Showing posts with label Applied Psychology. Show all posts
Showing posts with label Applied Psychology. Show all posts

Monday, October 30, 2023

How to Think Better? - Six Thinking Hats, Edward de Bono


Rene Descartes's observation "Cogito, ergo, sum" in Latin which translates into English as "I Think, therefore, I am", is one of the most famous sayings in modern Western philosophy.

The ability to Think is a unique quality of a human being and possibly it makes us humans, distinctively different from other animals.

However, Thinking can be a daunting task especially when we have to make a big decision in life, when we are dealing with a complex problem, or when we are dealing with an unprecedented event or situation in life. Thinking becomes stressful, and confusing because we get overwhelmed by dealing with too many things - emotions, information, logic, self-interest vs collective interests, weight of the consequences (what if?) etc.

Edward de Bono, the famous Psychologist was a strong advocate for teaching How to Think? to children in their school curriculum. He had devised a methodology for improving the quality of thinking. This Thinking Model is known as Six Thinking Hats.

Six Thinking Hats is a simple yet powerful concept. Each hat colour represents a particular dimension of thinking. All one needs to do (individual or group brainstorming) is to imagine putting on the Hat one at a time and focus on a particular aspect of thinking. 

There is no one right sequence to follow. Just that a blue hat should always be used both at the beginning and the end of the thinking session - like two bookends.

The process culminates by putting together this singular aspect of thinking (one thing at a time) just like putting together the pieces of a puzzle, to generate the final, complete picture.

The chart below summarizes the key concepts of 6 Thinking Hats:

As mentioned above the sequence of hats can be any, just that the Blue Hat needs to be used in the beginning and at the end of the Thinking process.

The first blue hat indicates:
Why and what we are thinking, define the problem statement, what we want to achieve (outcomes).

The final blue hat indicates:
What we have achieved (outcomes), final conclusion, solutions and plan of actions. 

Pun intended - with Edward de Bono's 6 Thinking Hats methodology, we can reframe "I think therefore, I am" to I Think Better therefore, I am better". 

Hope you found it useful and you add 6 Thinking Hats in your tool kit and solve your problems more effectively and efficiently.

For a detailed reading, you can pick up the book Six Thinking Hats by Edward de Bono (Penguin publications).

Saturday, January 16, 2016

Applied Psychology series (4/4): Dynamics of Human Behavior in relation to Rules (Law)

In this blog post under the Applied Psychology series, let us look into the Dynamics of Human Behavior in relation to Rules (Law). We will be exploring this dynamics, through an unusual & un-amusing object - Helmet.

For me, the entire process of writing this particular blog, has been very enjoyable & insightful. I hope you as a reader find it equally interesting & you get some valuable insights, which can enhance your self-awareness & you can apply these key insights in your own life.

Let me start by turning the clock back to 2013, this is the year we moved back to Bangalore. I bought a two-wheeler & as a family we used to commute on it. Going by common-sense approach of safety first, I bought a helmet for my son. [By the way, I failed to convince my better-half on buying a helmet. I think, she was more concerned about her hairstyle & looks rather than the safety component. Anyways, I think that can become a seperate blog-post for some other day ;-) ]

Me & my son, riding our two-wheeler  
Since 2013, till today it's been three years that I have been living in Bangalore & by virtue of my keen observation I have naturally observed the two-wheeler riders in the shared public spaces.

1. Listing few of my observations which has always been very intriguing to me:

Random images from Bangalore roads
  • Very few riders, put helmets for their children. 
  • Almost no pillion riders, wear helmets. (My count till date has been in single digit)
  • Several riders, don't put helmets for themselves either. (When they sight a traffic cop, they take a detour or speed away to avoid fines).
  • I have come across few so called smart riders, who keep a helmet handy. When they are approaching a major traffic signal (where the probability of traffic cops presence increases), they put on their helmet & once they have traveled the distance, they open the helmet again.  
  • Not to forget to mention few acts of insanity, inserting mobile phones inside the helmet & speaking while riding, holding mobile phone with one hand & riding. 
(Honest confession - I too have been guilty of practicing few of the above in sporadic incidences & I would have weaved a rational self-explanation to myself, bailing me out from being self-critical). 

I am quite sure, many of you would be able to relate to the above from your own observations.

