment to investing success. In <a href=";camp=1789&amp;creative=390957&amp;creativeASIN=074945637X&amp;linkCode=as2&amp;tag=wisbre03-20" target="_blank">Forecasting Financial Markets: The Psychology of Successful Investing</a>, author Tony Plummer explains how this inclination can hurt investors: &quot;On the one hand, their own 'personal' approach to making an investment decision may suggest one course of action; on the other, the lure of the 'herd instinct' may be pulling entirely in the opposite direction.&quot; He goes on to say that even professionals can be swayed by popular opinion at times when ignoring the crowd would ultimately be more profitable.</p> <p>Today, the instinct to listen to the group and follow the crowd is often useful. For example, you may choose a restaurant based on reviews on <a href="">Yelp</a>, book a room at an inn after referencing feedback on <a href="">TripAdvisor</a>, or choose a plumber by following recommendations from Facebook friends. (See also: <a href="">How to Make Facebook Productive</a>)</p> <p>This instinct to favor what is popular and well-liked among family, friends, and neighbors was crucial in the human race's early days. Clements notes that common group knowledge supported survival. For example, if everyone drank from a certain body of water or ate a strange food and lived happily afterward, then the water or food was deemed safe to consume. Following the crowd simplified decision making, offering an easy and secure way to live.</p> <p>Today, however, we may suffer harm when we apply such thought processes to investing decisions. That is, favoring what is popular or following the crowd may not be the best way to invest our money. Specifically, we often wrongly chase performance, buying shares of stocks, mutual funds, or other assets based on recent past performance and unloading them from our portfolio when everyone else is selling.</p> <p>We need to retrain our instincts not to ignore the crowd altogether but to place a much greater weight to a disciplined investment approach.</p> <h2>3. Never Take Risks</h2> <p>In hunter-gatherer days, little was gained by taking risks. There was no upside to trying something new and generally much to lose on the downside. For example, being the first to sample the water of a newly found stream or taste a new food could result in death.</p> <p>Today, being the first to discover and market a new drug, technology, product, etc. is often associated with greater wealth. For example, being an early investor in a startup that becomes wildly successful could provide rich rewards when the company becomes profitable and its stock price soars. (See also: <a href="">How to Manage Risk in Your Financial Life</a>)</p> <p>Further, avoiding risk can actually be risky. That is, if you keep all your money in a low-yield savings account, then you may not be able to earn enough interest to beat the inflation rate. So by not taking on risk in the stock market or other investments, your purchasing power is diminished, albeit slowly over time.</p> <p>Avoiding loss in the past was a positive attribute and helped people to stay safe and preserve their well-being.</p> <p>Now, though, the instinct to avoid risk may prevent us from investing at all and reaping gains through these investments. Though we shouldn't be reckless with our lives or our money, we do need to take appropriate risks when needed to grow our investment portfolio.</p> <p>You don't need to abandon your survival instincts. But you should learn to recognize when to counteract instinctual decisions to save money for investing, take appropriate risks, and stick to an investment plan.</p> <p><em>Have your survival instincts gotten in the way of your investments?</em></p> <a href="" class="sharethis-link" title="3 Survival Instincts That Harm Investors" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Julie Rains</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Investment investing investments psychology Thu, 19 Sep 2013 10:24:17 +0000 Julie Rains 988368 at Sleep Better With Calming Words <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/sleep-better-with-calming-words" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="woman sleeping" title="woman sleeping" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Via <a href="">Lifehacker</a> and Men's Health comes word of a surprising discovery reported in the Journal of Applied Social Psychology <a href="">that people sleep better</a>, and perhaps fall asleep faster, simply by exposure to &quot;sleep-related&quot; words and phrases. (See also: <a href="">How to Naturally Reset Your Sleep Cycle</a>)</p> <p>Notably (and suggested by the study's title, &quot;The Effect of Subliminal Priming on Sleep Duration&quot;), participants did not actually read the magic sleep words; they picked up the suggestion unconsciously from words in the environment around them. In the experiment, some subjects were exposed to words such as &quot;cozy&quot; or &quot;relax&quot; for five minutes. Others were exposed to &quot;neutral&quot; words. Sleepy word subjects slept 47% longer, and their heart rates were reduced, compared to the neutral word group.</p> <p>Study lead author Mitsuru Shimizu suggested to <a href="">Men's Health</a> the finding could be a cheap substitute for sleeping medication:</p> <blockquote><p>Write down slumber-centric words like &ldquo;calm,&rdquo; &ldquo;rest,&rdquo; and &rdquo;drift away&rdquo; on notecards or sticky notes. Place them in your bathroom, on your bedside table, or anywhere else you&rsquo;ll see them in the hour before you go to bed, Shimizu suggests. Exposing yourself to this kind of language should improve your sleep, he says.</p> </blockquote> <h2>What's Going On?