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BAM Intelligence

Use Life Hacks to Minimize Bad Decisions

A few years ago, a friend of mine who happens to be a really well-known journalist had a conversation with a really well-known academic. Because the conversation was private, I’m not mentioning names. But I did want to share one fascinating part of their discussion.

They were talking about cognitive biases. A cognitive bias is a mistake we make because of a hole in our thinking. It’s a sort of mental blind spot; a lot of the time we don’t even know we’re doing it. My friend, knowing the effect of these mistakes on our lives, wanted to know if knowing about these biases could be enough to change behavior.

“I know what these biases are called,” he said. “I’ve read all your books. I’ve read the academic literature. I can even spot these mistakes in others and myself. So my question for you, Mr. Academic, is pretty simple: Knowing all that I know, can I have any hope that I’ll stop making these mistakes?”

“No,” answered Mr. Academic. “As I’ve said before, my only hope is that by reading my studies and my books, people will know what to call the mistake after they’ve made it.”

I’ve heard this sentiment expressed before by people who study how humans behave with money. It makes the situation seem almost hopeless, because we have these natural human tendencies to do things that will cause us problems with money. But knowing what they are called, and even identifying our tendency toward particular biases or mistakes, does help. It allows us to put in place what I like to think of as guardrails. Think of these guardrails as lifestyle hacks or little changes we can make in our behavior to minimize the effect of the mistakes we tend to make.

Let’s assume you know that you make a particular mistake frequently. Perhaps you’re like me, always misplacing your wallet. Since you’ve noticed this about yourself, you can now take steps to establish a habit to avoid losing your wallet in the future. Of course, you could just shrug your shoulders and say, “Well, that’s a cognitive bias I have. There’s nothing I can do about it,” and hope something will change. But that’s not a solution. In fact, it makes you the very definition of insanity as you do the same thing over and over again and expect a different result.

What if instead you picked a single spot in your home or bag to put your wallet every time you arrive or finish a transaction? By sticking with that simple life hack, the odds of having to hunt for your wallet or replace it drop quite a bit.

Let me give you another example. My mom comes to our house all the time, and when she leaves, she often forgets something. Sometimes it’s her glasses, sometimes it’s her purse. Recently when she came to our house, she brought in a few groceries to stash in our fridge while she stayed for dinner. I watched her take a few steps, and I could tell she was thinking about something.

She knew that if she didn’t do something to remind herself, she would leave the groceries in the fridge. So she went back to the fridge, opened the door, and set her car keys next to her groceries. As she closed the fridge, she said to me, “Now I won’t forget my groceries because I can’t leave without my keys.”

I love this hack for a couple of reasons. First, my mom noticed a tendency she had to forget things. Second, she put a simple guardrail in place to avoid making the mistake. It doesn’t require any new gadgets or checklists to work, and it’s repeatable. No matter where she goes, if my mom keeps her keys with whatever she needs when she leaves, she will be less likely to forget something.

Chances are we will make plenty of money mistakes because of our own particular cognitive biases. But that doesn’t mean we can’t take steps to avoid making the same mistake again once we notice the bias and set up guardrails to contain the damage. If you aren’t sure what cognitive biases you struggle with, let me suggest something. If you’re married, ask your spouse. If you have a partner, ask him or her. Trust me — they know our biases.

Once we know our biases, we can put guardrails in place. Like waiting 72 hours before buying something that we think we have to have right now, learning to do only one thing during scary markets or putting your wallet in the same place every time. Whatever the hack, it’s a better option than just hoping we won’t make the same mistake again. We all know how that will turn out.

This commentary originally appeared September 21 on NYTimes.com

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© 2015, The BAM ALLIANCE

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Carl Richards is the creator of the weekly Sketch Guy column in The New York Times and is a columnist for Morningstar Advisor. Carl has also been featured in The Wall Street Journal, Financial Planning, Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com. His simple but meaningful sketches served as the foundation for his first book, “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.”

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