¶ Understanding Cognitive Biases
Hey everyone, Charlie Morgan here and in today's video we're going to talk about cognitive biases and how to use the psychology of human misjudgment to make money and make better decisions. And a cognitive bias is... basically a like a heuristic or a principle of psychology and what it means is that the way that our brains are wired are not always optimized or geared towards practical logical objective decision making
And the reason that this is important to understand in life and in business and in money is because A... In order for you to make money with a business, you have to sell things and you have to market things, which means that you have to persuade people to purchase from you, either through a website or a phone call or something like that.
The easiest way to persuade someone to do something, specifically a commercial transaction, is to understand the limits of their psychology, to understand the... the biases that their brain has that we all have, so you can leverage them. Because if you understand how someone's brain works, then you understand what to say and what to put in front of it to get it to do something. And so I discovered these cognitive biases.
nine years ago, give or take, and they've made me tens of millions of dollars. And so I'm going to explain them to you. Not a very shiny topic. This isn't something that is like... you know, all fancy and all amazing. There's no Rolls-Royce Cullinans here or super yachts, but these things, they're very powerful. Now, the reason that they're very powerful is because they are what we would call double-edged.
And double-edged basically means like we get this term from swordsmanship where you have a double-edged sword, you know, because some swords back in the day were only sharp on one side. And so if you had a double-edged sword, it meant that... The sword would be sharp on both sides, meaning it had use cases to swing in both directions. And the reason that cognitive biases are double-edged is because they have multiple use cases in business. First of all...
¶ Reward And Punishment Tendency
they help you with your marketing and your sales. So they make it incredibly easy for you to persuade people and they make it incredibly easy for you to manipulate people, in essence, for your own commercial game, which... Might sound Machiavellian, but it is true. But second of all, if you're aware of these cognitive biases, then you get to improve your decision-making.
And basically stop yourself from getting scammed or ripped off. Because these cognitive biases, they're not just exclusive to the people you sell to. They're also inclusive of your psychology. These are like... It's like an unwritten rulebook for human behavior. And we all act these biases out no matter what. And so if you understand them, first of all, you get to wield them and use them in your marketing. And, you know, over here.
You get to use them in your marketing efforts and you get to use them to sell things. But then second of all, it means that you're less likely to make a mistake and be sold too. And so anytime that you've bought something impulsively or you've made a terrible decision in your life that's caused all sorts of anguish and pain, it's usually because one of these biases is prevalent.
And the easiest way to not fall prey to them is to become aware of them. And so that's the purpose of this video is not only awareness, but explanation. And as I go, I'm going to attempt to give you... practical implications as to how I've applied these in my own life for my business and how I've used them to make money. So the first one is called reward and punishment.
super response tendency. The reward and punishment super response tendency, this is kind of like the epitome of modern psychological understanding of how human nature works. So this basically means that... People do things for a reason. Human behaviour is predictable and reliable and can be tracked. And the reason that people do things is really because of one of two reasons.
That's either reward or punishment. In other words, pleasure or pain. And the word super response basically indicates that we have a super tendency to respond to incentive or pain. And there's a quote from Charlie Munger who actually came up with this bias and all the other biases I'm going to explain. He didn't come up with them, but he observed them, right? You don't come up with a bias, you discover it. It's already there.
He basically said, show me the incentive and I will show you the outcome. And another quote from ironically Charlie Munger's business partner, Warren Buffett, is the ants go where the sugar lies. And what that basically means is people, or any organism on the planet really, has a massive bias and draw to reward. And this might seem obvious, but this is kind of the point I'm making here, is all of these biases, you act them out and everybody else acts them out all the time.
But because we're not aware of them, we forget to leverage them in our advertising. And so you've probably heard of the book $100 Million Offers by Alex Hormozzi. And the whole reason that the offer thing works so well and is so effective at drawing customers and the reason why you have this massive offer with the risk reversal and stuff is because it's basically a reward signal.
If you've ever wondered why discounts work so well, or if you've ever wondered why incentives work so well, it's a reward signal. And an example that I can give you in my company that I run at the moment, Imperium Acquisition, is I have a team of salespeople and those salespeople are paid purely solely on commission. And the reason they're paid on commission and the reason they don't receive any sort of base salary...
is because I want them to be rewarded and incentivized to make as much money as possible. Because I could pay them a salary and I could pay them a base, but... The problem with paying a salesperson a base is it makes them comfortable and... It doesn't really give them any incentive to go the extra mile. They're just going to fulfill quotas and criteria that you set and not think for themselves. Another example is one of the partners in my company, Alex, our sales manager. He is...
¶ Pain Aversion In Decision Making
paid from the company purely on profit share. And what this does is it basically means that he receives a percentage of the monthly profits from the company every month as his income. And what this does is it incentivizes him to think holistically about the company.
So let's say, for example, with my sales manager, who's also kind of a business partner at this point, if I paid him purely on sales commission, then he is incentivized to spend as much money as possible to make as many sales as possible. That's great from a sales perspective, but it's terrible from a profit loss perspective. And so if he's incentivized to just spend as much money on ads and marketing as possible, then what that means is the company will actually make less money.
because he's purely on commission. And so this is kind of like you have to learn to manage incentives, basically is what I'm saying here. And you have to learn to understand that people, they won't do things. for you. No one ever does anything out of somebody else's self-interest. You know, there's a quote from Benjamin Franklin. who he basically said, which I think hit the nail on the head here, he said, if you were to persuade a man, appeal to interest and not to reason.
And what that means is when you try to get people to do things for you, what you usually try and do is you try and reason with them and you try and use logical arguments to persuade them to, you know... take their energy and behave in a way that benefits you. But the real thing is that if you want people to do things that benefit you, they have to have some sense or a strong sense that in the process they will be benefiting themselves way more.