</h2> <p>In psychology &quot;priming&quot; is understood in terms of the creation of pathways to <a href="">a memory, stimulus, or construct</a>. Repeated exposure to the stimulus causes the pathways to deepen, and recognition of the thing or word to &quot;rise&quot; more readily to our conscious minds. This is why after hearing a new word once, we seem to notice it everywhere. It isn't that the word is suddenly everywhere; it's that our brains now have a pathway to its memory and we quickly recognize it. This is also why cramming for a test rarely works very well. We need to give ourselves enough repeated exposure to the material for the pathways to develop and the knowledge to stick. (See also: <a href="">Improve Your Memory and Get Smarter</a>)</p> <p>However, intentionally priming the unconscious with words and other cues to achieve a particular goal such as sleeping sounder, or performing better on tests, or unlocking creative potential &mdash; &quot;goal-priming&quot; &mdash; <a href="">is not without its critics</a>. Controversy erupted earlier this year when several of the most important experiments in the field <a href="">were found to be &quot;irreproducible</a>,&quot; which suggests that the original studies were somehow flawed, or perhaps even fraudulent.</p> <p>Who's right? Who knows? This test is simple enough to try at home and reach your own conclusions. Create your own sleepy time cue cards, rate the sleep that follows, and please report back with your findings!</p> <p><em>How do you fall asleep faster and stay sleeping sounder?</em></p> <a href="" class="sharethis-link" title="Sleep Better With Calming Words" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Lars Peterson</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Life Hacks priming psychology sleep Wed, 18 Sep 2013 22:28:35 +0000 Lars Peterson 988369 at The Paradox of Choice and the Mortgage Crisis <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-paradox-of-choice-and-the-mortgage-crisis" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="couple looking at house" title="couple looking at house" class="imagecache imagecache-250w" width="250" height="181" /></a> </div> </div> </div> <p>If you're interested in having an illuminating (if possibly boring) evening, ask your parents or grandparents to tell you about the details of buying their first house. After getting over your indignation at the fact that homes a mile from Washington D.C. could be had for less than $50,000 in the early '70s, you might be surprised to hear how easy the process of getting a mortgage was back in the day. (See also:&nbsp;<a href="">Quiz: Am I Really&nbsp;Ready to Buy a Home?</a>)</p> <p>That's not to say that saving for the down payment, getting approved, and going through the mind numbing stack of paperwork at closing was any simpler or more fun when our parents were newlyweds &mdash; it's just that they had fewer options for their mortgages.</p> <p>In fact, they basically only had one option &mdash; a 30-year fixed-rate mortgage for which they had to put down 20%. While they could shop around for the best annual percentage rates, that shopping around was fairly easy since they were only comparing APRs for the same kind of mortgage. Choosing the best mortgage was as simple as finding the lowest interest rate.</p> <p>Fast forward to the new millennium. Anyone who bought a house during the housing bubble can remember the dizzying array of choices available for mortgages: traditional 30-year fixed-rate mortgages (as well as other fixed-rate mortgages with different term lengths), adjustable rate mortgages, sub-prime mortgages, interest-only mortgages (a misnomer if there ever was one), piggyback loans, mortgage buydowns &mdash; and those are just the options that I understand. Compared to our parents and grandparents, we were offered (and are still offered) a veritable wonderland of mortgage choices.</p> <p>That ought to be a good thing, right?</p> <p>You would think so. As Americans, we have a basic understanding that more choices mean more freedom &mdash; and boy do we love our freedom. But there's a reason why we had a mortgage crisis <em>after</em> all of these mortgage choices became available. It's part of what author Barry Schwartz describes as the Paradox of Choice in <a href="">his book</a> by the same name. Basically, having all this extra choice available does not make us any more likely to take the most rational and intelligent course of action &mdash; and according to Schwartz, extra choice actually has the opposite effect, making our choices less rational and less likely to make us happy.</p> <p>While there's no denying that many different issues worked together to create the mortgage crisis, I would suggest that the paradox of choice at least played a part in why our housing market collapsed in 2007-2008. Here's why.</p> <h2>The Optimism Bias</h2> <p>Human beings are spectacularly bad at predicting the future. This doesn't just mean that we're lousy at picking stocks or the winning team for the Super Bowl &mdash; we're also horrible at figuring out what the heck we ourselves will want in the future.</p> <p>If you've ever felt the Netflix dread that occurs after you receive the disc for the 17-hour award-winning documentary on beet farms in Romania when all you want to do is watch &quot;Weekend at Bernie's,&quot; you know exactly what I mean. You may think when you choose it that you'll want to watch &quot;Love and Death in the Beet Farms<em>&quot; </em>by the time it comes up in your queue, but you're making some assumptions about your future self that simply aren't true. Namely, that you will someday be the type of person who watches thought-provoking beet-related cinema, when in fact you're always a slapstick comedy kind of guy.</p> <p>An important aspect of our inability to predict what will make us happy in the future is a phenomenon called <a href="">the optimism bias</a>. We all experience this bias, even if it's just the false optimism about your ability to raise the tone of your movie preferences.</p> <p>In most cases, however, the optimism bias works to make us blind to possible negative consequences. No matter how pessimistic an outlook you may have, you are more likely to think that bad things will not happen to you and that good things are in store for you, than is statistically likely. The optimism bias is the reason why smokers feel comfortable with their risk of cancer and lung disease (&quot;It won't happen to me!