2. Coming back to the intriguing aspect of these observation, let me elaborate why so:
  • Very few riders, put helmets for their children - 
Child without helmet
The caring & loving parents (guardian), who are always going out of their way to care, protect & safe-guard their children's well-being in their daily cores of life, in complete contrast are so unmindful & compromising their child's (wards) safety, by not mandating an helmet for their children. Quite a dichotomy isn't it?
  • Almost no pillion riders, wear helmets. (My count till date has been in single digit) -
Pillion rider, without helmet
Statistically, the pillion riders are more susceptible to injury than the rider himself. The reason being the rider holds the handle of the two-wheeler, while most of the time the pillion rider is not holding on to the two-wheeler. If met with an untoward incident, the likelihood of the pillion rider to fall is significantly higher. These are common wisdom & yet why intelligent men & women ignore these simple principles?  
  • Several riders, don't put helmets for themselves either. (When they sight a traffic cop, they take a detour or speed away to avoid fines).
  • I have come across few so called smart riders, who keep a helmet handy. When they are approaching a major traffic signal (where the probability of traffic cops presence increases), they put on their helmet & once they have traveled the distance, they open the helmet again. 
Evidently, this section of riders are putting on helmet to please the cops & not for the sake of their own safety. Aren't their motive too shallow & farcical?
  • Not to forget to mention few acts of insanity, inserting mobile phones inside the helmet & speaking while riding, holding mobile phone with one hand & riding. 
Rider on phone, without helmet
In my opinion, this seems to be quite an illogical economic decision making. A rider must have invested half a lakh Rupees (on an average) in purchasing the two-wheeler. On the other hand a hands-free (head-phone) would just cost in hundreds (minuscule fraction in comparison to the two-wheeler). But this section of rider, choose to continue with their farce of inserting cell phones in helmet, riding with one hand & risking their own safety. [By the way, people speaking on phone while driving their car is equally rampant. Here too, the logical economic decision making is overlooked, the comparative cost of a hands-free/blue-tooth to the cost of the car is so minuscule, yet they opt to risking their & people's safety, by speaking on phone while driving].  

[Ideally, one should not be using phone while riding/driving. I believe that is the law too].

Rationality (thinking) seems to be taking a back seat, in many of our decision making process.

3. Let me now draw your attention to a newspaper article (TOI Bangalore edition) dated 14th of Jan-'16:

TOI Bangalore edition, 14-Jan-2016
Link -

Starting 20th of January-'16, helmets for pillion rider is going to be mandatory as per the new rule, under Bangalore Traffic Law.

To evaluate if a study is scientific & reliable, we need to understand the variables & the control (constant factors). In this social experiment, the Bangalore roads, traffic situation, probability of accidents does remains constant (prior & post this new rule). The only variable here is the traffic rule - 'mandating the pillion riders to wear helmet', which is currently not in existence & it will be effective 20th Jan-'16 onwards.

So we can safely conclude there is a casual relationship between this new traffic rule & people's purchasing behavior of helmets. In other words, the above mentioned news article captures this interesting dynamics of human behavior & Rules (Law).

4. Let us now jointly explore this fascinating dynamics for gaining some valuable insights, for enhancing our understanding of human behavior & for improving our decision making:

  • A small percentage of people do the right thing on their own, irrespective of the legal rule & supervision. As we saw earlier, a small percentage of pillion rider were wearing helmet voluntarily, irrespective of the rule being there or not. This small group of population, are thinkers (rationale) i.e. think on their own & do the right thing.
Doing the right thing
  • When a rule is implemented, majority of the people show tendency to conform with the rule. As the newspaper article elaborates, there is a sudden rush among people for buying helmets due to the new rule.
Rush for buying helmets
  • When a new rule is brought in, people's opinion usually stands divided. These groups speak in it's favour, speak against it & take a neutral stand, respectively. People residing in Bangalore would be aware of the ongoing discussion, articles around this new rule which represents various opinion - in favour (safety for commuter), against (lobby of helmet manufacturers & politicians, earning more revenue for RTO), skepticism (traffic cops will not implement this rule with seriousness), neutral (let's wait & watch policy). 
Opinions divided
  • We (human beings) are driven by emotions, rather than rationality. It seems, fear (emotion) of facing penalty/fine are driving so many people towards buying the helmets. This very same group of people, were not driven by rationality (they didn't think on their own about their safety, all this while).
Humans are driven by emotions
  • Hard facts (numbers/data/reports) fails to elucidate the desired response in us. The accident related statistics are quite widely available in the public domain, but no one seems concerned much about it. Else, pillion riders on their own would have taken up helmets, rather than being forced by the authorities. 
Hard facts does not elucidate the desired response
- Data with the National Crime Records Bureau show that two-wheelers accounted for the most number of fatal road accidents in 2014, contributing 26.4% of all deaths. 
- Nearly 45% of victims of road accidents are generally two-wheeler riders.
- A study by NIMHANS National Institute of Mental Health & Neuro Sciences) shows 46% of helmetless riders die to injuries when they skid & fall. The corresponding number of those wearing helmets is only 12%. 
- According to WHO report road traffic injuries are one of the leading cause of death in India.

All these publicly available data, indicates it fails to elucidate the desired response in us. In other words, rationality takes a back seat when it comes to human behavior. 

5. Now that we gained these key insights, let us list down the practical knowledge (applications) from this whole exercise:

  • Majority of us, do not base our decision & conduct on rationality. Therefore, for bringing in positive change & implementing practices for the larger good, implementation of Rules (Laws) seems to be the last resort. 
Societal Legal system
Till 2006, wearing of helmet was not mandatory for the two-wheeler rider in Bangalore. As expected, majority of the people didn't volunteer themselves for wearing helmet, inspite of the high number of road accidents. Post 2006, Transport Dept. in Bangalore had to step in & implemented the rule of mandating riders to wear helmets. 
Since then there has been a slump in fatal accidents among two-wheeler riders. However, pillion riders continue to be at risk. Infact they are at greater risk than riders, as they don't control the vehicle. It's been 10 years since 2006 & we can see we the people haven't voluntarily responded to rationality. Probably, bringing in rules (laws) is the last resort to make majority of us to do the right thing.

