We like it when good things happen to us. These events become treasured memories and if such a memory is a more recent one it can impact our decision making, resulting in a greater tolerance for risk, according to research by Cambridge University’s Department of Physiology, Development and Neuroscience.
The study used gambling techniques to establish that very recent positive experiences are given more weight when we make decisions. The more immediate experiences carry a disproportionate impact in decision-making, so a recent ‘happy ending’ could skew what we decide to do next. Other experiences further back in time are pushed to the side.
The study, published in the journal Proceedings of the Royal Society B, discusses how the ‘banker’s fallacy’ (a focus on immediate growth, which comes at the expense of long term stability and better, long term results) is part of how many of us make quick decisions. It involved participants accumulating money by gambling between two sets of gold coins of varying sizes at high reactions times, forcing participants to act on memory and instinct.
We often give greater value to some experiences than they’re worth
According to researchers, so we overvalue experiences with a final uptick over those that taper at the last minute, despite the fact they may be of equal or lesser value in making a decision. Researchers analogize the results of viewing a three course dinner more favorably if it has an excellent dessert but a bad appetizer.
Researchers state that if we tried to weigh all our experiences objectively when making a decision, our brains would be overwhelmed so each new experience is condensed and ranked against the previous few to provide context.
- New experiences are judged against the running total.
- The further back an experience, even if very recent, is given less weight despite the fact it may be more relevant.
- The more recent an experience, the more weight it has in decision-making, so a recent ‘happy ending’ has a greater influence than it may objectively deserve.
- A great amount of information and experience is lost due to this cognitive mechanism, creating false and delusional beliefs resulting in poor and short-term decision-making despite past experiences that should convince us of the contrary.
Of the 41 people who were part of the study, only nine could maintain an almost perfect capacity to recall previous experiences accurately, without the “markdown” of past experiences, to make wise long-term decisions says the study’s lead author Dr. Martin Vestergaard. He states most participants made poor short-term decisions possibly because they found it difficult to access historical experience or properly weigh it and they became overly impressed with the moment to moment changes in experiences. Vestergaard found no correlation between age and how technical a participant’s occupation in the test results.
When working with clients who need to make important settlement decisions, you may want to try to focus them on the lessons they’ve learned in life long experiences because they may be pre-disposed to just making decisions on the most recent events. Remembering a number of experiences over the years could result in a decision that’s better for the client long term.
In addition, many attorneys fall into this trap by evaluating the last case that they tried and its results. Many attorneys will comment, “I just won a case just like this, last year.” By relying on the most recent experience, they are overemphasizing the impact of that last jury trial. They may be ignoring the fact that they lost the case before; or that they settled a case similar for very different circumstances.
It is important for attorneys to be both aware of this bias as well as making sure that the clients don’t get caught in this bias also.