And that's the point that I'm making here. Reward and punishment super response tendency. If you want to bias people to do things for you and make you money, you have to give them a reason to do so. What that means is that in order for you to make money, they have to make it as well. Now, the second thing here is punishment. And basically, we all know what the word punishment means. It's a idea that if you make a mistake, then you will be punished.
And this is just psychology 101. This is kind of like, for example, in psychology, we've got operant and classical conditioning, which are two methods of learning. There's lots of studies done on this that show that animals, specifically humans as well, if they do something and by doing that thing it hurts, i.e. there is a punishment.
then they won't do it anymore. And so in your company, if I have, for example, like in my sales team for a price, I can keep on the sales example here. If we have someone who's underperforming and is... failing then they will be fired and you know that is a sort of global punishment in the company and all the other sales reps can see that thing acted out in live form
It's kind of like if a kid is speaking out of turn in a classroom in the 1960s and the teacher hits him with a ruler. All the other kids suddenly understand that if they do what he did they're going to get what he got which was punishment which is basically the... punishment is like the gateway to pain. And we tend to be pretty pain avoidant in our nature as human beings, as basically every animal on the planet is. And therefore, you want to use this.
Now, you can use this, for example, in sales conversations with prospects where if someone's not certain about buying from you, then you can always remind them of all the painful reasons as to why... you know, they should and, you know, why they're failing and why they're struggling and what happens if they don't buy, then they're going to be, you know, punished by life because they haven't got what they want, right? So that's really the first thing is basically just incentives and punishment.
if you want someone to do something you have to have the carrot and the stick OK, so not only do you have the reward, so all of the upside and the potential upside, but also the punishment. And what I can tell you from a management and leadership based perspective and a sales perspective is that people tend to respond.
way more to punishment and pain than they do reward. And in my experience with my own psychology and having helped nearly 3,500 entrepreneurs with client acquisition and sales and marketing, The thing that really moves the needle is the punishment. The first thing that moves the needle from a client acquisition standpoint is the reward and the outcome. But to get someone to actually arrive at a buying decision.
People don't buy their way into pleasure. They buy their way out of pain. And if you understand what pleasure they want and what pain they have, you can exacerbate and intensify those emotions. And you will get this super response tendency towards purchasing or anything else, okay? So the second thing is the liking slash loving tendency.
¶ The Liking And Loving Tendency
So this is a pretty big one because what this basically states is that if you like or love something, then you will give all of its ideological descendants more credence. What that basically means in plain English is, let me give you an example. Let's say that you really like Donald Trump. And what that means is that if you like or love him, then he can do no wrong.
And so let's say that you love Donald Trump and you're a Donald Trump fan. And suddenly out of nowhere, Donald Trump does something or says something or acts on something that is objectively heinous or terrible.
So let's say, for example, that Donald Trump wanted to bring back concentration camps, which I don't think he does. But let's just say something... You can't really imagine something much worse than that from a political or ideological... perspective right so you know with the nazis and stuff so let's say that you know you took your favorite politician like trump and he decided he was going to bring back something awful which you know i don't think he plans to do right but for example
What a lot of people would do is they would say that, oh, the bringing back of the concentration camps is a good thing. And the reason they would say that is because they are biased because they already like or love Trump.
And this is incredibly dangerous. And if we explore and observe the annals of history here and go down memory lane for a second, there's... hundreds if not thousands of examples like global examples of populations falling in love with a leader or a figure and that person eventually doing something really wrong and really bad
and then ending up in a bad place. For example, let's take Napoleon. So Napoleon had his very successful campaigns. He gets banished to an island, and then he makes a return to his country. And France at this point is just basically in total economic and political despair. The Republic's been torn apart by years and years of war, but Napoleon makes a return.
And what he does is he leverages the fact that everyone likes and loves him. And so what happens in the end is he goes back to France and he builds this new army and conscripts, you know, all these 18-year-olds. into the army and he marches against the um the coalition so the austrians and and the english and then he fights at waterloo and he loses now objectively the signing up for you know although a lot of people didn't have a choice but fighting that fight
And that battle, France, you know, entering the last battle of Waterloo in that coalition was not a good idea, objectively. But the problem was, is because everyone liked and loved Napoleon as this emperor that restored greatness to France. They all kind of backed him. And this is quite dangerous. Now another example I can give you here comes specifically with sales and marketing.
It shouldn't be a surprise to you that if someone likes you or someone loves you, they are far more likely to purchase from you. And so this is why when I'm entering any sort of sales negotiations or when I'm ever trying to get into business with someone, I will try my best to not like, love, hate or dislike the person. Because what I don't want... is for my judgment to become clouded and gray and misty because of my liking or loving for someone and this happens a lot with
terrible business dealing. So we've all got that person in our life, like that friend or that cousin or that father or that sister or that brother whom we love and we like significantly. And then one day they come to us and say, hey man, hey girl, I've got this insane idea for a business. Let's do it together. Let's invest. I need some money, blah, blah, blah, blah, blah. Everybody knows someone like that, right? And the problem is there's a lot of people they invest in.
stuff like this because they like or they love. If someone, like a random stranger, came to them on the street and said, I've got this business idea, the person would say, no. piss off, I'm not investing in your business, I don't know you, this is a terrible idea. But if it's attached to someone of whom we already like or love, we are incredibly liable to misjudge, misperceive and make a big mistake.
And this happens in your company. So when you have team members and employees, you want to avoid, I don't want to say liking or loving them because I have a good relationship with all of my team members, but... you need to be able to look past love and stuff like that. Because if you're not careful, you're going to have team members that you really like and some that you might even love as good friends, right? For example, some of my best friends work for me or with me.
