Applying behavioral economics to real-world challenges: Kelly Peters at TEDxUtrecht

are you afraid of sharks did you calculate the probability of getting attacked by one I didn't think about that when I jumped from the back of a boat in the middle of the Atlantic Ocean into dark waters hours from land I was on a deep-sea fishing trip with all the guys in my family and a hat blew overboard and we stopped the boat and we watched this hat drift further away in the waves everyone's standing there watching it and I decided at 12 years old that I was going to jump in and swim for that hat and I did and I didn't think about sharks and I didn't think about any other risk I just swam for that hat like it was a trophy because I wanted to show that girls could be brave would you jump would you have jumped for a hat what would you jump for would you jump for happiness would you jump for love maybe a chance at great wealth or to make a difference in the world everyday life presents us with opportunities and yet as a society we've gone overboard this napkin has a warning on it there's a drawing of an island and label says not to be used for navigation how can we do better how can we be aware of these cognitive forces that impact our decision-making everyday how can we have a better understanding of risk and our reaction to it so that we don't miss out an opportunity and that we don't go overboard with threat well let's take a look at a few things that are impacting and influencing our thinking so let's look first at our personality some very interesting research was done with fish it's a really neat way to learn about personalities by studying animals in this research a shiny object was placed in a pond and the researchers observed that only some of the fish went up and explored this shiny object the rest stayed back now what's the risk of being the bold fish you might get gobbled up that shiny object might be a predator so the researchers took all of the fish and put them into a new habitat and observe them again and what do you think happened with the bold fish how do you think they did in this new environment they gobbled up the new food they went and lived in all of the the best spots to be safe from predators and to mate the bold fish did very well and how did the shy fish do the shy fish unfortunately missed out on the food they didn't find the very good places to live and to mate and in fact many of them were paralyzed by fear and they were eaten now what's our lesson in this we're not fish right but what we can learn is that empirically at least four fish anyways being a bold fish is is a better is a better personality choice but for us even when we're shy we are not constrained to our personality we can move out of our comfort zone to take on these different challenges @ve works we did an interesting series of experiments where we looked at how people are influenced by their environment you would think in the domain of personal finance and retirement planning that we would know what our risk appetite is but we revealed in fact we don't have a good hold on that we presented investors with four model portfolios and saw what they chose but then we introduced an ultra-low risk a lower return portfolio and saw what happened we saw that many people switched over to the low risk low return options so you would think okay so so people just prefer more low risk low lower low reward options they're okay with that so then we introduced an ultra high risk ultra high reward portfolio and many people then switched over half switch to the higher risk higher reward portfolios so what is this show it shows that we're guilty of shallow thinking it shows that in the case of something like our personal finance where maybe were overwhelmed maybe we're scared of making the wrong choice instead of making a bold decision we let ourselves be influenced by the environment around us so what I'm not suggesting that you necessarily take on an aggressive portfolio what I am suggesting is that you overcome your fear of making a mistake and take a bold stance and an active role in these different factors in your life but let's understand there might be yet another cognitive bias that's impacting and influencing these choices that you're making it's very helpful to understand these hidden forces so that you can take more control so one of the things that we learn from behavioral economics is that we tend to be risk-averse that we prefer a sure thing to a chance at something better but ironically one of the times when we will actually gamble is in order to avoid a loss and this might be because we feel the pain of a loss twice as much as we feel the joy of a game there's another impact on our risk-taking and that's our age so for those of you in the room who are under the age of 25 your brains are not fully developed yet when it comes to understanding risk you don't perceive it very well you don't assess it very well and you don't react to it very well and it's because of this we think that it's the number one leading cause of death among young drivers car accidents and as a society we've tried many things to make young drivers safer we've shown them mangled cars we've told them the stories of survivors but nothing has changed their perception of risk so even things like manufacturing innovations and technology have made cars safer but they haven't made the driver safer so b/e works we've come up with a big idea we're using the power of loss aversion to help drivers change their behavior it works like this they still pay the same high premium but a portion of that premium is reserved into a special account and for that term so long as they have no moving violations at the end of the term they'll be entitled to get this reward back but if they have any moving violations a speeding ticket they roll through a stop sign they lose it and they're out of this program and that's why it's called one chance so we believe that by using a nudge not by trying to change the perception of risk which has been hard to do but instead by using this power of loss aversion to change behavior that we'll be able to save lives so now that you have an understanding of the difficulty that we have nature doesn't give us a calculator that is predictably useful to help us to understand risks and opportunities so what can we do we have to go against our nature when you are risk-averse ask yourself is it because of your personality you can stretch past that comfort zone is it because of the external environment that's influencing you to not take a chance ask yourself that and how you can go beyond it is it your age that is prohibiting you from from making a right decision to being too risky are you being thoughtless these are different tools that you can have ask yourself these questions to be reflective I'd like to share with you a bold decision that I made about two years ago I was presented with the opportunity to to build B II works and it's this amazing behavioral sciences company but on the surface of it it didn't seem like a very good decision I'm much older than the little girl that I was I have a little girl I have so much at stake I have a mortgage there's a lot going on in my life that at this stage to to throw away a long career for a startup there's there's a great amount of risk in that plus I was comfortable I really enjoyed the job that I had I was working with great people having a lot of fun people that I admired how could I leave that behind in order to do something completely new but I wanted to make sure that I didn't just make that decision out of hand that I didn't just say no what could I do well I decided to put together a decision aid you know weighing the pros and cons and a nice spreadsheet it was very long and I shared it with friends and family and mentors and they all gave me some feedback and I shared with people that I don't know very well in a few that I actually don't like that well but they were very good for objective feedback but along the way what I realized was this was actually an introspection aid I realized that I had forgotten my personality I had been taking bold chances throughout my life and I had become nine to five bold I was helping the bank to take jumps I was helping the bank to be innovative nine to five but I had lost track of who I was so that decision aid became an introspection aid to help me to recognize what the biases were that I had become more risk adverse I didn't have all of the answers in my spreadsheet I was exhausted going through this process but in the end by recognizing these biases as best I could and how they were influencing my decision-making I realized that it was time for me to jump ship and Here I am with you today very bravely very bolding standing on this red circle sharing the story with you what I'd like to say is my dream is for our society to recognize that our greatest threat isn't sharks our greatest threat is our biases these are the things that are preventing us from jumping into the ocean for our trophies so I'd like to give you a nudge on your birthday every single year for the rest of your life I want you to ask yourself and your loved ones this question what bold choices have you made thank you you

Channel: TEDx Talks

Views: 111,917

Rating: 4.5477386 out of 5

Keywords: tedx talk, TEDx Utrecht, Kelly Peters, TEDx, economics, ted, ted talk, challenges, Behavioral Economics (Field Of Study), BEHAVE, BE BRAVE, tedx talks, 2014, real world, ted talks, BE BRIGHT, ted x, tedx

Id: 0rLb0pGZzOw

Length: 13min 7sec (787 seconds)

Published: Mon Apr 28 2014