Money and the mind – combatting your psychological biases

Strange as it may seem, married couples’ estimates of their contribution to housework contain important information for investing.

In the late seventies, two Canadian researchers surveyed a group of married couples. Each spouse was asked what contribution they made, relative to their partner, to keeping the home tidy, doing the chores and initiating social engagements, expressed as a percentage. In every case, the total came to well above 100%. Because the responding spouse’s contributions were easier for them to recall than those of their spouse’s, the researchers concluded, they judged them to be more frequent.

This tendency stems from a deep-rooted psychological bias that is at the heart of how we tend to make judgments. Information that is more easily available – that comes to mind first – can often be more influential in shaping our beliefs than information from the more distant past.

It may be an obvious point to make, but one thing that makes an event easier to recall is how recently it took place. If you have had a near miss on a certain stretch of road on your way to work, you are likely to drive cautiously around that bend for some time into the future. Statistically, you are ignoring the hundreds of times you drove round the corner without incident.

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