I love them to bits. But there are times in business where I have to avoid my irrational tendencies and look past my love for them and attack them. for poor work quality or laziness or whatever, because at the end of the day they are human and they are liable to making mistakes. And if you're not careful... this thing it will really get you especially with the ideological figure thing like if you look up to people and you idolize people then in your mind that person can do no wrong
I can give you loads of examples for history where this happened. So you need to be very careful there. Now, on the flip side, the alternative to this, which is also just as powerful.
¶ The Disliking And Hating Tendency
is the disliking and hating tendency. So this is basically just what I said before but inverted. And so let's take the example again of Donald Trump. And there might be people watching this video or people that you know who despise Donald Trump and they hate him and they think he's the worst thing ever. And once again, the flip issue here is let's say that you dislike someone.
or you hate someone and that person then comes to you with a piece of advice or that person articulates information using their verbal prose that is exactly objective and perfectly right and incredible advice. What will happen is the advice that person gives you will be filtered through the guise of hatred and you will reject that advice or that information as wrong or terrible because of the association it has with the person who said it. And so let's say that you took a political figure
And that or let's say that, you know, someone of a specific group, like a religious group or something, said something and you were like, oh, no, I hate that religion or I can't stand that religion. Or for whatever reason, your intolerance got the better of you. You fool. you would just reject it. Everything that that person says would be rejected because of your hatred. And this is a really dangerous thing because, you know...
So what's going to happen through your personal history is over time, you're going to build, I wouldn't say like a list of enemies. You're not going to build a list of enemies. But as you go through life, there's going to be people that you like and people that you dislike.
And you could probably list off on one or two hands how many people you actually dislike. Hate is strong. You probably don't actually truly hate anyone, although maybe you do, but it's very unlikely. But you can think of plenty of people that you dislike.
And some of these people that you dislike, they might be in your social surface area. And what that means is that you might have to come into contact with them. So it could be someone at work or it could be someone at home or it could be someone online.
If you dislike them or you hate them, then you're going to be in for some trouble because sometimes they might say something that is beneficial to you and you might reject it. And the danger here, the real danger, is the person you hate or dislike says something. And you hate them so much that you do the opposite of that thing. Which means that some... Like, let's say that you hated your uncle, right? And one day, you know, your uncle told you to, you know...
He was like, oh, man, Tesla's on the way up. You should buy Tesla stock. And you're like, no, I'm going to show him. And then you short Tesla stock because you hate him so much you want to do the opposite. People do this, right? It's crazy.
Then let's say the test stock goes up and now you lose loads of money. It's like just because you don't like someone doesn't mean they're wrong. And that's kind of the point here. And, you know, I've fallen prey to this many times. And, you know, I've learned now that. I probably shouldn't really dislike or hate anyone. And the same thing is true with like companies. So, you know, like if you if you a lot of people dislike Elon Musk or they hate, you know.
Tesla, right? And what then happens is like, What that means is everything that company does, every decision that company makes or every product that company makes or anything that company invests in, they hate. For example, let's say that you hate Elon Musk and you hate Tesla. because you're one of these supercharged, woke people that despises like Elon Musk. And then you're at a bar and you meet someone.
And that person could be the love of your life. They've got the exact personality that you want. You hate Elon Musk, but you're talking to them, blah, blah, blah. And, you know, you go on like five or six dates, you start falling in love with them. They are the perfect person for you in every way, shape or form, the perfect partner for you, perfect mother or father of your children. And then on date six, you find out that they worked for Tesla or they do work for Tesla.
And now, suddenly, because you hate Elon Musk, this person who could have been the ideal romantic partner for you is suddenly polarized and you ostracize away from them because of your hatred. It's very silly. You do not want to fall prey to this. And that's that. This is also why as a boss and as a manager and a leader, it's very important that your people, your employees, they don't have to like you and they don't have to love you. But they shouldn't hate you and they shouldn't dislike you.
There's a fine balance to sort of mark out here because if your employees dislike you or hate you, then they're probably just going to leave. They might be afraid of you, but there's a difference between being afraid of someone. And hating them because people usually only hate or dislike people because they've done something wrong to them or they're Machiavellian or whatever that. And it's very hard to build a cohesive, strong, productive company culture when everyone's energy is...
¶ Doubt Avoidance And Sales
going towards hating you. Okay. So I would strongly advise that you try and build, you know, people don't have to like you, but just try and avoid them, try and not make them hate you. Now, number four is doubt. avoidance tendency. Now doubt avoidance tendency is kind of exactly what it says it is and this is basically we like to avoid doubt.
Because doubt is a form or manifestation of a psychological premise described as cognitive dissonance. And cognitive dissonance is basically like when you do something... You're thinking about doing something, but it doesn't quite feel right. And an example of cognitive dissonance is buyer's remorse. So if you've ever purchased something and after purchasing it, you're kind of like, oh, I didn't really need that or I kind of regret buying that, you know.
It's a bit of a painful thing to deal with, cognitive dissonance, because... it's you know you've made a decision to do something and you've acted out that decision and you know now part of you or a piece of you regrets that decision and therefore you don't feel psychologically whole or
aligned or complete and this is a symptom of you know when someone's got multiple components to their shadow or their personality and they kind of want two different things and it's it's very unsettling and painful to think that there's two sort of versions of you that want different things and so what happens is we have this thing called doubt avoidance tendency and one thing that I've learned in business and in life is that doubt is actually a pretty good thing.
In some situations and circumstances, it's not. So for example, if you're a salesperson or on a sales call, you want to have no doubt. You want to be fully confident on the sales call. In the same way that you don't want to doubt yourself.
You know, if you're on the journey to becoming successful and you need to muster up as much self-belief as you can and you need to be as confident as you can. And if you have doubt about yourself, then that doubt is going to eat away at your actions and you're going to become successful. But when it comes to making decisions on hiring people or purchasing things or moving forward in your business, when it comes to these decisions, it's really, really helpful to listen to your doubts.
