This is the first in a connected series of posts that will address how cognition and cognitive bias impact the client’s perception of risk, the ability to feel safe and the resulting decisions they make.
The most important question ever asked
There’s a fundamental question your brain is always asking. Every second of every minute of every day. In fact, it’s the most fundamental of all questions. Not only is it foundational to learning, but it was this question that allowed humans to evolve, survive and flourish.
The query occurs when you are walking into your home, eating a bowl of cereal, standing in line at the grocery store, starting a new job or traveling to a new city. It’s a question that may determine your level of stress or mood as well as how thoughtful you are about your current situation and future prospects. More importantly, understanding this question is one of the most important things advisors can do to better guide their clients.
The question is also quite simple, going something like this: What is new or different that I need to be paying attention to?
This question creates a constant feedback loop of information retrieval, a covert mental algorithm repeating in an endless loop until one day it calls it quits. And you don’t even know it’s happening.
The Discerning Brain
Through the history of human evolution, this question has served the purpose of helping understand one thing: is there a potential threat in the environment. It doesn’t tell a person that there is indeed a threat. Whether the answer comes back as “yes” or “no” simply lets us know that something isn’t normal, and we need to be alert and pay attention.
Your brain has a finite amount of energy, so it can’t waste that energy on things that don’t matter, i.e. non-threats to survival. Still, it can’t assess the potential for risk in every sight, sound, smell and physical sensation it takes in every day. So, it has to first decide whether there is even a potential for risk. If so, it flicks the mental light switch to see better and look around.
This means that attention is a finite and valuable resource. Like anything of value that has a limited supply, there’s a cost to its acquisition and use. The brain seeks to mitigate opportunity costs where attention is spent on the wrong thing.
Cognitive Ease and Strain
Given the value and limited availability of attention, the brain relaxes when the environment appears safe and familiar. It exerts less energy and spends less attention currency. In this state, which is referred to as cognitive ease, people are more likely to be in a good mood, less analytical, more trusting and prone to making quick and intuitive decisions. In his book, Thinking Fast and Slow, Daniel Kahneman refers to the sum-total of those ease-inducing mental thought processes as System 1.
What happens when the brain identifies new and unfamiliar stimulus in its environment worth paying attention to? System 2 kicks in. When this happens, the brain decides it’s time to spend some of its attention currency as it shifts from a state of cognitive ease to cognitive strain. It then analyzes and thinks more critically to determine whether the new information presents a risk. The thing to understand about System 2 is it’s objective is not to gain new insights, wisdom or expand its understand of the world. It doesn’t care about new ideas, perspectives and views. System 2 is designed to defend and protect the perceived safety of the beliefs, perspectives and physical conditions that make up the status quo. Anything that challenges the status quo is a potential threat that poses risk, regardless of whether the status quo is a good place to be or not. It isn’t looking to make new friends, only protect those it already has.
Empowering or Threatening?
Consider this for a moment. Newness, novelty and unfamiliar information or situations require the cognitive strain of System 2. So, cognitive strain is necessary and important. Without it, we couldn’t learn, adapt, grow or create. We could not evaluate our past to understand our present and then make plans for the future. We would only exist in the moment, a life void of challenge or aspirations.
It’s important to realize, then, that the mental processes humans use to learn are the same as those they use to identify environmental threats. This means that the threat and potential of risk, real or perceived, is at the heart of both learning and survival.
The takeaway for advisors is that there is a fine line between educating and empowering clients to learn and take action, and putting them in a position of threat. In both cases, new information is being presented that the client needs to spend attention currency on. The difference comes down to the client’s perception on how this new information affects their perception of the status quo.
If the new information does not appear to pose a threat, it will be more openly received. Conversely, if they perceive it as a risk to their perceived status quo – their beliefs, values, perceptions and wellbeing – it becomes a threat to be resisted.
Both may influence the client to take action. The question is: what type of action will they take? This, however, is a question we will discuss next week. Until then, consider the following scenario and questions to get ready for next week.
Something to think about…
You have two clients who are oddly similar in temperament, personality and means. In addition, their retirement goals are the same, requiring the same action.
- Client A is focused on how much less they will have to spend today by saving for retirement. So, they are resistant to saving at the rate you propose.
- Client B wants to maintain the same lifestyle and income in retirement as they have while working. So, they save the recommended amount.
- How do each client’s perceptions about the status quo and how they’re spending their attention currency differ?
- Considering each client’s differing perspectives on their status quo, what does each likely believe they stand to lose?
- How are their perceptions about their status quo positively and negatively reinforced by their decisions?
- Positive Reinforcement: When something desirable is received as the result of an action.
- Negative Reinforcement: When something undesirable is received as the result of an action.
- As an advisor, how can you direct attention to guide these clients by focusing and framing your communication?
I want to hear from you!
I’d love to hear all of your responses! Please share some of your answers in the comment section.