Got any habits?

Let’s talk about Habituation.

Habituation is really just another trick that our inner con man plays on us:

He makes us believe that wonderful things are especially wonderful the first time they happen, and that their wonderfulness wanes with repetition.

“Psychologists call this effect habituation, economists call it declining marginal utility, and the rest of us call it marriage.” — Dan Gilbert

In that context, let me ask you: can you canoe?

Before committing to any long-term relationship, you should, first, explore your joint behavior in environments that do not have well-defined protocols (and I am speaking from experience) like canoeing, for example.  Or alternatively, couples should plan their wedding before they decide to get married, and then proceed with the wedding only if they still like each other.

In any case, let’s go back to the Habituation-Bias:

Since we are prisoners of our experiences, those experiences become habits that evolve into decision-making shortcuts.  In general, there is nothing bad about shortcuts.

Cognitive scientists believe that the use of mental shortcuts is an evolved ability that has helped us survive and thrive; in fact, it was bred into us when we were a young species, dodging lions and chasing antelopes on the African Savannah.  And what were useful survival traits hundreds of thousands of years ago could still be useful today.

Because, if we had to take the time to survey the patrons and sample the food each time we enter an unfamiliar restaurant, we might never get to eat!

Thus, mental shortcuts do have value.  Because they are efficient and produce good enough results most of the time, we default naturally to them.  And habits form in our minds.

Habits form in our minds

Unfortunately, for the requirements of our modern society, they could become problematic when we don’t realize that we are under a decision-making shortcut, and then enter a mental blind spot.

In the financial arena, habituation could lead us to making errors in investing.  Because in situations that involve risk and uncertainty, more active thinking is needed.  Unattended tosuch shortcuts become biases that would often adversely affect our investment outcomes and lead to unforced monetary errors.

Fortunately, there are several countermeasures that investors (like yourself) can undertake to check and lessen the impacts of one’s mental blind spots:

  • Develop the vital mental skill of Mindfulness.  Mindfulness would significantly help you to become aware of decisions being made, and how they are being made at the time of their making.  Mindfulness not only would help you to expend the right mental effort (rather than accepting a flawed mental shortcut that would blind-side you), it would also assist you to defuse from your thoughts and feelings.  The practice of mindfulness (and like any worthwhile skill, it takes practice) would train you to see thoughts and feelings for exactly what they are: temporary internal events that come and go pretty much on their own.  It’s as if your thoughts and feelings are clouds in the open sky; sometimes, they are clear weather clouds passing overhead; at other times, they bring about fierce stormy weather, but they always pass.  And they never harm or change the sky.  No matter how furious and volatile the clouds might be, the sky remains the same.  Mindfulness would help you to see yourself in the role of the sky, and not be blown about by their erratic and errant thoughts.
  • Maintain and keep personal metrics on your investment setups.  Refer to them often as this would help you to avoid making important investment decisions only based on recent performance.
  • Look for new ways to invest money to beat the familiarity bias.
  • Ask disconfirming questions to counterbalance confirmation bias.
  • Focus on the long-term, and then take decisive action that would benefit you in the long-term.  Oftentimes, that slow and steady change that we like so much just leads to habituation, and not to action.  Hence, embrace all “crises” and respond with urgent action.


“A habit is something you can do without thinking—which is why most of us have so many of them.” — Frank A. Clark

“You acquire your habits by choices—choose good habits and they make you.  Choose bad habits and they break you.” — Zig Ziglar

“Men’s natures are alike; it is their habits that separate them.” — Confucius, The Analects

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