If you are seeing this – congratulations! We made it through November 8th and can return to some semblance of normalcy in our news cycles, television ads and Twitter feeds. Barring a truly horrifying outcome of an electoral college tie, we have a new President. While I don’t know who that person is as I write this, I can say with some amount of certainty that a good number of you feel pleased, a bunch of you feel appalled and a small number are indifferent.
That’s to be expected. People are built to have strong opinions. At a subconscious level, in the animal part of our brains, we are designed to see things in black and white. ‘That lion over there is either safe or it’s going to kill me’ and if we’re going to survive we must make that decision quickly based on whatever information we have available. Thus, we form our initial impressions and act accordingly.
We aren’t trying to survive on the plains of the Serengeti anymore, but we still use the same tools to form our judgments. Immediately upon encountering a new person, product or idea we use all our senses to decide right then whether it is good or bad. The first impression that results is the basis upon which all future information will be interpreted and will be highly influential on our behavior.
For example, suppose I give you the following information about two men, Alan and Ben. Alan is intelligent, industrious, impulsive, critical, stubborn and envious. Ben is envious, stubborn, critical, impulsive, industrious and intelligent. Who do you like more?
Most of us will choose Alan, according to the findings of psychologist Somolon Asch in his study on impression formation. Unfortunately, most of us will be wrong. Perhaps you already noticed that the qualities listed about these individuals are identical; they are just listed in a different order. So, why if the two men are virtually the same are we favoring Alan? Because our brains are geared toward overweighting first impressions and Alan’s good qualities are named first.
As you see, first impressions might not always be completely accurate depending on how information is presented to us. Now, let’s explore how these first impressions become the basis of our decisions in the future.
Assume after some time you hear Alan’s name being considered to lead the neighborhood HOA. When we think of Alan we are likely to have a fond recollection of him as a smart, industrious guy and conclude he’s apt to do the job. Alan is smart, so he probably makes a good leader.
We took one good quality of Alan’s and assumed that it meant he has other good qualities. We had no evidence that Alan would make a good leader. In fact, we were told he was stubborn and impulsive which might suggest he wouldn’t be the best person for the job. Yet, we’re willing to ignore all that ambiguity and substitute intelligence for good leadership. This happens all the time. ‘She’s pretty so she must be nice”, “He’s rich so he must be smart”, “I like him so he must be trustworthy.”
This is called the halo effect. If we see one trait we like, we form a positive impression overall even if that means overlooking shortcomings, flaws and information that contradicts our opinion. It works the other way, too. “He didn’t give money to my charity; he must be selfish.” As we read it now, we can see this logic is flawed but in the normal course of life these thoughts go unexamined. What’s more is that we use them to make decisions about what we buy, who we vote for, what we believe in and how we spend our time.
When this thinking collides with our finances, we can get ourselves in trouble. Perhaps you love your iPhone so you bought some Apple stock. “I like my phone, so Apple is a good investment.” Maybe you think insurance is overpriced. “Insurance is expensive, it’s a waste of money.” Or you might look to people you know for financial inspiration. “My golf buddy seems smart. He’s a good investor” or “My friend knows my broker. He is a good guy.”
These conclusions aren’t based on objective facts or the suitability for the product or investment in your financial plan. They are conclusions that come from impressions; impressions that can be very misleading if left unchallenged.
We can’t prevent the halo effect from occurring but as with many of our cognitive errors, awareness is a powerful counteragent. Check before making a decision and consider how your choice might be influenced by your feelings about a particular person, company or industry. Do you have all the information? Have you sought data from multiple sources? What assumptions are you making? Can you think of a scenario in which you would make a different choice?
Our impressions and opinions are going to lead us to certain conclusions. When it comes to the most impactful decisions, it’s important to challenge those conclusions and ensure they have merit. To put it in Presidential terms, when your gut tells you something – – trust, but verify.