Four questions to know your biases — loss aversion, present bias, herding, and deference to authority.

When to use　Before a big purchase, contract, or solicitation. Once a year, when reviewing your own biases.

Human judgment deviates from the "rational person" assumed by standard economics, and it does so in a consistent direction. The 2002 Nobel Prize in Economics announcement mentioned Kahneman's research, which demonstrated this systematic deviation. Since these deviations have patterns, we can name them and learn about them in advance. This is not a procedure to correct biases, but to know in advance the situations where they operate.

Four questions and the answers from a Japanese survey

First: If you invest 100,000 yen, there is a 50/50 chance of a 20,000 yen gain or a 10,000 yen loss. What would you do? In a 2022 financial literacy survey, 74.2% said they would "not invest." Second: Receive 100,000 yen now or 110,000 yen in one year? 32.1% answered that choosing the former, assuming both are guaranteed, "applies" to them. Third: Do you often buy something recommended with "This is our best-seller"? 4.7% said this "applies." Fourth: Have you ever stopped verifying something the moment you heard a person's title? The top method cited by the National Police Agency is "fake police scams," where perpetrators impersonate police officers.

By age

In the same survey, people with strong loss aversion who do not invest are 78.4% in their 60s and 77.9% in their 70s. People with a strong present bias are 50.7% in their 60s and 59.3% in their 70s. People with a strong herding tendency were 13.4% in their 60s and 11.9% in their 70s. Place your answer next to the number for your age group.

In your own case

Of the four, which is strongest in you? This procedure involves writing down one situation where that bias is most costly (borrowing, selling, being rushed) and deciding to "sleep on it" in that situation.

Procedure

1. Loss aversionA 50/50 chance of a 20,000 yen gain or a 10,000 yen loss. If you refuse, the pain of loss is greater than the pleasure of gain.
2. Present bias100,000 yen now or 110,000 yen in a year? If the former, your planning self and your doing self are different people.
3. HerdingDo you buy when told "It's the best-seller"? If you have no internal reason to join the queue, it's a herding bias.
4. Deference to authorityDid you stop verifying after hearing a title? Authority and urgency often come as a pair.

In other countries

In a 2023 survey by the OECD/INFE across 39 countries and economies, 70% of adults consider affordability before buying, while only 26% compare financial products from multiple providers, and 24% seek advice from independent sources. 15% had been victims of financial fraud, and about two-thirds of them did not meet the minimum target score for financial knowledge. Biases are universal.

Bibliography

• The Prize in Economic Sciences 2002 – Press releaseThe Royal Swedish Academy of Sciences（NobelPrize.org）
• The Prize in Economic Sciences 2017 – Press releaseThe Royal Swedish Academy of Sciences（NobelPrize.org）
• The Prize in Economic Sciences 2022 – Press releaseThe Royal Swedish Academy of Sciences（NobelPrize.org）
• Financial Literacy Survey (2022) Survey Results.Central Council for Financial Services Information (now succeeded by the Japan Financial and Economic Education Promotion Organization, J-FLEC. Shiru-port is an archive site).
• List of methods and countermeasures you can take starting today (SOS47 Special Fraud Countermeasures Page).National Police Agency.
• How To Avoid a ScamFederal Trade Commission (FTC), Consumer Advice
• OECD/INFE 2023 International Survey of Adult Financial LiteracyOECD（International Network on Financial Education）

Related Lectures and Notes

P8　P1　Three steps when solicited — Hang up, Verify, Talk.　Fraud techniques — Four signs and the methods made public in Japan