In this chapter, our focus will be on social cognition—cognition that relates to social activities and that helps us understand and predict the behavior of ourselves and others (Fiske & Taylor, 2007; Macrae & Quadflieg, 2010). A fundamental part of social cognition involves learning, the relatively permanent change in knowledge that is acquired through experience. We will see that a good part of our learning and our judgment of other people operates out of our awareness—we are profoundly affected by things that we do not know are influencing us. However, we also consciously think about and analyze our lives and our relationships with others, seeking out the best ways to fulfill our goals and aspirations.

As we investigate the role of cognition in everyday life, we will consider the ways that people use their cognitive abilities to make good decisions and to inform their behavior in a useful and accurate way. We will also consider the potential for mistakes and biases in human judgment. We will see that although we are generally pretty good at sizing up other people and creating effective social interactions, we are not perfect. And we will further see that the errors we make frequently occur because of our reliance on our schemas and and a general tendency to take shortcuts through the use of cognitive heuristics, information-processing rules of thumb that enable us to think in ways that are quick and easy but that may sometimes lead to error. In short, although our cognitive abilities are often “good enough,” there is definitely room for improvement in our social cognition.

HUGE FALL IN GLOBAL MARKETS CAUSES FEAR AND PANIC FOR INVESTORS

September 16, 2008, as a result of the failure of over a dozen large banks in the United States, was the beginning of a global stock market crisis. On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on “the brink of systemic meltdown.” Over the next year, the crash erased $8.3 trillion in shareholder wealth.

Since these calamitous financial events, the repercussions of which are still being felt in many regions of the world, much ink has been spilled about the reasons for this global economic meltdown. How could so many highly educated, intelligent people in so many important positions make so many judgments that now seem, albeit with the benefit of hindsight, to have incurred such high risks? Why didn’t enough people in key positions see the collapse coming? The study of social cognition can perhaps provide some clues. Through studying the factors that affect our social judgments, social psychologists have helped to shed some important light on why we often have difficulty making sound decisions about an uncertain world.

Figure 2.1 Stock traders are expected to make rational decisions about their investments, but their emotions can influence their decisions.  Sao Paulo Stock Exchange by Rafael Matsunaga (http://en.wikipedia.org/wiki/File:Sao_Paulo_Stock_Exchange.jpg) used under the Creative Commons Attribution 2.0 Generic license. (http://creativecommons.org/licenses/by/2.0/deed.en)

Source: http://www.usatoday.com/money/economy/2008-10-09-145686747_x.htm?csp=34.