The Psychology of
Human Misjudgment- II
1

Scene from Tin Men
2

Scene from LA Confidential
3

“Dear Mother and Dad,
Since I left for college I
have been remiss in
writing and I am sorry for
my thoughtlessness in not
Cialdini’s Sharon having written before...
4

“I will bring you up to
date now, but before
you read on, please sit
down.You are not to
read any further unless
you are sitting down,
okay?
5

“Well, then, I am getting along
pretty well now.The skull fracture
and the concussion I got when I
jumped out the window of my
dormitory when it caught on fire
shortly after my arrival here is
pretty well healed now...
6

“I only spent two
weeks in the hospital
and now I can see
almost normally and
only get those sick
headaches once a
day...
7

“Fortunately, the fire in
the dormitory, and my
jump, was witnessed by
an attendant at the gas
station near the dorm,
and he was the one who
called the Fire
Department and the
ambulance...
8

“He also visited me in
the hospital and since I
had nowhere to live
because of the burnt-
out dormitory, he was
kind enough to invite
me to share his
apartment with him.
It's really a basement
room, but it's kind of
cute...
9

“He is a very fine boy,
and we have fallen deeply
in love and are planning
to get married. We haven't
set the exact date yet, but
it will be before my
pregnancy begins to
show...
10

“Yes, Mother and Dad, I
am pregnant. I know how
much you are looking
forward to being
grandparents and I know
you will welcome the baby
and give it the same love
and devotion and tender
care you gave me when I
was a child...
11

WTF?
12

“The reason for the delay in our marriage is
that my boyfriend has a minor infection
which prevents us from passing our
premarital blood tests and I carelessly
caught it from him...
13

“I know that you will
welcome him into our
family with open arms. He
is kind and, although not
well educated, he is
ambitious...
14

“Now that I have brought you
up to date, I want to tell you
that there was no dormitory
fire, I did not have a concussion
or skull fracture, I was not in
the hospital, I am not pregnant,
I am not engaged, I am not
infected, and there is no
boyfriend...
15

“However, I am getting a “D” in American
History and an “F” in Chemistry, and I want
you to see those marks in their proper
perspective.Your loving daughter, Sharon.”
16

What will happen if you put this in your
mouth and then...
17

and then you put this in your mouth?
18

If you meet
her and
immediately
after that
you meet...
19

her!
20

21

22

23

24

25

26

27

Buying a Lamp
Buying a Car
28

Money lost from
wallet
Anchoring
Contrast effect
29

30

Dan Airely
31

32

Dan Airely
33

Decoy
34

Ok so I now Know
High Contrast effect.
Tell me about Low
contrast effect please!
35

If you put a frog in boiling
hot water, it will instantly
jump out and escape
36

But if you put a frog in lukewarm
water and slowly boil it, it will
slowly boil to death!
37

Visual Identification Experiment
Jerome S. Bruner and Mary C. Potter, “Interference in Visual Recognition,” Science,Vol.
144 (1964), pp. 424-25.
38

Example: SAIL 2003 vs. SAIL 2007
39

Boiling frog effect is a frequent cause of
business failure
“Cognition, misled by tiny changes involving
low contrast, will often miss a trend that is
destiny.”
40

Question: Blind averaging down- “Its fallen
so much, how much lower can it go?”
Answer: 100%
Throwing good money after bad
41

Is a Rs 15 stock really cheaper than a Rs
500 stock?
Ignoring the role of transaction costs on
long-term returns
42

“I think its in the nature of things
for some businesses to die. Its also
in the nature of things that in
some cases, you shouldn’t fight it...
43

“There’s no logical answer in
some cases except to wring the
money out and go elsewhere.”
44

“And that’s very tough for
managements to do. In fact, they
almost never face up to that. It’s
very rare...
45

What did digital
camera do to the
photographic film
business?
46

What did the mobile phone do to the
fixed line telephony business?
47

What did the Audio CD do to the audio
cassette business?
48

What did MP3 do
to the Audio CD
business?
49

“Cognition, misled
by tiny changes
involving low
contrast, will often
miss a trend that Sometimes the light at
is destiny.” the end of the tunnel
is from an oncoming
train!
50

How did he end up being so crazy?
Part of the reason...
51

Scene from Other People’s Money
52

Scene from Other People’s Money
53

Time Lapse
Speed up
change to
notice it
54

Thank You
55