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Every day we’re faced with decisions, from the trivial to extremely important.Too often we simply go with our gut feeling and do what feels right.
The problem with that approach is that it leaves us open to a variety of behavioural and psychological biases that affect the way we think and can lead us to make the wrong choices.
By being aware of of the things that lead us down the wrong path and some ways to get it right, we can make better, more rational decisions.
People put too much value on having a wide variety of choices.
In fact, according to researchers Simona Botti from the London Business School and Christopher Hsee of the University of Chicago we spend so much time seeking out options that it outweighs any benefit of having additional choices.
When researching options, set a time limit for yourself, and make sure you're not just procrastinating to avoid the decision.
People have a tendency to imitate others' choices, even when they get different information.
Berkeley behavioural economist Matthew Rabin extends this further, this effect can be particularly strong and lead us to keep making the wrong choices because we overestimate how much people are acting on better private information, and underestimate how much they're simply following others.
Don't mistake other people's choices for real information in every case.
When presented with uncertain information, people tend to interpret in a way that confirms what they already think or want. This 'confirmatory bias' actually makes people overconfident in their choices without good reason.
If you have a preference for a certain choice because it's easier or more familiar, make sure you're not shaping contrary information to support it.
Due to 'false consensus' theory, we tend to think about what we would do in a given situation when deciding to trust somebody.
That persists even when we get information to the contrary. If you're an extremely trustworthy person, make sure you're not extending your characteristics to someone who might not deserve it.
One of the lessons from Malcolm Gladwell's bestseller Blink was that information overload can be overwhelming.
It's easy to get so much data that it's difficult to pick out what's relevant and important. Focus on important information, not just getting more of it.
A study from Maarten Bos found that when it comes to complex choices, sometimes it's best to let your unconscious mind take some of the burden.
There's an active process weighing complicated decisions when the mind isn't actively focused that can actually lead to better choices. To unleash it, you need to distract your conscious mind by sleeping or working on something else.
Research from Tal Eyal of Ben Gurion University and Nicholas Epley of the University of Chicago finds that people evaluate themselves very differently than others do, which makes them poor at anticipating what others think.
People evaluate themselves in great detail, at a more microscopic level, but look at others much more generally. They look at themselves in the long term, and others in the short term. By switching those up when adopting someone else's perspective, you can get a better idea of how they may react to a given decision.
A study cited in the Wall Street Journal found that weather forecasters have among the highest risk intelligence ever recorded. Forecasters are constantly required to assign probabilities and percentages and get frequent feedback, making them better at being realistic with their calls.
Don't be afraid to put an number on it, and get more feedback.
When faced with a difficult decision, people often close their eyes for a moment to focus. It turns out that it has a real, positive effect on decision making.
Research from Eugene Caruso of the University of Chicago and Francesca Gino of Harvard found that closing one's eyes increases mental simulation of the decision, leading people to respond more positively to ethical choices, more negatively to unethical ones, and to take less self-interested actions.
According to researchers at Wharton, the top golfers in the world lose an average of $1.2 million dollars a year in winnings because of a cognitive bias called loss aversion.
Logically, golfers should be most cautious and putt at their best when under par. However, top golfers make birdie putts 2-3 per cent less often than identical putts at or above par.That's not because they're more nervous or overconfident, but because they're more worried about 'losing', going above par, than going after the best possible outcome.
Don't let reference points like 'winning' or 'losing' interfere with making the right decision.
The 'hot hand' fallacy leads people to overestimate the power of a hot streak, whether its in sports, finance, or gambling.
It's one of the reasons people choose actively-managed funds despite the fact that they underperform in the long run. behavioural economist Matthew Rabin finds that people underestimate short streaks but overestimate longer ones.
When things are going well, be extra cautious.
When making a difficult decision, like whether to invest in a near-term but lower-payoff option or a more distant, higher-payoff one, it becomes easier to make the long-term choice if you move a small amount of that payoff up front.
When thinking about the future, there's a tendency to take what's happening in the present and extend it beyond what really makes sense.
This effect can lead to bad long term decisions, we end up consuming too much early in our lives, form bad habits, and end up saving even less.
Think about what habits you have that might be detrimental in the future.
Researchers from the University of Chicago describe three barriers which keep us from accurately simulating what others think:
- You have to do it actively. It's sometimes subconscious, but usually takes effort.
- Moving past your own perspective is difficult, so many people avoid it.
- Avoid stereotypes and gossip, which can warp the way we think about others.
Even when we're aware of stereotypes, we sometimes still fall victim to them.
A recent study found that people perceive bald men as more powerful, dominant, and stronger, partially because we associate baldness with masculinity and age, and both of those things with power.
Question your assumptions. Are they based on facts, or stereotypes?
The body has a physical reaction to panic or stress. Adrenaline pumps, you start breathing more rapidly, and certain parts of the body feel tight.
In those instances, we tend to make snap judgments that may be incorrect. When you notice your body having that kind of response, close your eyes, take a few breaths, and take some time to consider your next action.
Big data has been revolutionary for a number of industries. New sources and analytics tell us more than ever about customer preferences and activities.
Accepting what the data tells you blindly is as bad in a way as ignoring it.
The best attitude is what Shvetank Shah calls 'informed scepticism.' Know what the data means, but trust your judgement.
When making decisions, there's a temptation to break things up into black and white, right and wrong, and to be very specific.
That need for precision can lead to wasted time and unnecessary decisions. Sometimes, its easier to figure out how to get close than figure out how to hit the bulls' eye.
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