&quot;) and why traders feel as though they can take big financial risks (&quot;Losses can't touch me!&quot;).</p> <p>In terms of the mortgage crisis, the optimism bias led many borrowers to take on more debt than they were able to handle. For instance, many of these innovative mortgage options allowed borrowers to increase the maximum amount they could borrow. While these new mortgages were designed to give borrowers more flexibility, that's not what happened. According to <a href="">Dan Ariely</a>, a behavioral economist at Duke University and author of <em><a href="">Predictably Irrational</a></em>,</p> <blockquote><p>When deciding on a mortgage, borrowers were told by the banks and by any mortgage calculator the maximum amount that they could borrow and not <strong><em>the optimal amount</em></strong> that they should borrow. So given a borrowing max of $400,000 with a regular mortgage or a borrowing max of $650,000 with an interest-only mortgage, would the average consumer borrow $400,000 with the interest-only mortgage and this way gain flexibility, or would they borrow to the new max? (Emphasis mine.)</p> </blockquote> <p>It's fairly clear that the flexibility intended to make paying the mortgage simpler was often used to buy a bigger house instead. When this happened, the borrower may have believed he was making a rational decision. This was an option made available to him by the bank, and he was certain he could make his payments in the future &mdash; because a foreclosure would never happen to him. And of course, the fact that the bank was willing to lend him that maximum amount meant he could afford it, right? Why would the bank lend him more money than he could pay back?</p> <p>Many people made this type of irrational choice because it was one of the many options available to them. They would certainly have been happier in the long run with a smaller house that they could comfortably pay for, but given extra choices, the optimism bias is likely to kick in and make it difficult to determine what will really make them happy in the future &mdash; particularly when a 4,000 square foot house with gleaming marble countertops and a lagoon-like backyard pool is staring them in the face right now.</p> <h2>Analysis Paralysis</h2> <p>Another major reason why borrowers ended up taking on more house/mortgage than they could afford has to do with a common choice problem known as <a href="">analysis paralysis</a>. Every new employee faced with an overwhelming number of options for enrolling in their company's <a href="">401(k)</a> has experienced this paralysis. Making a choice seems too difficult, and so it gets put off.</p> <p>Barry Schwartz talks about a study of this phenomenon in a <a href="">TED talk from 2005</a>. A researcher found that for every 10 mutual funds offered by a company's retirement program, employee participation went down 2%. This means that having 50 mutual fund options to choose from means a 10% decrease in participation compared to having only five options. It's much easier to choose the best of five options rather than comb through 50 in order to determine which option is best. So much easier that you're likely to just skip the task altogether if it seems too hard.</p> <p>I suspect that a similar phenomenon was going on during the housing bubble. The enormous number of mortgage options available was overwhelming to the average borrower. How would she know if it was better to take a tradition mortgage or an ARM or a piggyback mortgage, etc.? But rather than a paralysis that led to no decision whatsoever, this type of analysis paralysis likely made borrowers more susceptible to sales pitches from their banks. With a dizzying number of options, having your friendly neighborhood mortgage lender tell you that Mortgage X was a wonderful option is an easy way to make your choice. No need to investigate the various options &mdash; this one is the best, according to the lender.</p> <p>I saw this type of paralysis first hand when my husband bought his <a href="">first house</a> (which became ours after we married). He purchased the home in 2005, at the top of the housing bubble, and at the time he had no down payment saved. (You could get away with those kinds of shenanigans back then).</p> <p>He was offered a huge menu of different potential mortgages, including several adjustable rate mortgages that had incredibly low introductory rates. Staring cross-eyed at the options available to him, he found himself silently screaming, &quot;I just want this house!&quot; Many borrowers, when feeling this sense of helplessness and paralysis, might simply choose whatever option will get them the house for the cheapest amount in the short run.</p> <p>Luckily, my husband spent a little time researching and took the most conservative option available to a borrower who was putting no money down &mdash; a piggyback loan wherein he took out a home equity line of credit to pay for the down payment and a traditional 30-year fixed-rate mortgage for the remaining 80%. But his analysis paralysis could have led to him taking one of the tempting ARM options available, which would have been devastating for us down the road. (As it was, he had two payments to make each month, which was less than ideal.)</p> <h2>Making Rational Decisions</h2> <p>Anyone who has gone mortgage shopping in the last four or five years knows that the wonderland of mortgage options is more limited than it once was. But we still have mortgage choices available to us that would have been completely alien to our parents and grandparents back in the day. Considering the potentially disastrous consequences of making a poor choice, how can we cut through the noise of those extra options?