Because doubt is painful and doubt is incredibly difficult to deal with because it is this sort of vehicle of dissonance and it's not pleasant to feel. you know it's kind of like there's a there's like a fork there's like this this fork in your sort of decision making and it's it's not comfortable at all it takes a lot of energy to fill it out but in my experience Anytime that there is doubt present, it's worth exploring because what doubt shows you is it shows you a sort of chain of time.
Or like a chain of the future that could unfold if you made the decision and it wasn't the right thing to do. And so I've had this before where when I first moved to Dubai, I wanted to buy a Lamborghini. I wanted to purchase a Lamborghini Aventador. I wanted to get an SVJ with a Jintani exhaust. It'd be like $400,000. I was good for it. I was like, yeah, I could buy this. But I started looking at buying them online. And for some reason...
For some reason, there was just this little doubt in my mind. And what most people do when it comes to making decisions or impulsive decisions is They shut the doubt away and they just bury the doubt and they ignore it, especially if there's some massive reward super response tendency here, which is having the status that comes with a Lamborghini, right? So I had this doubt.
And I was just like, I couldn't, I couldn't figure out where this doubt was. It just didn't, part of me, only maybe like 2%, 3%, 4%, 5% of me was sort of saying, maybe we shouldn't do this. Maybe it's not a good decision. Maybe it's a bad idea. And so I listened to that doubt and I delayed the decision for a couple of weeks. And the longer that I delayed the decision and the more the impulse wore off and the more that reward incentive sort of, you know, I separated myself from it.
the more this doubt started to exacerbate. And I realized that buying the Lamborghini would have been a huge mistake from a business, a financial and an incentive perspective. And it would have done all sorts of bad things to my psychology. It would have reinforced.
components that I didn't want to have and that were not conducive to my company or the growth or the vision or the mission I have for my business. And, you know, there's been lots of examples of this where, you know, if you go on like a date with someone. and you're dating them or maybe you're trying to hire someone and you interview them and
you know, part of you is incredibly emotionally charged to be like, yeah, let's see them again. Let's hire this person or I love this person. But then there's a little, little bit of you, little piece of you is just like, not so sure. You need to listen to it. You need to nurture it.
And you need to know when it's right and when it's wrong, but to understand that it definitely has utility. And when you're making decisions, you should. Now, the flip side to this is when you're trying to sell or convince or persuade someone to...
entertain a commercial transaction with you, i.e. buy from you, you need to do everything you can to remove all of their doubt. Because the only reason someone won't buy from you is because they have doubt that it is the right decision. And so if we understand that...
people like people have a tendency to avoid doubt if you have a solution to someone's problem and it has some emotional attachment to it then that person wants to buy from they want to believe you they want you to be right and so you need to double down on this and remove all doubt in their mind
through your marketing messaging, through your sales scripts, through objection handling, that it is the right decision and that's how you close deals and that's how you make money. So the next one, number five, is curiosity tendency.
¶ Harnessing And Strategic Curiosity
There's a good book on this called Curious by, funny, would you imagine the book's called Curious? It's called Curious by Ian Leslie. And it's a really good book. And I read it when I was 17 or 18. And in the book Curious, there's basically two types of curiosity. You've got diversitive curiosity. I think that's how you say it. And you've got epistemic curiosity. So diversitive curiosity, the diversitive curiosity.
which I think it's called, is this kind of curiosity that just keeps you scrolling on social media or keeps you refreshing the news or keeps you going back to the YouTube recommended page. This is the monkey brain security, sorry, curiosity that just... continuously refreshes and it can't be satiated. But a really interesting form of curiosity is epistemic. And epistemic curiosity is the part of our brain that...
is invested in things like movies or TV shows or books or businesses or, you know, podcasts or this video, for example. It's where, like, there's a lot of leverage in using epistemic curiosity for focus. And it's how our brain knows what, like figures out what to focus on. Because you've been sat here for 30 minutes watching me talk about psychology and cognitive biases. And that's because you're curious epistemically about what's coming next and, you know, what's going to become.
And the reason that this is a really strong bias to understand, not only from a personal decision-making perspective, but also from a sales and business perspective, is that you can use curiosity massively to your advantage in your sales process. An example of this is when I'm building client acquisition systems for my business, so when I'm building ads or funnels or cold emails or cold calling scripts or cold DM scripts or...
Anything that you would, you know, if you want to run a business, you need to know marketing, right? And one of the primary biases that I leverage in my marketing is curiosity. And what this means is... I keep my marketing and my messaging for what I actually sell and how it works incredibly vague. And so all of my marketing and all of my...
All of my stimuli that I create to persuade people to book sales calls with me to buy and part of their money is all about the incentive and it's about the high level outcome. I never talk about... our course or what we actually do. And I never talk about the systems we use or how it works. None of that. What I want to do in my marketing is create as much curiosity about the product as possible so the person has no choice but to either book a call or buy it to understand how it actually works.
And this is remarkably effective because what a lot of people do on their sales process and their marketing process is is they try and include as much information about their product as humanly possible, and they get way too much information. And what this does is it basically kills the curiosity. And, you know, what people are... or at least prospects or consumers in the buying mode is they're kind of like squirrels, right? So you know how squirrels during the summer will...
like go and bury loads of nuts in the garden. We used to have this, the house that I grew up in had like lots of squirrels and like I used to see them, we had a walnut tree and like an acorn tree or something. And what these squirrels would do is like they'd dig up like the garden.
And they'd dig up the field by the side of our house and they'd bury these nuts. And they would bury them so when the winter came around, when there were no nuts on the trees, the squirrels would dig up these nuts and eat them so they had something for the winter.