We can see many such instances like the recent LPG subsidy. Since it was driven by Government, many well off people started giving up their subsidies. If this drive was not down top down, they may have never taken this rational decision on their own.

This also points out, as a society if we expect good initiatives like Blood donation, Organ donation etc to happen it may never occur on a large scale, unless this is mandated by rule (law).

  •  In the above point, we talked about the necessity of implementing the rule (law). But we also need to be mindful, unless there is an intrinsic motivation/believe towards this rule, our behavior/action will remain as a mere formality. 
Following rules by letter & not adhering to it's spirit
We can see such ample examples of mere formalities all around us, for e.g.:

- Many corporate houses are doing CSR activities as a mere formality instead of making it substantial & meaningful.  
- Educational institutes register themselves as a Trust, but the conduct is themselves on the principles of business & profit.
- Alcohol, Tobacco companies are not permitted to advertise in public media. Instead they put up surrogate advertisements, to promote their products.

In summary, if we (as individuals or as an institution) are not intrinsically motivated or if we don't truly believe in the rule (law), we would end by adhering to the 'Letter of the Law', but not with the 'Spirit of the Law'.

  • As we are now self-aware that emotions overrides rationality, we need to safe-guard ourselves from being mislead by people with vested interest. In summary we should not fall prey to mob mentality & we should give rationality a fair chance in our overall response mechanism. 
Give rationality a chance
  • As we (human beings) respond more to emotions & less to rationality, as an individual/institution/policy maker, if we want to make our message/campaign effective, we need to use more of imagery/visuals/emotional pitch & less of data/facts/figures.
Campaign effectiveness
  • Last but not the least, one should keep in mind when it comes to rules there will be always someone who will abuse the system. In fact there are also people within the system, who are open for manipulation & do not consistently implement the rules. Looking at them, we can get demotivated from following the rule, in other words we can be encouraged to take the path of convenience. But we need to keep in mind, irrespective of what others are doing, we need to do the right thing. In summary, being legally right or morally right are two different entities & the onus is ultimately on us. 

The onus is on us

To finally conclude, with little bit of rationality, thoughtfulness, common-sense & maturity, we can be our best judge of what is right & what is not right for us. This is the ideal state of mind to be in, wherein one does not need externally imposed rules (law) for taking the right decision & for taking the right path.

Friday, August 28, 2015

Applied Psychology series (3/4): Psychology of Money

A brief sketch:
I have drawn upon various academic work & scientific research, from an Applied Science perspective. My objective, was to provide practical tips which can find application in our real life.
In the interest of keeping the blog-post concise, I had traded off the details of the research work & have focused on the key aspects. However, at the end of the blog, I have listed down the references for advanced readings.
Flow of topics, are as follows:
# Definition (Psychology of Money
# Concept of Money
# Conventional Economics to Behavioral Economics
# Psychology of Money:
1. How we perceive Market & Social norms
2. Money as motivator
3. Money & it's relation to Happiness
4. Anticipation of money
5. Our behavior in relation to Soft Money
6. Mental accounting
7. Money Illusion
8. Availability Heuristic
9. Loss aversion

Psychology of Money! When I had heard this phrase for the first time it really caught my imagination. So what does it mean? Let us take the two key words: Psychology & Money as separate entities & then try to connect the dots.

What is Psychology?

In layman's term it is defined as 'study of mind', but directly studying mind (mental processes) is difficult, because mind is abstract & non-tangible. However, the mental processes (i.e. thoughts, motives, attitudes etc) has an outward expression through one's actions, emotions, behavior & habit.

Thus in true sense, Psychology is both an applied & academic field that scientifically studies (observes) the outward expression of mental processes & seeks to understand & explain thoughts, emotions & behavior.

What is Psychology of Money?

It is our beliefs, feelings, behavior & habits around financial matters & their influences on our money management (e.g. choices we make, spending, purchasing, savings, investments, altruism etc).

Concept of money:

I had reached out to my friends, requesting them to respond to a survey question: 'What is their definition of money?'

The essence of their responses were:
  • Money is an instrument for carrying out transaction (for buying necessities)
  • Money is our means (tool) for achieving our ends (needs/goals)
  • Money should always be in circulation for it to remain valuable.
This shows, we all perceive an intrinsic value in money, we perceive money as a means for meeting our needs & wants, we perceive money as a means for gaining social status & money in circulation keeps our economy (market) running.

Money has become such an integral part of our life, that we seldom give a second thought about the origin of these mental concepts.

If we take a biographical approach of money, we would see that the concept of money had an evolutionary journey, hand in gloves along with human beings.
Artistic expression depicting the evolutionary journey of money
Barter (direct exchange of commodity).....Token money (shells, stones, grains, salt etc)......Coins (metals like Gold, Silver etc)......Paper money (originating in ancient China)......Plastic money (Debit & Credit cards)........Digital money (Net banking)........Mobile money (mobile wallets, Apps etc) future the concept of money may continue to evolve to suit our changing lifestyle.

Different forms of Money
To put things into perspective, Money is one of the greatest invention of human beings.

The invention of money is:
  • Conceptual (it is a figment of collective imagination which has an endorsement of the issuing authority - ancient times it was the kings & queens, while today it is Governments)
  • Tool for Facilitation (barter system was self-limiting & couldn't be scaled up; whereas money facilitated exchange of commodities & contributed towards expansion of market)
  • Dynamic (it's form changes - physical money to today's digital money)
  • Omnipresent (transcends into every aspects of our life - birth to death).
Like in the case of any important inventions (e.g. electric bulbs), the invention of money has changed our lives & our world forever.