</p> <p>Richard Thaler, an economist at the University of Chicago Booth School of Business, outlines an intriguing regulation idea in a <a href=";">New York Times article</a>:</p> <blockquote><p>Lenders could be required to offer some mortgages they call 'plain vanilla,' with uniform terms. There might be one vanilla 30-year, fixed-rate mortgage and one five-year, adjustable-rate mortgage. The features of these plain mortgages would be uniform, much as in a standard lease used in most rental agreements&hellip;Lenders would also be free to offer other exotic mortgages &mdash; perhaps called &quot;rocky road&quot; mortgages? &mdash; along with the vanilla variety, but these offerings would receive more intense scrutiny from regulators.</p> </blockquote> <p>Such a regulation would allow first-time borrowers to stick with (and be steered towards) the traditional loans that will work out best for them, while still allowing lenders and experienced borrowers to experiment with other mortgage products.</p> <p>Unless and until this type of regulation is put in place &mdash; and as of right now, <a href="">the new mortgage rules that will come into effect in 2014</a> do not include this particular regulation idea &mdash; the path for the rest of us is pretty clear.</p> <p>Stick with the traditional fixed-rate mortgages of our parents' day. Ignoring the other options available to you is probably the best choice of all.</p> <a href="" class="sharethis-link" title="The Paradox of Choice and the Mortgage Crisis" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Emily Guy Birken</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Real Estate and Housing choice mortgages psychology Tue, 26 Feb 2013 11:25:04 +0000 Emily Guy Birken 968066 at 5 Sneaky Ways Supermarkets Get You to Spend More <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-sneaky-ways-supermarkets-get-you-to-spend-more" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="supermarket" title="supermarket" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Do you ever wander through the grocery store and end up spending more than you were budgeting for? Don't beat yourself up over it &mdash; supermarkets actually have several different strategies to trick customers into blowing bucks. Be on the alert and watch out for the sneaky psychology tactics these stores will try to use on you.</p> <p><a href="">RELATED:&nbsp;12 Tricks to Make Groceries Last Longer and Save Cash</a></p> <h3>10 For $10</h3> <p>10 for $10 sounds like a great deal. However, you'll get the same savings even if you only buy one item, according to the New York Times. A <a href="" target="_blank">grocery store survey</a> recently found that people bought way more items when they see 10 for $10 deals vs. five for $5 and one for $1 sales. Even if you aren't buying 10 items, your mind will trick you into thinking that the item is such a great deal that you end up buying more of it.</p> <h3>Growing Carts</h3> <p>No, you're not shrinking; it's the grocery carts that are growing. The larger the cart, the more likely you'll end up spending more, so try to stick to a hand basket instead.</p> <h3>Pre-Cut Vegetables and Fruits</h3> <p>Pre-cut veggies look so attractive, with their colorful packaging and its promise of less work (no need to wash or chop!). However, they aren't exactly a good deal. Consumer Reports found that pre-cut veggies and fruits can be a lot more expensive than the whole items. The team noted that a $1.50 six-ounce bag of shredded carrots <a href="" target="_blank">costs about five times more </a>than a similar amount of whole carrots.</p> <p>Not to mention, these pre-cut veggies and fruits go bad faster than their whole counterparts.</p> <h3>Items at the Checkout Counter</h3> <p>Ever wonder why all those magazines and yummy candy are crammed in the front of checkout counters? It's one of the supermarket's tricks to get you to succumb to last-minute purchases while you're waiting in line.</p> <h3>Where Is Everything?</h3> <p>You think you have the layout of your local supermarket down pat when you find out they changed shelves again! Darn it. The stores are actually doing it on purpose, because if you don't know where the items are, you'll end up spending more time in the store. More time to browse means more chances to tempt you into buying more items.</p> <div class="field field-type-text field-field-blog-teaser"> <div class="field-items"> <div class="field-item odd"> Want to know how grocery stores are parting you from your hard-earned cash? Learn about these supermarket psychology tricks. </div> </div> </div> <div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p style="text-align:center;"><a href="" style="border:none;"><img src="" alt="" /></a></p> <p><em>This is a guest contribution from our friends at </em><a href=""><em>SavvySugar</em></a><em>. Check out more useful articles from this partner:</em></p> <ul> <li><a href="">7 Smart Extreme Couponing Tips</a></li> <li><a href="">12 Items You&nbsp;Should Not Buy in&nbsp;Bulk</a></li> <li><a href="">6 Ways to&nbsp;Stay Organized When&nbsp;Grocery&nbsp;Shopping</a></li> </ul> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">POPSUGAR Smart Living</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Food and Drink Shopping psychology Shopping Tricks supermarkets Mon, 09 Jul 2012 10:24:13 +0000 POPSUGAR Smart Living 939956 at 5 Psychological Hacks to Boost Your Bottom Line <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="" target="_blank"></a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/5-psychological-hacks-to-boost-your-bottom-line" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="" title="" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <a href="" class="sharethis-link" title="5 Psychological Hacks to Boost Your Bottom Line" rel="nofollow">ShareThis</a><p>In his book, <i><a href="" target="_blank">The Happiness Advantage</a>,</i> Sean Achor outlines positive psychological principles and tactics that increase performance at work. More specifically, positive psychology can be used to improve the effectiveness and output of employees. If you're looking to boost employee productivity &ndash; and your business&rsquo; profitability, see if these five psychological hacks don&rsquo;t do the trick.