I spent the first 15 years of my career as a television news anchor. During that time, my job was not to make you a successful entrepreneur. I only had one job–to keep you watching.
News reporters know that recent events capture the public’s attention, especially if the events are surprising. Cognitive scientists even have a name for it: the recency bias.
Recency bias means that our minds give more weight to recent events. But as Nobel Prize-winning psychologist Daniel Kahneman points out, assigning more weight to recent events than to long-term averages can result in bad decisions.
The recency illusion is all around us.
Few people, even professional analysts, predicted that the stock market would fall into a ‘bear market,’ a decline of at least 20 percent. According to The Wall Street Journal, at the start of the year, investors expected stocks to return 17.5 percent because they were basing their outlook on the market’s recent performance. Investors saw everything rising–including crypto stocks which have been decimated–and assumed that recent trends would continue. Then the bottom fell out.
While it’s hard to avoid being overly pessimistic or overly optimistic because of what’s happening today, there are several ways to train your brain to make more rational decisions based on long-term averages.
1. Know your history.
When people give too much weight to recent events, it colors their judgment about the future. The stock market is a good example. Those investors who predicted a 17 percent return this year ignored the fact that the long-term average return of the stock market is just under 10 percent.
Warren Buffett is a successful investor and business leader because he’s an avid history student. Buffett’s famous investment advice to “be fearful when others are greedy and greedy when others are fearful” acknowledges two things: people act in groups, and recent events won’t last.
2. Learn about cognitive biases.
You can’t identify cognitive biases until you know what they are and how they act on your brain.
Start with books by Daniel Kahneman like Thinking, Fast and Slowand his most recent book, noise. Kahneman and his co-partner, Amos Tversky, pioneered the field of behavioral economics and introduced the term “cognitive biases,” mental flaws in judgment that adversely influence our decisions.
Their books are a good place to start your education on biases.
3. Spend your time intentionally.
We all know that social media feeds can send us down rabbit holes. So, be intentional about how you spend your time and where you focus your energy.
For example, every morning, I read the Wall Street Journal as well as books, articles, and newsletters from sources and experts who I trust because of their long-term track record.
My career as a newscaster also taught me to balance the bad with the good and to keep an eye on the progress that happens every day under the radar. I have a stack of books that I call progress books like Steven Pinker’s Enlightenment Now or Hans Rosling’s factfulnesswhich explains why the world is better than we think.
Bad news happens fast. Progress happens slowly and is easy to miss unless you seek it out.
4. Pursue a bold, massive mission.
Companies often have big, bold mission statements. And so should you.
In Take Charge of You by sports performance coach Jason Goldsmith and Yum Brands co-founder David Novak, the two experts recommend identifying the one thing that would make the biggest difference in your life. They call it the “Single Biggest Thing:” the one goal or vision that will bring you the most joy professionally and personally.
Your daily decisions should bring you closer to achieving the Single Biggest Thing.
When I voluntarily quit a six-figure job during an economic recession, many people around me said I was making a bad decision because they were focused on recent events. I didn’t realize it then, but thankfully I was pursuing my SBT–to be a globally recognized author and communication expert.
By simply being aware of the powerful psychological forces working in your life, you’ll stand a better chance of recognizing the mental biases that could hold you back from success, and become empowered to override their potentially negative impact.