Shift from Conventional Economics to Behavioral Economics:

In the book 'Coined' , the author Kabir Sehgal satirically mentions:
Association of ringing of bell & food provides motivation to the laboratory animal (dog) in Pavlov's experiment. Metaphorically speaking, Money has become our Pavlov's bell, activating our brain regions & conditioning our behavior wanting for more.

Even, if we discount the above satire as an exaggeration, won't we be dishonest to ourselves if we pretend ignorance to the influence of money on our thoughts, feelings, emotions, actions & behavior?

Foundation of conventional economics is build on the principle that human beings are rational & are able to trade-off between choices. However, in reality we humans are far from being 100% rational beings (logical), in fact our emotions, beliefs & habits have a strong influence on how we deal with money.

The research of Daniel Kahneman & Arnos Tversky (Nobel laureate in Economics, 2002) has shown how we have cognitive biases in our financial dealings & their pioneering work, has established Behavioral Economics, as a new way for understanding economics.

Contemporary research in Behavioral Economics & Neurosciences shows our dealing with money tends towards being more psychological, than an economic (logical) approach.

Let's explore the specifics of Psychology of Money

1. How we perceive Market & Social norms      

The underlying norms of social & market norms
Human society has two aspects - social (family, friends, acquaintances) & market domains (business & professional) & the unsaid norms of the concept of money, for both the domains are very different from one another. Our relationship with money, lies on a continuum between market norms & social norms. Gift economy operates in social world & Money operates in market (business) world.

  • Generally, in social domain direct exchange of money is not recommendable. (Though offering of direct money is economically more efficient, but the anticipated social value gets eroded. Direct money does not help in nurturing the relationship & doesn't build social capital).
  • Culture specific social norms dictates, when money is regarded as an appropriate gift.
  • The price & the type of gift determines it's appropriateness. (culture & context specific). The price of a gift which is too less or too expensive, can end up being perceived repulsive. Also, a gift which does not sync into the context, occasion & right culture fit will end up hurting the receiver.
  • Advertising the cost of gift, violates the social norm.
  • There is a thin line between gifts & seeking favour in business world.
  • In social world, people are willing to work (help) for free. If money is introduced to procure help, then the willingness to work (offer help) is drastically reduced. The willingness to work, goes up once again, only if large amount of money is offered). 
  • Social relationship creates a greater sense of reciprocity, in comparison to business relationship. (depending on what kind of relationship one wants to build, he can mix & match gift economy & direct money).
  • Once, one moves away from market norms to social norms, it is difficult to go back to the market norms in the same relationship.
Lessons for us: 

As we live on a continuum between market norms & social norms, we can judiciously mix & match, direct money & gift economy. This will help us in enhancing our social capital, help us in nurturing our professional & personal relationships.

2. Money as motivator

Money as motivator

The word motivation means, a force that creates stimulus & drives us towards achieving it. For long, it is believed that money is the most powerful motivator, for us to go to work. The mathematical equation is as follows: Money = Motivation, Motivation = Work & Work = Money.

It is true, that Money has a big motivation effect on us, but 'Money to be considered as the best motivator', is debatable.

Let's look into some of the key aspects of money's influence on human psyche:
  • In most of the cases when asked, people say they aspire for 'freedom' (they define freedom as having enough money, so that they can pursue things they really want to do). It indicates, that the real motivation is the end result i.e. 'the state of financial freedom' & not just money.   
  • Societal relativity, rich & poor, have's & have not's, social hierarchy etc has become ingrained in our psyche. People strive to become better than one another on this perceived relativity scale. It indicates, that the real motivation is social recognition & money serves as a tool for achieving this outcome.
  • Several research at work place has indicated money does not serve as the best motivational tool. Money is shown to encourage self-serving short-term behavior better than it motivates lasting institutional achievement. Over-reliance on monetary rewards erodes emotional commitment. [Some of the long-lasting motivational factors at work place are: Empowerment (to feel autonomous), Personal time, Happiness, Recognition, Goodwill, Emotional bonding (feel related to others), Challenge & New Learning (feel competent)].
  • Money as incentive tool - For tasks requiring cognitive ability, low to moderate performance based incentives can help. But when incentive level is very high or clubbed with penalty clauses, this leads to undesirable stress, distraction & ultimately leads to reduction in performance level. 
Lessons for us: 
  • One should develop the ability to distinguish the means (money & how money is earned) & the ends (financial goal & life's purpose). This clarity & self-awareness will increase one's well-being & help them stay focused on their life's journey. 
  • Ideal situation would be when one is aware of their life's vision/purpose & while working towards achieving them, income of money happens as a by-product
  • An employer (organization) can create a healthier work environment by including the psychological competent along with money as a motivational tool. The resulting engagement will be deep rooted & long-lasting in nature.

3. Money & it's relation to Happiness

Maslow's hierarchy of needs

Abraham Maslow's 'Hierarchy of Needs', depicts the needs of human beings in the order of priority.

The more one steps up on the pyramid, the human needs transforms itself from biological needs, to materialistic needs & into psychological needs.