</p> <p><strong>1. Discover the link between happiness and performance.</strong></p> <p>Did you know that students who were told to think about the happiest day of their lives scored higher on a standardized math test than their peers? Or that more effective business negotiators test higher for positive emotions than their peers?</p> <p>There is actually a mountain of research supporting the idea that higher performance is associated with positive emotions. What does that mean for you?</p> <p>If you want your employees to perform better, give them something to smile about. Remind them of a positive event. Pay them a compliment. Or simply do like the professor did and ask them to remember something that makes them smile.</p> <p><strong>2. Applaud early failure.</strong></p> <p>Ever notice how history repeats itself?</p> <p>It's easy to shake our heads when people repeat the mistakes others have made, or make the mistakes their managers have warned them about, but there's a simple reason for that. Of course, we often learn from mistakes others have made, but we also learn from our own past experiences. Often, failure has to be experienced rather than read about or explained. We can only learn how to deal with failure&mdash;and all of the emotions and struggles that come with it&mdash;by experiencing it.</p> <p>In fact, employees who learn to deal with failure early on are better equipped to solve problems and are more effective down the line.</p> <p>In other words, it's a good idea to let employees fail and figure out solutions on their own ... especially in the beginning. Sometimes experiencing the process is the only way we really learn the solution.</p> <p><strong>3. Revise patterns.</strong></p> <p>There is a well-known psychological principle called <a href="" target="_blank">Expectancy Theory</a> which says that our brains make choices because of the outcomes we associate with specific actions. In other words, we choose the action that we think will result in the best outcome.</p> <p>This is easy enough to understand, but what we often forget is that it has also been proven that our brains fall into patterns.</p> <p>As creatures of habit, it's easy for our minds to play tricks on us. If we think an outcome is good and we choose it over and over again, we will continue to choose it, even if it's not the best choice anymore. The business world is ever-changing. Habits that were beneficial during startup may not be right for a mature business.</p> <p>Take some time to think about the habits and processes in your business. What choices are you still making that you haven't thought about in awhile?</p> <p><strong>4. Remind employees that positive outcomes are possible.</strong></p> <p>Positive psychology research shows that job performance is improved simply by believing that <a href="" target="_blank">positive change is possible</a>. In other words, if you're looking to turn your company around, then share stories of successful business turnarounds. If you're hoping to take your superstar performer to the next level, then share stories of how top athletes get even better.</p> <p>Determine the goal that you are trying to achieve in your business and then show your employees that achieving that goal is possible.</p> <p>The psychological result is that people begin to believe that they can make change. If we believe that it is possible for us to do something, then it is much more likely that we will do it.</p> <p><strong>5. Keep positive experience journals.</strong></p> <p>One positive psychology study found that people who <a href="">took 20 minutes to write down</a> positive experiences from that day and did this three times per week not only displayed higher levels of happiness, but also displayed fewer symptoms of illness. In other words, more thoughtful, more positive employees were also healthier employees.</p> <p>It doesn't matter the situation, the circumstance, or the timing, everyone has something to be positive or thankful about.</p> <p>Don't forget to remind your employees to focus on the positive in their lives. Your bottom line with thank you later.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">James Clear</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Small Business Resource Center employee management employee motivation management positive thinking psychology small business Wed, 19 Oct 2011 19:50:18 +0000 James Clear 747396 at 4 Reasons Why a "Good Enough" Decision May Be Best <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="" target="_blank"></a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/4-reasons-why-a-good-enough-decision-may-be-best" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="" title="" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <a href="" class="sharethis-link" title="4 Reasons Why a &quot;Good Enough&quot; Decision May Be Best" rel="nofollow">ShareThis</a><p>Successful businesses are based on results, not promises; action, not plans; decisions, not procrastination.</p> <p>Yet, in spite of the abundance of information &mdash; or more to the point, because or it &mdash; business decisions are increasingly hard to make. We sift through tons of irrelevant&nbsp;information on Google, Bing, and Yahoo in hopes of making an optimal choice.</p> <p>The solution, as odd as it may sound, may be to stop trying to find the <em>best</em> solution and be happy with <em>good enough</em>. Here's why:</p> <p><strong>1. It's Hard to Know What You Want</strong></p> <p>&quot;Look, we need to make a decision here and take some action. We need results, and we need them now.&quot; Sound familiar? Anyone who's ever run a business has said those words, or similar, many times. But making a decision requires that you know what alternatives are available, and more importantly, which one is the best.