And that's what prospects are like when they're looking to buy, is they're like squirrels. And what that means is, you know, they're curious and, you know, they go around, you know, in buying season, they go around to all these options and all these companies and all these places. And...
They get all these little options and they bury these options away in their Google hard drive or in their emails and they bury them away and then they don't make a buying decision for like nine months later. And when they do, they go back to all the nuts and they see which one's the best and they pick that one.
that's like a problem, right? Because you want to make sales now immediately. And so like, for example, in my business, I run a VSL to call funnel, which means that if someone wants to buy my product, they have to...
go through a video sales letter on a funnel and then use Calendly to book a call. And the reason that I don't put my price or the contents of my product... or anything like that on my website or on my funnels is because I want people to have to schedule a call to receive the information they are curious to receive because then that way they can't be...
You know, they can't squirrel away as an option. They have to understand it fully. And that's not to say that they won't do this after the sales call, but at least then on the sales call, we have a chance to build enough emotion and get them in enough pain with enough conviction to make a decision there and then on the call.
And the amount of times that I've had people book sales calls to say like, I'm never going to buy from you today. Like I'm just option hunting. And then 60 minutes later, they purchase. It happens all the time. And so that's the curiosity tendency. It's really effective and you need to be careful of this for your own sake as well because this does not exclude you. You are by nature a very curious being and...
In business and in life, if you want to be successful, you need to pick what to be curious about. Because curiosity is kind of like this, it's like a renewable energy source. And what this means is every day you wake up with 100 units of curiosity, right? For example, just use an arbitrary number, probably not actually 100, but every day you wake up with curiosity. And it's kind of like...
Imagine you've got psychological solar panels in the sun. This energy constantly recharges, constantly, constantly recharges. A lot of your psychological burden is put into this, right? And what that means is... You've got to use it. And if you don't direct this energy and if you don't channel it and if you don't build a grid to manage it...
then this energy is going to go in all sorts of weird places. And before you know it, you're watching random Netflix shows or you're playing random weird video games or you're going down some... conspiracy rabbit hole when you could be putting that energy into your company and into your business. And so you want to make sure that your curious energy, this epistemic curiosity mechanism that's built into you is as aligned with your goal as possible.
¶ Inconsistency Avoidance And Growth
because it is really a never-ending source of energy. And we don't really have many of those. So the more you can leverage it, the better. So number six is inconsistency, avoidance, tendency. The thing about this one... everybody's heard about or maybe you haven't but most people have heard about the commitment consistency bias or the confirmation bias where we seek to confirm what we already believe to be true and in life we
we make our mind up and then we try to confirm what we've made our mind up to be right and so you know if you make a decision then what's going to happen is you're going to start justifying that decision and seeking information to confirm it's correct and this is not helped at all by social media algorithms and the echo chamber crisis where if you become polarized to a specific political poll or a specific idea then
the algorithms will show you more and more stuff to confirm that idea is right. And what happens with a lot of people with commitment consistency bias is they really snooker themselves and lock themselves in to basically polarisation. which basically means like, you know, any sort of political or ideological or dogmatic idea. And then they just kind of become the vehicle for that idea. And then the idea takes them over. And even if it's wrong, they don't listen to anybody else.
And if you've ever tried to argue with someone before, you know, politically or in any way, shape or form, you'll realize that people don't like to be inconsistent. What a lot of people forget is that for every action, there's an opposite and equal reaction.
In the same way that we like to commit to and confirm our existing biases and beliefs, we hate to be inconsistent. And so Charlie Munger's theory on this, who's the guy who sort of... wrote about these cognitive biases initially and popularized the idea of these cognitive biases, Charlie Munger's idea is that it's not that we want to be consistent with what we believe, it's that we don't want to be inconsistent.
because remember it's about avoiding pain as opposed to moving towards pleasure and it's very painful to be inconsistent because this is where we start experiencing cognitive dissonance and so an example of cognitive dissonance from a inconsistency of audience perspective would be imagine that you um believed i'm going to keep using the political analogy right um imagine that you hated donald trump and you thought he was a terrible person and you went to vote
for the politician of the day, and you voted for Donald Trump. Like if you did that, then there's this conflict, there's this misalignment between your action and your belief system. And that would create... cognitive dissonance where you've you've done something out of alignment with what you believe to be true in the same way that if you were an atheist and you then decided to go to church on sunday you you'd be like
it wouldn't feel right to you right there'd be this dissonance and so you need to be really careful here with inconsistency avoidance now a cool thing you can do with inconsistency avoidance from a marketing and sales perspective to keep this relatively practical and actionable and tangible for you
If you're on a sales call with someone or you're building a marketing funnel, it helps to get minor commitments throughout the call as to create these temporary... identities for prospects that they then have to adhere to so for example let's say that you're on a sales call with me and um you know I asked you like halfway through the call, like, hey, okay, man. So thank you for that information about your business. Just so I have a gauge as to what you're like.
In your life and in your business, are you the kind of person that makes decisions quickly and takes action on things when you think something's right? Or do you prefer to sort of procrastinate and take a long time? The person's obviously going to say, oh, like, you know, I take action as soon as possible and I'm a quick decision maker. If they say that and they verbalize that out loud to you on the sales call, they have now...
They snookered themselves a little bit with inconsistency because when it comes to the end of the call and they say, oh, I want to think about it, you say, hey, man, I get it. Earlier on, you told me that you are a swift, decisive action decision maker. Was I wrong about that? And then now you've snookered them a little bit. So there's all sorts of things you can do with this. But the real danger with inconsistency avoidance is as a human being, you are incredibly liable to being wrong.
right? I have been wrong many times. You have been wrong many times. And we all know someone who can never be wrong. And what that means is they absolutely objectively can be wrong, but they'd never admit it, at least to you. Maybe they admit it to themselves, right? And the issue that a lot of people face with their entrepreneurial decision-making or life decision-making is they're wrong.