Money & Happiness, the law of diminishing returns

When the basic biological & materialistic needs are not met, it results in unhappiness.

With increase in income & fulfillment of these basic needs, results in exponential gain in the happiness level.

However, once these basic needs & a decent comfort level in life is achieved, further increase in income level (money) does not result in similar gains in the happiness level.

This phenomenon is called the law of diminishing returns (i.e. marginal increase in the output, in spite of pumping in input).

Lessons for us: 

This indicates more money may not be the key to long-term happiness. Once the basic needs & a decent comfort level is achieved, one needs to engage themselves into activities which gives them a purpose & meaning, for experiencing gain & maintaining their happiness.

4. Anticipation of money

In anticipation
I am risking myself to sound like a geek :). Studies in the field of Neurosciences shows how various brain regions responds in relation to money. 

Nucleus Accumbens (part of the reward & punishment system of the brain) activates when anticipating a gain, while Anterior Insula (part of cerebral cortex & functionally linked to emotions) activates at the prospect of loss of money. 

The anticipation of making money leads to a surge in Nucleus Accumbens & increases Dopamine levels.

Surprisingly, Nucleus Accumbens fires less intensely, when one received an award, in comparison to anticipation of money. This indicates, that idea of gaining money is a stronger neural stimulant than money itself.

  • Since anticipation of money acts as a major force in our mind, this probably throws some light on why many people involve in gambling & purchasing of lottery, even though the probability of winning is very minimal. 
  • One needs to be aware that in the domain of consumerism, many marketers are exploiting this aspect by leading the potential buyers into anticipatory offers like lucky draws, contests etc, in their marketing strategy. 
  • As the prospects of losing money triggers negative emotions, many people tend to take a conservative approach in their investment decisions rather than opting for optimal portfolio. 
Lessons for us: 

With knowledge & awareness of how emotions are linked to money matters, one can become more conscious when placed in anticipatory situations & try to make rational financial decisions, taking into account the probability factors & weighing the risk benefit ratio.

5. Our behavior in relation to Soft Money

Hard Money (paper notes, coins etc) & Soft Money [Plastic money (credit & credit cards), Digital money (mobile wallets, mobile apps)]

Hard money & Soft Money

The world in which you & I live has technology, internet, consumerism, digital marketing etc as part of it's system. Going by the trend, the future is going to be driven by IoT (Internet of Things), Mobile Apps, Smart phones, Online shopping, Cashless transactions (soft money). There is going to be further sophistication of market intelligence, consumerism, big data (data mining & data analytics), enhancement of M2M (machine to machine learning) & artificial intelligence.

We humans do not have a long history of coping & living side by side, with such rapid advancement of technology & a cashless world (soft money), so there is could be high degree of variability in our behavior towards Soft Money when compared to Hard Money (coins, paper note).

Let's look into the key differences of our psyche & behavior towards Soft Money:

  • Payments by cash & cheque generates more pain of paying (registers in our memory more), in comparison to plastic money (credit/debit card payment).
  • Plastic money, results in underestimation of the past spending & increases the propensity for spending more in the current transaction.
  • In cashless transaction, we are unable to visualise, money being spend at the time of purchase. Whereas cash payment evokes thoughts of cost/benefits of purchase at the time of purchase. 
  • Psychographic reasons: Our behavior & attitude towards the usage & acceptability of plastic money (credit cards) differ due to psychographic reasons. Affective attides involve emotional feelings (e.g. my credit card makes me feel happy); cognitive attitudes involves thoughts (e.g. heavy usage of credit cards results in heavy debt); while behavioral attitudes involve actions (e.g. I use my credit card frequently)
  • Temptation & Instant gratification: Some people may buy through credit cards, for a genuine reason (convenience of cashless transaction, emergency/unavoidable need). But on the other hand, many people end up buying through credit card, before their income arrives, as they succumb to their temptation & their urge for instant gratification.
  • Ignoring the interest rate & late payment clause: Consumers may not even consider the fine prints (interest rate & late payment clause) while making purchases with their plastic money. The reason being, they do not intent to borrow for an extended period when they make purchases. However, they may change their minds when the bill arrives.
  • Soft money makes us more gullible towards spending: With data analytics & market intelligence in practice, we unknowing are being succumbed to make purchases. With online, mobile app, digital wallet the convenience of payment has gone up significantly. Also as elaborated in the above points, the pain of payment is relatively low, which makes us more gullible towards spending our soft money.
  • Cultural influences on the usage of plastic money: 
a. Religion: Islam has a different point of view concerning credit cards, Though banks want consumers to use plastic money, they also have an obligation to abide with the Sharin (Islamic Laws). According to the Sharia, credit cards is permissible as long as one does not delay paying the bills & pays the total amount on time. Whereas in several other Islamic countries the usage of credit card is forbidden. [Taking this cultural aspect into account, the Standard Chartered Bank had launched a global Islamic banking brand 'Saadiq' in Mid East (Pakistan Standard Chartered, 2007).

b. Country specific cultural norms: The culture & traditional beliefs has a big influence in the way we view plastic money (credit cards). For example, country like USA is saturated with credit cards, on the other hand the credit card penetration is quite low in several other countries. China with 1.3 billion people, has only 67 million credit card users. The reason can be attributed to traditional of Chinese culture, i.e. Chinese tend to save more & are reluctant to take on debts. Another example is Germany with 82 million population, the credit card holder are only 10 million people. This phenomenon can be traced back to German tradition & culture, wherein Debt (Schuld in German) means guilt.

