How to Outsmart Our Biases

Excellent report via FS:

"Lifting the Hood

So how does our conscious mind deal with all of these non-consciously motivated behaviors? As suggested by the rudeness study mentioned earlier, it tries to interpret them, to tell a story around them. The classic pantyhose study is a good example. People were brought into a lab and asked to choose between several different sets of pantyhose. The participant would always claim that the pair they chose was somehow “better.” They said it was silkier, they said it was sheerer, they said a great many things. How do we know that they were mistaken? Well, each of the pairs was exactly the same, but they always picked the pair furthest to the right, even though the pairs were shuffled every time. They picked that pair because they saw it first as they entered the room, but they didn’t know that was the reason. Their minds were left to struggle for some other grounds on which to retroactively base their decision. We do think this way everyday. Ever stopped to wonder why you did something? Its hard to know if you found the “real” reason.

The key is efficiency. The title of one recent book puts it clearly, we are gifted and cursed with “The Cognitive Shortcuts That Make Us Smart”. Our brains have found clever ways of preserving processing power while still getting it right enough of the time. What is enough? Well, more now than it used to be. The brain wasn’t designed with Mass Media in mind. As the last two decades have seen the rise of evolutionary theories of psychology, it is natural to think of these effects in terms of what is adaptive. Our brains do a lot of things without getting our full informed consent, but they only have our best interests in mind.

Unaware of Our Unawareness

If it isn’t enough that our consciousness can be so easily undermined, we are also left unaware of its failure. Try as they might, experimenters have not been able to make people realize when they have been unintentionally influenced. We believe that we would know if our actions were being so drastically altered. Y et these studies and hundreds of others have all shown that we know less about our motivations and about the sources of our actions, judgments, and decisions than we thought. Indeed, our intuitions may provide little but false confidence."

And the most obvious solution and "remedy" here (yes, mindfulness , metacognition helps) :

"Pronin says people deny that they suffer from these issues because they occur subconsciously. "In order to determine whether they are biased," she writes, "people generally look to their conscious motives rather than to their actions." So when a bias occurs subconsciously, people don't notice it.

To liberate us from BSB, Pronin came up with a simple solution: She had students read an article, titled "Unaware of Our Unawareness," that convincingly lays out the case that our subconscious can influence our attitudes and behavior. After reading the article, the people in one group didn't show the usual tendency to deny their biases. Those who skipped the article did.
Once you admit to your investing biases, you can begin to overcome them. But don't expect to rewire yourself. "You can improve, you can become more self-aware, but you can't change who you are in a meaningful way," says Frank Murtha, a behavioral-finance consultant with MarketPsych, which offers psychological-training services to traders and money managers.
Becoming more self-aware involves several steps. Among other things, Murtha and his Market-Psych partner, Richard Peterson, have developed a quiz to help figure out when you're acting impulsively regarding your investments and when you're being consistent. Their book, "MarketPsych: How to Manage Fear and Build Your Investor Identity," can help you learn to identify and control your biases. Plus, it's a fun read.