And then what happens is they're so tied up and they're so worried about seeming inconsistent with their belief systems and dealing with this cognitive dissonance that they just would rather be wrong. painless than right and painful. And so if you make a decision and you do something and it turns out to be wrong, you might end up denying that you were wrong and that means that you're liable to continue to make the mistake or live the consequences of your actions. And so you need to be...
Like, I love being wrong. And this is something that I've worked on really for nearly a decade now. Like, I take great pleasure and pride in proving myself wrong. throughout history is the greatest thinkers of any generation actively sought to find that they were wrong. I'll give you an example here, live example. Charles Darwin, who discovered the theory of natural selection, wanted to disprove his own theory as much as he could before publishing it.
And so the theory of natural selection, the reason it was so effective and so staggering and ahead of its time is because Charles Darwin, he didn't seek to confirm his suspicions, right? So when he had this...
this idea of natural selection and the way we'd evolved, he didn't go out looking to confirm that the theory was true. He went out looking to confirm that it wasn't. And it was only by not being able to find... information about it not being true he couldn't find any anything to the contrary he couldn't like you know through his observations of the physical world he couldn't he couldn't disprove this theory and anyone
You know, Socrates is another example of this. Like lots of great thinkers throughout history have just actively tried to prove themselves wrong. And it's only through the abolition or absolution of doubt that someone can truly be right.
¶ Kantian Fairness In Leadership
That makes sense. And so that's a pretty cool one to bear in mind. Now, the next one, number seven, Kantian fairness tendency. One pretty core piece of our... Collective psychology is human. Something that's incredibly predictable and reliable from a psychological standpoint is the tendency for us to be incredibly biased towards being treated fair and fairness.
And this was an idea that Immanuel Kant, I think it was Immanuel Kant, which is kind of the clues in the name philosopher, came up with. He wrote a book called Critique on Pure Reason, which is very good. And I'd recommend you read it if you ever have. six spare months intellectually, because it's not an easy book to read. But canteen fairness tendency, what this basically means is people like to be treated fairly. And if they feel that they've been treated unfairly, then...
They do all sorts of crazy, irrational stuff. And what gets interesting here is it doesn't, seldom does it matter the proportion. And what this basically means is we're talking proportions here. And if someone feels that they've been treated unfairly, they're likely to act out of proportion to that which they've been treated unfairly for. And so let's say, for example, that you went to a restaurant and...
You went to a restaurant and you were sat next to another table. And let's say that you found out that that table was receiving a 5% discount on their food. And you asked the waiter, can we get a 5% discount? And the waiter says no. And, you know, let's say that net on the bill, let's say it's like $20, right? So it's not really that significant. Like it's, yeah, 20 bucks, right? Whatever.
what can happen to some people is they can completely blow up out of control over such a small difference, right? And we see this, for example, with like, let's say that you're looking for a parking space. in a in a mall right and the mall parking is full and you're driving around the parking space you're looking for a parking space and someone's about to leave but then just as someone's about to leave someone cuts in front of you and takes the space
And some people, if that happened to them, would get incredibly rage-induced and it would ruin their day. And my point here is that for something so small and insignificant, like in feeling like something hasn't been fair, we have a tendency...
to be biased to wanting that and to blow things out of proportion. And so it's very important when you're dealing with people and prospects or customers or employees or team members or... an audience like you guys, for example, that you treat people fairly and that you try your best to at least give the perspective that people are being...
treed fairly by you. Because if you don't do this, then you're incredibly liable to having people flip out and do all sorts of crazy things that you might not want them to do. And so this is kind of the typical golden rule of... treat everybody as you'd want to be treated yourself and this is why for example in my company and this is why in my life I try my best to avoid
materialistic gains or endeavors. And I'm not perfect with this. Like, for example, I live on the Palm in Dubai. I spend $30,000 a month on rent, which is stupid. But this is why I didn't buy the Lamborghini. It's why I didn't buy the watches or any of the fancy clothes or anything. I put like a hard limit on my own personal financial wealth. It's because...
I am, yes, the boss of my company and I am the person in charge and therefore I have, you know, disproportionate rewards compared to my employees. But like there's a story about Steve Jobs and Steve Wozniak. and building apple and so they were building apple and they had their offices in california or wherever and this would have been you know in the in the early 90s or something whenever that apple was around i can't remember and um
Steve Wozniak bought a new Porsche and Steve Jobs said to Steve Wozniak, oh, that's a nice car, but don't you dare park it outside the office. And Steve Jobs understood that...
Because Apple was still in its start-up phases and it was still building and it was growing, and I don't know the financials specifically, but what Steve Jobs was very conscious of is making sure that the employees of Apple... didn't look at the founders and think what the hell like you know they're spending all this money and we can't even afford to like make rent
Because that seems very unfair to a lot of people. And that can create resentment. It can create hatred and this need and feeling for vengeance. And I think that that was more relevant then because at that point, Apple was obviously in the startup phase, the growing phase, et cetera. There's lots of billionaires that buy.
things and you know don't care so much about this but you've got to realize that those billionaires are very removed from their companies and they're not managing like the people so you know Steve Jobs and Steve Wozniak during that time when Wozniak bought a Porsche would have been boots on the ground with their employees. And so it's a pretty cool lesson in management and leadership is, you know,
All of the greatest leaders throughout history, we could use conquerors, for example. Alexander the Great, he slept in a tent on the campaigns. He fought on the front lines in the battles. He didn't have... any crazy jewelry or horses or anything. He just had a really nice purple cloak and there wasn't any wild extravagance. Now, yes, he was incredibly rich.