Lessons for us:
Now that we understand the evolution of money (hard to soft) & we understand we are living in this time point where a major transition in the concept of money is happening, we can become more conscious towards our behavior & adaption in relation to this changing form of money.

As our feelings, emotions & cognition are very different towards soft money, we need to raise our level of self-awareness to distinguish between our Needs & Wants. We also need to make the right choices & make the right judgment between the convenience of the mode of payment VS. staying on course with our financial budget/goals.

6. Mental accounting (categorisation of money)

Mental accounting of money
We all have a tendency of separating our money into seperate category (accounts) in our mind.
This categorisation is based on variety of subjective criteria, like the source of money, intent for each category. This is almost like how an organisation does financial planning & budgeting exercise (each department are allocated their respective fixed budget). Similarly, in our minds we do mental accounting for our money e.g. household budget, entertainment budget etc.

Mental accounting can lead to the following behavioral outcomes:

  • Compartmentalizing income & assigning it into different mental accounts violates one of the basic rules of economics - i.e. money is fungible (interchangeable).
  • The source of money, influences how we spent it.
  • The setting up of mental accounts, can have paradoxical effects.[To illustrate this point, let us think of an office scenario. At the end of the financial year, one might not get approval for a new laptop because the IT hardware budget has been exhausted, but he might be granted an overseas trip because there is money left in the travel budget. One's rational argument that the need for a new laptop is more critical for smooth functioning of work, is most likely to fall on deaf ears.This phenomenon can translate in personal finance management as well, for example one might end up compromising in one particular dimension of life's need (e.g. fuel budget), because the budget assigned to this particular category got exhausted, but he might end up lavishly spending on another dimension of his life (e.g. entertainment). Basically, he ends up treating his money as non-fungible & does not reassign it].
  • Mental accounting can lead to snap deals on items we may not need. When something sells for below the assigned mental price, the deal takes precedence over the actual utility of the item.(For example, according to the dimension of one's living room, a person would have decided to buy a three seater couch. He assigned a mental budget (price) of Rs. 5,000 for his purchase. When he visits the furniture store, he finds an ongoing sale in which a five seater couch is put on sale at the same price (Rs. 5,000). Even though the three-seater couch was meeting his utility needs, he mostly might opt for the five seater couch (mismatch with his utility, need & does not fit in well with the room dimension). The occurs because, the price matches his mental price & this takes precedence over the utility).
  • Mental accounting & treating money as non-fungible can lead to misplaced priorities & not spending money wisely. (One might not spend money on utility, because he would have exhausted the budget assigned to it in his mind) but end up wastefully spending money on outing/entertainment, without diverting the fund to meet his utility bills).
Lessons for us: 

The alternative to mental accounting is to think about our money in a complete rational manner, i.e. each time to evaluate the opportunity cost & benefit across all categories.
But in real world, being 100% rational all the time is next to impossible. Even though the concept of Mental Accounting is not a full proof method, it is probably a useful tool for our money management.
With the awareness of the fallacies of mental accounting, we can improve upon it by being more self-conscious & treating money as fungible across all category. This will enhance our effectiveness in money management & make mental accounting methodology work more in our favour.

7. Money Illusion

Money Illusion

Have you observed a child, 4 or 5 years of age? If you offer then five coins of Rupee One denomination, they would feel happier, than receiving one coin of Rupee Five denomination. This is because they look at the absolute value i.e. five coins vs one coin, even though the monetary value is same. This is a type of money illusion, which plays in a child's mind.

The not so good news is, we adults too are not free from money illusion. By our natural instinct, we ignore factors like inflation & deflation while making financial decisions. That is, we think of money in it's nominal value rather than real monetary value (which tends to decline on a time scale due to inflation).

Lessons for us: 

Due to money illusion, we tend to discard the erosion of our wealth (purchasing power) in the future. This short sighted approach & being ignorant of the real monetary value, can hit us hard if we ignore saving for our retirement days (inflation will erode the purchasing power of today's money). Hence, we should make ourselves self-aware of money illusion & start our financial planning for a secured retired life, in our not so distant future. 

8. Availability Heuristic 

Availability heuristic

Availability heuristic is one of the limitation of our cognitive ability. We tend to make financial decision based on the readily available information & based on what we recollect (remember), rather than exploring & examining all the other possible alternatives. In simple words, it can be described as 'taking short-cuts' rather than going through the lengthy & cumbersome process of detailed evaluation.  

Lessons for us: 

In most of the cases, any financial decision which is made on limited information (readily available) skipping through a detailed evaluation & analysis can lead to regret in future (in hindsight we do pick up our errors). 
Also, due to the tendency of availability heuristic, we are gullible to get persuaded by a seller & end up purchasing something which may out-run it's value & utility in the long run.
Hence, with the awareness of 'availability heuristic' phenomenon, we should consciously delay our decision making time (avoid snap deal or start exploration much early) & in this extended horizon of time period we can try to explore more options, seek information & reach out for diverse point of views, before making the final decision. This can help us in making a better financial decision, which has more probability of withstanding the test of time.