</p> <p>Generally we make decisions based on prior experience. The problem is we're not very good at remembering experiences. Princeton Psychologist <a href="">Daniel Kahneman</a> has done some fascinating research that shows we only remember the best of what we experience, and how the experience felt at the end. He calls this the &quot;peak-end&quot; rule, which suggests people remember the average of an experience, not the sum.</p> <p>For example, one group of people in an experiment were subjected to loud noise, while a second group was exposed to the same noise plus more, but less painful, noises at the end of the session. The second group, surprisingly, said the the experience was less unpleasant than the first group, even though they actually had to listen to more noise.</p> <p>How does this play out in a business? Years ago you made a decision. The results were a disaster, but all the angst and chaos tapered off as you got things back under control. <em>You remember the decision as a reasonably good one</em> because on average things weren't so bad, especially at the end.</p> <p><strong>2. We Can&rsquo;t Trust Ourselves</strong></p> <p>In some deep way, many of us know we really shouldn't trust our experiences. So we talk about, and read about, other people&rsquo;s experiences and opinions in hopes of making better decisions. You're doing that right now.</p> <p>The problem is we're wired to depend on what's most available, or what we're familiar with. You see lots of ads that offer discounts, so you assume discounting must be a good idea. <a href="">In fact, it often isn't.</a></p> <p>College students selecting classes are influenced more by a single review from someone they know than an extensive evaluation survey collected from several hundred students. Advertisers learned long ago that branding works because people will chose what's familiar, a brand name they recognize. Mass media features dramatic causes of death such as tornados, accidents, floods, fires, and homicides. So we overestimate how often those occur while, at the same time, we underestimate diabetes, asthma, stroke and tuberculosis &mdash;&nbsp;more common causes of death.</p> <p>Worse, because we often have to rely on secondhand sources, we find ourselves relying on the <em>same</em> secondhand sources, such as CNN or Fox News or Huffington Post. What that means is that we're less likely to get unbiased advice from someone else's experience. We also tend to associate with people of like mind, so we limit the advice we receive to people who think like we do. Soon we&rsquo;re believing in something that has no basis in fact &mdash; something that may even be based on fraud, <a href="">such as the anti-vaccination baloney</a> that&rsquo;s actually killing kids.</p> <p><strong>3. We Don't Know How to Make Good Decisions</strong></p> <p>If discounts are a bad idea, why do department stores seem to have everything on sale all the time? Because we're bad at decision making. They give us the manufacturer&rsquo;s suggested retail price as an anchor, and then lead us to believe we're getting a great deal by offering what seems to be a bargain. One mail-order catalog offered a $279 bread maker with mediocre results. When they offered a super-deluxe version for $429, sales of the cheaper model almost doubled.</p> <p>Even the way information is framed affects our decision-making. Two stores sell a particular brand of paint. One store has a big sign that says, &quot;Discount for Cash!&quot; and offers the paint at $11.50 a gallon, or $10.50 if you pay cash. A nearby store offers the same paint for $10.50 a gallon, but imposes a $1 surcharge per gallon if you charge it. Research shows that&nbsp;we'll go for the discount every time, even though the cost is exactly the same. We'll also pick a small-but-sure gain (do you want $100 now?) over a large but uncertain&nbsp;one (or $200 based on the flip of a coin?). And we prefer yogurt that&rsquo;s 95% fat-free over yogurt with 5% fat content.</p> <p>We're also psychologically challenged when it comes to making decisions about gains and losses. Losses are &quot;more bad&quot; than gains are good. That's why money-back guarantees work &mdash; people think something they possess is worth more then its cash value, so if they return it they feel as if they've lost something.&nbsp;</p> <p><strong>4. We Strive for the Optimum Choice at Our Peril</strong></p> <p>Seeking the best is impossible when you have many alternatives. The only way to know if you&rsquo;re picking the best alternative is to know what they all are. In today&rsquo;s world that can drive you nuts. An &quot;if only I had...&quot;&nbsp;mentality can lead to regret, and that steals from the satisfaction of even a good, if not optimum, decision.</p> <p>In fact, when economists theorize about how we make decisions they assume we try to maximize our preferences, our satisfaction. What they&rsquo;ve learned is that satisfaction and preferences are subjective, not objective. And that&rsquo;s where the idea that <em>good enough</em> &mdash; not necessarily the <em>best</em> &mdash; decisions, actions, and results may make the most sense.</p> <p>Daily decisions overwhelm us to the point that we want to avoid making them. But if we understand that any decision is usually better than no decision, that there never will be a perfect choice, and that we are going to make mistakes, we&rsquo;re on the path to satisfaction and sanity.</p> <p>We can limit our choices, decide which ones are important and invest our time in those. The entrepreneurial predisposition for a &quot;ready, fire, aim&quot; approach is based on that premise. Does the color of your logo really matter when you don&rsquo;t have any customers?</p> <p>Choose an alternative; don&rsquo;t just pick one. Once you&rsquo;ve narrowed the list of choices, you&rsquo;ll have the time and attention to be thoughtful, even creative, about what to do.</p> <p>Every advertiser tries to convince you to accept only the best, but if you can embrace the idea that <em>good enough</em> can be satisfactory, you can stop trying to make the perfect choice and get on about your business.