He had palaces and everything, but as far as his men and his soldiers were concerned, Alexander the Great treated himself the same way with the same level of respect and standards that he treated everybody else. And what that does is it creates this incredible loyalty.
¶ Avoiding Envy And Jealousy
in commercial value from a team perspective. Now, number eight, which we'll touch on really quickly, is envy slash jealousy tendency. And this is very linked to... what we just explained because you know really if if someone has something you have if someone has something that you want then you naturally become quite jealous of them or you envy or you know you envy them and Envy is an incredibly dangerous thing because people will act really irrationally and really stupidly for envy.
When you start making money and when you start becoming successful, you're going to be incredibly tempted to flash... your wealth around and swing your dick about and show everyone what you've got. And you know, you're going to love to do that. It's a thing that everyone wants to do, right? But what happens is you start creating resentment from people and that's fine.
Because, you know, there are going to be people that hate you for your success no matter what. But you need to be really, really careful.
of who you inspire envy and resentment in because i would agree that it doesn't really matter what the average common person thinks like if i drive past in a g-wagon which i don't have by the way but if i drive if i drove down my old hometown street in a g-wagon a lot of people would look at me and think oh what a dick you know we're out here struggling to make ends meet
I can't put food on the table and here's this guy in a 200 grand car, what a dick. I couldn't give two shits what someone like that thinks. But what I would care about is my employees, my staff, my customers, my prospects, et cetera, et cetera. There is an element to this where, like, I'm not saying you shouldn't buy expensive things because you can use expensive things to make money through your personal brand. Lots of people do this where they buy cars and houses and watches and flex them.
Instead of inciting envy or jealousy, it kind of invites more of a warm feeling. But you need to be really careful. And you want to be...
really cautious of making people envious and making people jealous of you. Because you would not... If you just studied psychology for more than 10 minutes, you'd see... thousands of examples throughout history of jealous people doing very very bad things because of their jealousy okay and it's the same thing with with your own psychology and your own biases you know you've definitely got the capacity to feel envious and feel jealous
And if you're not careful, these emotions will trigger you to start taking actions that are irrational and completely irresponsible. So I would avoid... Being jealous. And if you want to know how to avoid being jealous of material objects, just stop caring about them. Because you can only really envy something that you want. And if you don't really want anything, then you can't really be jealous of anything.
¶ The Reciprocation Tendency
Like it really is that straightforward. Like, no, I don't, if I don't want to buy supercars and I'm not going to be jealous of people that have them. Right. And so you fix this internally. Now, nine. is reciprocation tendency. I need to spell that properly. So I'll give you a fun fact. So Sam Walton was the founder of Walmart and he was the richest man in the world, in America, of all time at some point in his life, which is no small feat.
And he was an incredibly successful businessman. So he built Walmart from the ground up, basically invented, you know, discount stores. One rule he had for his buyers, so he had a team of buyers from a discount perspective. And what this meant is... People who work for Walmart, they would go to these warehouses or to these retailers and they would buy items in massive bulk at a discount. And those items would then be distributed among all of Walmart stores in the area.
and then sold for a small profit, right? And that's kind of how the discounting model worked back in the day. And obviously to buy something, you have to buy from someone, which means you're buying from a salesperson. So these sellers, these wholesale retailers would... have salespeople talk to the buyers. And one rule that Sam Walton had for all of his buyers in the whole company was under no circumstances are you ever to accept a gift or a favor.
from a seller. And that was because Sam Walton understood the power of reciprocation tendency. Now reciprocity or reciprocation is a sort of social construct or you know it's a naturally occurring phenomenon between two organisms. And it's basically, if you scratch my back, I'll scratch yours, right? So we see this manifest in biological niches. We see this manifest in human behavior. And it basically means if someone does you a favor, you feel obligated to do them a favor back.
And the reason that Sam Walton was switched on enough to basically ban the acceptance of gifts from his buyers was because he understood that if someone gave the buyer a gift, they would now be... psychologically predisposed to doing that person a favor in return. And that person then therefore has sort of psychological debt leverage to lower the price and get the price down. And I can give you an example of this in my life. A while ago, I went to a watch shop in London.
And I was going to buy a watch. I was going to spend like $20,000 on a watch. I didn't buy one in the end, as you can see. I don't have anything on my wrists. I didn't buy a watch. But I sat down. I went to, I think it was Goldsmiths. It was the watch store in London. And I went in looking for a specific watch. And as soon as I walked in, the guy walked over and he offered me some champagne or some orange juice and some drinks and some complimentary stuff.
And I said to him, I was like, oh, no, I'm OK. Thank you. And he pushed like a motherfucker. He was like, no, man, it's just sit down. Like, we're going to get you everything you need and want. And, you know, we're going to give you like you're going to get this coffee and this, that and the other. And we've got these bags that you can have.
have and I was like no I don't want them and and he said well what do you mean they're free like I don't get it they're free you know you can have it it's completely free you don't have to worry about it and I said to him I said like look man like you know
I'm honestly OK. Like, I don't want any of these things. And he said, OK, well, fair enough. And then he came over after two minutes with everything that he'd offered and put it on the table and was like, here you go. And I said, look, I've told you I don't want this. And he said, yeah, but it's free. And I was like, you don't understand. If I accept this from you, and if I accept this, I am now in your debt.
to some small degree unconsciously you know part of me now sees you as a friend that i like who i owe a favor to and you know there's there's a There's another quote, I quoted Benjamin Franklin earlier, but there's another bias called, what's it called? I think we'll just call it the Benjamin Franklin bias, right? There is a name for it, but I can't remember.