9. Loss aversion

Loss aversion
It appears, we humans are hard-wired towards loss aversion. In economics, loss aversion refers to our strong tendency towards avoiding losses towards acquiring gains. Studies have shown, the negative feelings coming from loss are much stronger than the positive feelings coming from gain.

The tendency of loss aversion, influences our money management in the following manner:

  • Making a decision of changing the investment portfolio, seems very difficult, because with the change there is a probability of 'what if my decision goes wrong?' The thought of incurring loss makes us uncomfortable, whereas maintaining status quo seems a convenient route, overriding the obvious not so favourable, opportunity cost.
  • We end up holding on to things for a longer period in time, even though we know it is not making good financial sense. Example, holding on to a poorly performing stock for a long period in time, hoping that it will revive & we will avoid making loss.  
Lessons for us: 

With the awareness of our strong emotions towards loss aversion, we can make conscious effort in separating our emotions from our financial decision process. By overcoming our negative emotions towards loss aversion, we can increase our probability of better money management.

Psychology of money is a two way traffic, our mind is on money & money is on our mind.

Psychology of money, it's a two way traffic

From time immemorial, money has been part of human civilization & when something becomes as natural as breathing & sleeping & eating, we seldom take a step back to reflect, introspect & question our relationship with that phenomenon. May be something similar has happened to us & to our relationship with money.

We should remind ourselves that money was an invention of humans & it was invented to serve as a tool to facilitate transaction for meeting our needs. 

Money was a means to meet our ends (goals) & it was & is not to be confused as an end in itself. 

Like everything else, with passage of time, with evolution & systems moving from being simple to complex, our understanding towards money has got blurred. 

Also, money being a long term companion of humans, in the course of it's journey, it has learned to exert it's influence on our minds. 

By understanding the 'Psychology of Money', we can get valuable insights & we can go beyond the obvious, thereby making our relationship with money & money management more effective & healthier. 

Hopefully, this understanding can help us in making our life richer, not just in monetary sense but in it's true sense of richness.

(in alphabetical order)
  • Behavioral Finance: Key concepts - Mental Accounting (
  • Cashless Society & Plastic Money Marketing Essay (
  • Coined - Kabir Sehgal (a very interesting book, which takes a biographical approach towards money)
  • Predictably Irrational - Dan Ariely (highly recommended for readers interested in Behavioral Economics)
  • Study of Factors Affecting Use of Plastic Money (
  • Washington Post (Mental Accounting)

(in alphabetical order)

Special thanks to my friends Protyush Lala, Preetha Ajit & Nandhini Thangavelu, for their thoughtfulness & participation in the 'Survey Questionnaire'.

Sincere thanks to my seniors Bhavesh Acharya, Raghavendra Kalmadi & Sanjay Patel, who have helped me to see money in a new perspective.

Images taken from internet search, no copyright violation intended.

Thursday, July 16, 2015

Applied Psychology series (2/4): Management of Agreement

We humans are social beings & day in day out, we interact & live among people in our personal & professional spaces. Hence Interpersonal skills is of huge importance, for our effective functioning in society. Interpersonal skills is multi-facet comprising of team work, communication, cross-cultural understanding, just to name a few.

Group Decision Making is one such critical social skill, which we need on a frequent basis, for working effectively in group setting, for facilitating discussion & decision making.

Group Decision Making, in progress
In fact, we all have engaged in group decision making process, on a regular basis, in some form or the other, either as a participant or as a facilitator.

Hence, it might be a good idea to spend some time in understanding the various aspects of Group Decision Making, so that we can up-skill ourselves in Group Decision Making technique & become effective in 'Management of Agreement'.

Several years back, while undertaking a course on Social Psychology, I had came across three very interesting phenomenons (listed below), which have profound impact on the effectiveness of Group Decision Making process.
  • Group-think (Conformity) 
  • Group-shift (Group-polarization)  
  • Abilene Paradox
At the core, these concepts are raising a fundamental & radical question:

'Is Group Decision Making always preferable, in comparison to Individual Decision Making?'

Group Decision Making vs Independent Decision Making, which is better?
Intuitively, we might have a positive bias towards Group Decision Making, for it's obvious benefits like consensus building, generating multiple ideas through brain-storming sessions, engaging with multiple stakeholders etc.

However, Group Decision Making, has it's own pitfalls & hence it is crucial for us to raise our awareness about these not so obvious phenomenon, if we want to become effective in our 'Management of Agreement'.

All members in sync, with group decision
Let's begin our deep dive, by taking stock of the merits & demerits of Group Decision Making:
  • Merits of Group Decision Making
  1. Likelihood of generating more information & benefiting from collective knowledge
  2. Varied inputs & heterogeneity into the decision making process
  3. Increased diversity of views
  4. Multiple approaches & alternatives
  5. Consensus building & increased acceptance of the decision(s) made 
  • Demerits of Group Decision Making
  1. Brainstorming sessions are time consuming (slow paced process)
  2. Conformity (an individual with a different point of view, succumbing to group pressure)
  3. Group decision making can be dominated by one or few members 
  4. A group's overall effectiveness will suffer, if it comprises of low & medium ability members,
  5. Ambiguous responsibility (in an individual decision, accountability for the final outcome resides on one person. However, in group decision, the accountability of any single member is diluted).
Let us now, explore the three phenomenons which can derail the effectiveness of Group Decision Making process:
  • Group Think: 
Group-think - Social Pressure on an individual to go with majority
Many of us, at some point in time, would have experienced this phenomenon, in varied degrees & in various occasions in our day to day life. 