</p> <p>Think carefully about what you want, where you&rsquo;re going, and what&rsquo;s important. Once you do, make a decision and take action and you&rsquo;ll find the result much more satisfying.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Tom Harnish</a> and published on <a href="">Wise Bread</a>. Read more <a href="">Small Business Resource Center articles from Wise Bread</a>.</div></div> Entrepreneurship Personal Development Small Business Resource Center choices decisions psychology small business Sun, 20 Feb 2011 17:57:36 +0000 Tom Harnish 489583 at Review: Bluebird -- Women and the New Psychology of Happiness <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/review-bluebird-women-and-the-new-psychology-of-happiness" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="" title="" class="imagecache imagecache-250w" width="166" height="250" /></a> </div> </div> </div> <p>Back when I was a Women&rsquo;s Studies major, no story of the history of women in America so intrigued me as the stories of women in the asylums of the 19th and early 20th. Maybe it was that they all seemed to land there at the hands of their fathers, husbands, and brothers. All it seemed to take is one man in their families to notice them being restless, bored, or sighing too deeply and their whole existence could start to unravel. A perfect life for a woman was a marriage to a man of property, having a couple of kids, and building a home. Any deviation from the pattern was deviant. But women forced into the pattern often were unhappy (who wouldn&rsquo;t be without any control over her own destiny?). And so thousands of women were institutionalized for their despondent sadness. Women of course have also been trained to be the one that doesn't fulfill her goals (goals? what goals?). As mothers and grandmothers we are happy for our children, happy for our husbands, happy for those around us but not, it seems, happy for ourselves. That, was too selfish of us.</p> <p>Today you&rsquo;d think we&rsquo;d moved away from these ideas but Ariel Gore shows us that today&rsquo;s psychology hasn&rsquo;t really landed us that far from the beginning. There is a whole industry of talk show experts, a thriving how to be happy book industry attempting to solve your problems, and of course the pharmaceutical industry to make you expensively dependent on their products all for the sake and the quest of that elusive thing called happiness. It&rsquo;s all a racket of a business and we all seem to have fallen into the unwise trap of it.</p> <p>What&rsquo;s fascinating about <a href=";s=books&amp;qid=1264121625&amp;sr=8-1"><em>Bluebird: Women and the New Psychology of Happiness</em></a> is how true it rings to a woman who has been told she&rsquo;s depressed, or &quot;sees the negative.&quot; As Gore chronicles the rise of the happiness industry, there&rsquo;s no way to read this book without nodding your head in agreement of all the money and time and energy we&rsquo;ve collectively spent trying to be happy the way society deems we should be. Whom among us hasn&rsquo;t done that workshop or that seminar or bought that shelf of books that you haven&rsquo;t finished reading? Who hasn&rsquo;t taken the advice to take the anti-depressants? Turns out not many of us. Women are overwhelmingly diagnosed with depression much more so than men and she explores the reasons behind it all. The contemporary world is telling its women they need to find happiness in a man, some kids, and a home of their own &mdash; has anything changed since the 19th century? What about all of us women who don&rsquo;t fit in that category anymore if we ever did? Are single mothers, feminist scholars, childfree women all destined to be unhappy? American psychology says yes, but Ariel tells us to think again.</p> <p>Ariel&rsquo;s way of writing is always a joy to read. Brutally honest, she is and willing to let you see everything that she is and isn&rsquo;t. You feel instantly like you are talking with a friend. Make that a smart friend who reads lots of psychology articles so you don&rsquo;t have to. Though sometimes I wished some of the areas touched on would have been expanded further and in more detail, she whets the appetite for you to go and research the history yourself.</p> <p>What actually makes this book sing though is Ariel charming and witty writing style. She tells stories of her family and stories of her friends. Women she knows well and barely knows at all, come forward to say what works for them, what makes them happy. No two stories are alike but all have a familiar ring. Happiness is found in kissing the head of a baby and smelling in his scent, a hike in a favorite place, or an evening spent alone in a bath. Guess what happiness industry? Surprise, surprise, happiness actually doesn&rsquo;t cost you anything &mdash; perhaps though, it might be worth the cost of this book.</p> <a href="" class="sharethis-link" title="Review: Bluebird -- Women and the New Psychology of Happiness" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Maggie Wells</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Health and Beauty Lifestyle ariel gore bluebird happiness psychology Sat, 23 Jan 2010 18:00:05 +0000 Maggie Wells 4707 at Frugal Tip: Do Not Spend When You Are Sad <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/frugal-tip-do-not-spend-when-you-are-sad" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="" title="" class="imagecache imagecache-250w" width="250" height="293" /></a> </div> </div> </div> <p>Today I read an <a href="">eye opening article</a> about the effect known as &quot;misery is not miserly&quot;. Basically, a study was conducted on two groups of people. One group was shown a sad video about the death of a boy&#39;s mentor while the other was shown a random and emotionally neutral video about the Great Barrier Reef. Then each person was given $10 and asked to put an offer on a bottle of water. The group that was shown the sad video offered $2.11 on average, while the other group offered only $0.56 on average. Even though the first group offered nearly four times than that of the second group, they say that the video had no bearings on their decision. Thus the researchers say it is a phenomenon that happens without awareness, and that is frightening.