And Benjamin Franklin basically said that if you do a man a favor, then you're likely to do him another favor. It's like a commitment consistency thing, right? But there is a caveat to this, right, where you can get people to do favors for you and it means they want to do more. it has to be out of pocket and so anytime you're buying something no favors don't accept anything you know and like
I'll use this in my own personal life. If I'm trying to operate in a certain way or solve a problem or get someone to do something, gifts are incredibly powerful tools to do that. And you still want to keep your... The human element, you know, where you give gifts and you give nice things to people purely for, you know, the goodness of your own heart and stuff. And, you know, for example, with my sister at Christmas, I won't give a gift to receive a gift in return.
This thing here, this reciprocity thing, like it is powerful. And this is why the personal branding thing works so well. Like this video is a gift to you. It's free. You get to watch it. I'm putting energy and effort into it with no cost to you except your time and attention. If you continuously consume my content and you apply what I teach you and it makes you more money and it helps you grow, then you naturally feel unconsciously that you're in my debt. And I had this before where...
Like I bought a, when I was younger, I couldn't really afford books. And there was a book that I really wanted to buy for $50, right? And I couldn't afford the book. So I went on the internet and I found like a cracked PDF of the book and I read the PDF.
And it wasn't until a couple of years ago, I remembered I did this and the book was really good. And so what I did is I went on Amazon and I bought the book, even though I'd already read it. And I thought to myself, I was like, why the hell did I do that? Why did I feel this weird moral obligation to...
you know, incur financial expenditure on something that I haven't used for like five years because it had been years since I'd read it. And I realized I was like, oh, well, this is just a reciprocity thing. Like I felt bad for not returning the favor, at least giving the fair exchange. It also comes back to canty and fairness tenancy. And it was also because I liked the person. And, you know, there's all of these...
All of these quantitative biases that you'll notice, they're all very linked. They're all very tied in together and tied to each other. And so, yeah, pretty important. So the next one is really cool.
¶ Influence From Mere Association
And I like this one. It's actually one of my favorites. So this is called influence from mere association. Influence is basically like when something influences you, right? It's when something... makes you act in a certain way that you wouldn't have acted prior to being influenced. So for example, this is why business people on Instagram are literally called influencers. And if you're an influencer, what that means is...
before someone saw your content they weren't going to do something but now they've seen your content they're going to do something and so if you're a fitness influencer you might be influencing people to train in a certain way or if you're a business influencer you might be influencing people to
transact in a certain way, right? And so the reason you want to understand this is because, let me give you an example. I'll make it concrete. So why do you think Coca-Cola has a tendency to attach their product and associate their product with athletes it's pretty straightforward it's influenced from your association so there's a reason as to why Nike and Adidas
And all these massive trainer and shoe brands are at war with each other over sponsorships. You know, there's this sort of sponsorship war constantly going on in the sports world. Big brands, what they want to do is they want to associate themselves with athletes and with great people. And so this is why, for example, that Andrew Tate was never able to get massive brand deals. Because this always baffled me. It's like, Andrew Tate was the biggest influencer to EverLift ever, right?
and he had the most notoriety he was the most popular most googled person on the planet at some point right everyone was talking about Andrew Tate a couple of years ago whatever But it always confused me because he never got sponsored by Nike or Adidas. He was never sponsored by any of these major corporations like Coca-Cola or anything. Because if an athlete or...
you know, a figure received that much notoriety, they would get sponsorships in a heartbeat. And maybe he did get sponsorships, but just chose not to cash on them. I don't know. But the problem is that Andrew Tate, his image was controversial.
And he was very polarizing and lots of people didn't like him and lots of people did like him. And companies like Nike or Coca-Cola or, you know, these big ass brands, they don't like to be associated with people and... and figures that other people don't like.
So let's say that half of Andrew Tate's audience was people hating him and half of them were people liking him. If Coca-Cola signed a deal with Andrew Tate and they said, hello, Andrew, all of your content now has to involve a Coke bottle, what...
what's going to happen is half of the people who watch Andrew Tate are now going to hate Coca-Cola because of the influence. And this is part of the reason as to why I don't want to have a supercar or a Rolex or a... crazy lifestyle is because when you think like someone who's making money online, if they have a Rolex and they have the... the penthouse than they have if like my point if someone has a certain image you associate them with everyone who has that image
and so personal branding and business specifically is basically just one big game of association and so you know if i bought a lamborghini tomorrow i immediately in your mind become bucketed into everybody else who's ever bought a Lamborghini online. And you've probably been scammed a few times before by people that buy Lamborghinis online. And therefore, you are going to bucket me and categorize me into the association pool of a Lamborghini, if that makes sense.
And so, you know, with your products and your endorsements and who you endorse and who you partner with and stuff, it's very important you're careful about who you share your brand with and who you give your name to and who you give testimonials to and stuff. Because if you don't trust that person, what's going to happen is...
Other people will be influenced by them or by them, by you through them, if that makes sense. And so I'm really careful with this all the time. And other big brands and companies are as well. And you want to be remarkably careful with what you associate yourself with and what you associate your company with. And more importantly...
why you're buying products. So when you're investing in things and buying products and making purchasing decisions, it's very likely that you might be influenced through mere association. And so you might buy something, a subpar product just because someone else said it's good. A primary example of this is crypto rug pulls. So it's no surprise and it's no transcendental miracle or surprise to anyone that influencers can sell pretty bad products, right?
But a lot of influencers have a big personal brand and people love and like the influencer, which is the liking, loving tendency, you know, number two. If they do like a big crypto project, like, you know, because the person associates this influencer with the crypto project, they think it must be safe, think it must be fine. There's no way they'd risk your reputation with a rug pull. And then it turns out to be a load of rubbish and then people lose a lot of money.
So those are the 10 cognitive biases that basically I've used to make more than $30 million online and that I've used to influence my decision-making and my cognitive capacities to become. pretty much more aware than the average person to avoid mistakes. Hope you enjoyed them and I'll see you in the next video. Take care.