We would have felt like speaking up in a meeting, in a classroom, or in an informal gathering but finally we would have ended up, deciding against it.

One of the probable reason may have been our inability to overcome our shyness.The other possibility, is we might have been a victim of group think.

Group-think, is social pressure on an individual who has a different point of view, to conform (agree) to the group consensus (norm).

Group-think, suppresses the full expression of deviant, minority & unpopular views of an individual.

Does group think happen in all groups?

The comforting news is, 'No'.
However, there are many factors which contributes towards the occurrence of group-think, in a group decision making process.

The probability of Group-think, is high in the following situations:
  1. When there is a clear group identity
  2. When members hold a positive image of their group
  3. When the group perceives a threat to their group's positive image & they want to protect it.
To safe-guard the effectiveness of our Group Decision Making, let us now explore the strategies to mitigate it's occurrence:
  1. Group size: People grow more intimidated & hesitant as the group size increases. Hence try keeping the group size upto 10 members or split the large group into smaller sub-groups
  2. Facilitator should try to play an impartial role. 
  3. Devil's advocate: Someone in the group can be assigned to play the role of devil's advocate.They should explicitly challenge the majority position & offer divergent perspectives.
  4. Group Leaders: They should avoid expressing their own opinions, especially in the early stages of deliberation. They should actively seek inputs from all members.
  5. Avoid Positive Bias: Delay discussion of possible gains, instead talk about the dangers or risks of a proposed decision. Focusing on the negatives, makes the group less likely to stifle dissenting views & more likely to gain an objective evaluation.
  • Group shift or Group Polarization:
Group taking extreme position
From our personal experience, we would have been witness to situation(s), wherein the group takes an extreme view, during their course of group discussion. The discussion process, leads members towards a more extreme view of position, than they originally held. This phenomenon, is referred as Group-shift (Group-polarization).

Conservatives become more cautious & more aggressive types take on more risk.

Whether the shift in the group's decision is toward greater caution or more risk, depends on the dominant pre-discussion norm.

The reasons, for group polarization are:
  1. Shared identity & comfort zone: The members of a particular group have a shared identity & they are in a comfort zone with each other. Therefore in group discussions, the group members are more willing to express extreme versions of their original positions.
  2. Diffused responsibility: Group decisions frees any single member from accountability for the group's final decision, so group members tend to take a more extreme position. 
  3. Competition with Out-group: The IN-group members, have an urge to demonstrate themselves as different from the OUT-group (other groups, whom they perceive as their competitor).
As a group-leader or as a group-member, we should execute our judgement & moderate the extreme approaches during our group decision making, which unintentionally we might end up taking.
  • Abilene Paradox:

Abilene paradox example
The paradox between explicit & implicit behaviour
Have you ever, been in a situation, when as a group member you went along with a decision thinking it is a group consensus? Later on, you discovered, even the other members of the group did the same, thinking it was a group consensus. The paradox was, every member went along with the decision thinking it is a group consensus. In reality, none from the group agreed with the decision, but still all went along, till things fell apart. This paradox is called, Abilene paradox. (This theory was coined by researcher Jerry Harvey).

Let's look into the probable reasons behind the occurrences of Abilene Paradox:
  1. Group members, feel a compulsion to be perceived as part of the group
  2. They are fearful of challenging conventions (traditions)
  3. Dominant & rigid hierarchy, results in members toeing the line
  4. Groups which displays passive behavior & lacks interaction among the members
Let us explore the possible mitigation strategies, for avoid this unwanted phenomenon in our group decision making process:
  1. We should develop a culture of transparent & open communication 
  2. Facilitate interaction among all the group members, cutting across hierarchy.
  3. Group leader, should encourage 'critical reasoning' among the members, to avoid herd mentality.
  4. If members are fearful of expressing their opinion freely, create systems for seeking anonymous feedback & opinions.
  5. Arrange a follow up review session, with sub-group(s) or individuals, for evaluating the final decision (consensus).   
Putting things into perspective, we can see Group Decision Making offers both breadth & depth of input for information gathering, makes analysis more critical & facilitates support from the group for implementing the final solution. 

But on the other hand it is a slow process, it can create internal conflicts & aspects of human behavior like group-think, group-shift & Abilene paradox can derail the final outcome of Group Decision Making process.   

So in conclusion, which method is most effective?
Is it Group Decision Making or Individual Decision Making? 

Effective Group Decision Making
(Image courtesy:
Taking into considering all the above stated factors, we can clearly see there are pros & cons, in both the methods. 

Hence one needs to factor in all these aspects in their evaluation process & opt for the method which best suits in the given context & situation. 

In practice, one needs to be observant for picking up early signals of the probable pitfalls (Group-Think, Group-Shift & Abilene Paradox) for their timely mitigation, to facilitate an effective 'Management of Agreement'

References: Organizational Behavior - Robbins, Judge & Vohra (Pearson)
                    Course on Social Psychology - Professor Scott Plous Wesleyan University