Financial biases to overcome in 2017

Humans are flawed creatures and therefore we know that no decision will ever be perfect. People can never have all the facts nor can they predict the future. Things will happen beyond anyone’s control, deeply impacting their lives. Whether it’s the shock of a TV show host becoming the president of America or Britain “leaving” the European Union and shaking up global markets, events occur that change everything. While people will not be able to predict the future, there are steps anyone can take to help minimise their ignorance and that can help people avoid making bad decisions in future.

Because 2016 has been a terrible year for many, it’s worth considering ways to make 2017 better. One way is to start reconsidering how we think and how we come to believe certain things. This leads us to considering heuristics and biases. Such deep thinking is one New Year’s resolution anyone can make, even though it might be hard to follow up on.

What is a fallacy and heuristic?

As the Internet Encylopedia of Philosophy defines it:

“A fallacy is a kind of error in reasoning… Fallacies should not be persuasive, but they often are. Fallacies may be created unintentionally, or they may be created intentionally in order to deceive other people. The vast majority of the commonly identified fallacies involve arguments, although some involve explanations, or definitions, or other products of reasoning.”

Everyone reasons. By “reasoning”, behavioural experts mean people’s ability to reach conclusions through logical steps. For example, hearing noise on the roof and seeing puddles outside, people can “reason” that it is raining. But no one is perfect in their reasoning, so it’s justifiable to assume everyone can make fallacious claims.

These fallacious claims can impact big and small beliefs, affecting entire world views or merely minor deceptions. Shortcuts, in terms of thinking, are not themselves bad: these are known as heuristics. They simply allow people to reach conclusions faster, due to mental shortcuts. Of course, there can be a heuristic bias, in that the way a heuristic that is used leads to a faulty or inaccurate conclusion due to bias.

To best understand what a fallacy is, it is more useful to name them. All have a central theme of miscalculation running through them.

Ad hominem

During election seasons, people get very passionate about their beliefs. This often leads to arguments and debates, but passion tends to provide fertile ground for fallacies. People are engaging with their hearts more than their minds. In the American election, for example, candidates would often dismiss each other because of party affiliation. One candidate might dismiss another’s claim because the other candidate belongs to a particular political party. Yet merely being part of a group does not, in itself, invalidate a claim. For example, if Candidate A claims the Earth is spherical, Candidate B can’t say Candidate A is wrong because Candidate A is a Democrat. The Earth remains spherical, regardless of who makes the claim.

While a heuristic – mental shortcut – might be that someone’s affiliated group informs large parts of their beliefs, that is not sufficient basis on which to judge the soundness of their claims. It’s important to look out for this, as it’s a very common way to ignore other people’s perspectives.

Appeal to authority

A common heuristic is to highlight the conclusions of experts. After all, if people who have studied their whole life on particular subjects reach a conclusion, their views will be informed. Yet that is not always the case – and, importantly, them merely saying so does not give their claims veracity. For example, as Fortune magazine highlighted:

“On the March 6 edition of Face the Nation, Hillary Clinton spoke about the retroactive classification of more than 2,000 emails she sent on her personal server while Secretary of State. ‘Colin Powell summed it up well,’ she told host John Dickerson. ‘He was told that some of his emails from more than 10 years ago were going to be retroactively classified, and he called it ‘an absurdity.’”

“If reclassifying old emails is wrong, it’s because it’s unconstitutional, or because it’s a violation of FBI policies, or something else intrinsic to the activity itself, not because a respected person has so declared it.”

While it’s reasonable to accept Powell’s authority, it is not sufficient enough to simply believe his claims. There are actual documents, laws and policies anyone can point to which can justify Powell’s views. In other words, anyone should reach Powell’s conclusions if they could see his reasoning. It would not be merely his authority which makes it so.

In 2017, it’s important to be on the lookout for how people treat and appeal to authorities when making their claims.

Either-or fallacy

A common issue during elections is that the criticism of one party makes people believe critics are supporters of the opposition party. The fallacious belief is, if somebody criticised Hillary Clinton it meant they supported Donald Trump. But this is not true. First, there were other candidates during the election. Second, it is possible to criticise all the party candidates, without supporting any one of them (either in terms of choosing not to vote or not doing so because one is ineligible). What’s on display here is the “either-or” fallacy (also known as the black and white fallacy and false dilemma).

This is where only two options are allowed. One either supports a person, movement and so on or is against it. This ignores multiple middle roads or abstention, thus giving false choices (hence the term “false dilemma).

In people’s individual thinking, it’s time to put aside the notion that only two paths exist, when the complexity of people shows how wrong this is.

These are just three of the top fallacies that often crop up in everyday thinking, but which have longterm consequences for popular beliefs. It’s easier to make them than it is to avoid them, but that shouldn’t stop us making some effort toward reducing their negative impact on us.