</p> <p>I can see how this effect can trap people into a vicious cycle of spending. When people are in debt they can be dragged down emotionally by all the bills they have to pay, and if they spend more to compensate for their emotions then they will pile on more debt. More debt means more frustration and sadness, and the expensive toys get charged once again. For these people, they really need to get rid of their emotions and focus on reducing their debt. Once they eliminate the root of their depression, they may naturally stop their overspending. </p> <p>Personally, when I am sad I tend to spend more on food, and eat a lot more than I should. I also know a friend who would buy clothes that&#39;s much more expensive than what she usually wears when she is feeling down. After these frivolous purchases there is always a bit of pleasure, and then guilt soon follows. Now that I am aware that sadness induces extravagance, I can only hope that I will stop myself from spending money when I need a little pick me up. If I absolutely need to spend money I may need to let someone else buy the item for me. </p> <p>This brings up another random thought, are funeral homes aware of this effect and do they take advantage of it? </p> <p> How about you? Do you tend to spend more when you are sad and are you aware of it? </p> <p>&nbsp;</p> <a href="" class="sharethis-link" title="Frugal Tip: Do Not Spend When You Are Sad" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Xin Lu</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Personal Finance Frugal Living Health and Beauty Shopping frugality mental health moods psychology sadness saving shopping spending Fri, 08 Feb 2008 08:10:06 +0000 Xin Lu 1763 at When it's hard to be frugal (and how to talk yourself into it anyway) <p><img src="/files/fruganomics/wisebread_imce/258035435_da5be9a428_m.jpg" alt="Frustrated Girl" title="Battling Temptation" width="160" height="240" /></p> <p>&nbsp;</p> <p>Honestly, it&#39;s been hard to be frugal lately. My fiance and I are moving our stuff into the place that will be ours after the wedding, and I want it to be nice. I know, it&#39;s just a 2-bedroom apartment in a small, non-descript apartment complex, but I want it to be home. Part of what would make it home for me would be creating a place where I&#39;m comfortable, and that can take a goodly chunk of change. Also, it&#39;s Christmas, and when I&#39;m splurging for others, it&#39;s hard for me to stop splurging for myself. After all, I know what I want better than anyone else does, and when it&#39;s dangled in front of my face...well, that&#39;s just temptation waiting to happen.;s tempation happening, because I refuse to close my eyes, stick my fingers in my ears, and block it all out with a loud, &quot;La, La, La! I&#39;m not listening!&quot; in the middle of the store. A girl has to draw the line somewhere. </p> <p>I won&#39;t say that I&#39;ve been completely successful in resisting the temptations, but I&#39;ve done well enough that I&#39;m proud of myself. I&#39;ve gathered my top three tactics for talking myself into frugality, and out of spending money I don&#39;t want to spend, in the hopes that they&#39;ll help you, too.</p> <p><strong>Wait</strong></p> <p>This is said time and time again, but it&#39;s definitely true for me. Purchases I make on the fly tend to be the product of my often-capricious emotions. I value emotions, quite deeply in fact. But I don&#39;t think that how I feel about an item should be the driving force behind my purchasing it. I know that because the items I&#39;ve purchased on an emotional whim are the ones that I&#39;ve later wondered about. This doesn&#39;t happen with purchases that are well thought-through.</p> <p><strong>Don&#39;t Wait</strong></p> <p>I know this is a contradiction of the above, but hear me out. If you have thought about a purchase (particularly a large one) and you know what you want, jump on a deal when you see it. Dave and I needed a fridge for our new place. We knew what we wanted (freezer on the bottom) and what brands were good. He saw an ad for a local store that had a great deal, but we had to purchase it that day. We did, and it&#39;s one of the purchases I&#39;m proudest of. How does this lead to resisting the temptation to spend more than you want to spend? Having chosen to wait and ended up with a better deal once, I will be more likely to do it again later, because I know that it can really happen. Sometimes, it&#39;s all about motivation.</p> <p><strong>Visualize Your Priorities</strong></p> <p>I&#39;m big on priorities, but sometimes just remembering that I have them isn&#39;t enough. Instead, I have to visualize myself living them. Thinking, &quot;Dave and I will be able to travel just a little bit sooner if I don&#39;t buy 7 new Christmas CDs,&quot; doesn&#39;t always work. But closing my eyes and seeing us hiking through the mountains in New Zealand (the ones where <em>The Lord of the Rings</em> was filmed usually does. When I&#39;m really working toward something, I will cut out pictures of it and put them in places where they&#39;ll help me remember what I&#39;m really after. If I have one in my purse, I&#39;ll look at it when I&#39;m contemplating a purchase. When it successfully puts me there, in my dream, I won&#39;t buy what I&#39;m tempted to buy. </p> <p>&nbsp;</p> <a href="" class="sharethis-link" title="When it&#039;s hard to be frugal (and how to talk yourself into it anyway)" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Sarah Winfrey</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Lifestyle frugal psychology Sat, 30 Dec 2006 04:10:35 +0000 Sarah Winfrey 85 at