What is Decision Making?
Decision making is the action or process of making decisions. We often go ahead with making emotional, irrational and confusing choices while sometimes we make logical decisions. Why do we make poor decisions- let’s cover it up on this page and also discuss useful frameworks to expand the decision-making toolbox.
Why We Make Poor Decisions
Everyone likes to think of themselves as a rational person, but most of us are not one. So basically we are all irrational. Researchers and economists believed for a very long time – that humans made logical, well-considered decisions. In recent decades, however, researchers have uncovered a wide range of mental errors that derail our thinking. Let’s discuss a brief outline where we often go wrong and what to do about it.
5 Common Mental Errors That Swat a Person From making Good Decisions:
1. Survivorship Bias.
Survivorship bias refers to our tendency to focus on the winners in a particular area and try to learn from them while completely forgetting about the losers who are employing the same strategy. When the winners are remembered and the losers are forgotten it becomes very difficult to say if a particular strategy leads to success.
2. Loss Aversion.
Loss aversion means our tendency to strongly prefer avoiding losses over acquiring gains. Research has shown that if someone gives you $10 you will experience a small boost in satisfaction, but if you lose $10 you will experience a dramatically higher loss in satisfaction. So the responses are opposite, but they are not equal in magnitude.
3. The Availability Heuristic
It is a common mistake that our brains make by assuming that – the examples which come to mind easily are also the most important or prevalent things.
Let’s understand this one with an example: There is a burger joint close to my hometown that is known for gourmet burgers and cheeses. On the menu, they very boldly state, “LIMIT 6 TYPES OF CHEESE PER BURGER.”
My first thought: This is absurd. Who gets six types of cheese on a burger?
My second thought: Which six am I going to get?
I didn’t realize how brilliant the restaurant owners were until I learned about anchoring. You see, normally I would just pick one type of cheese on my burger, but when I read “LIMIT 6 TYPES OF CHEESE” on the menu, my mind was anchored at a much higher number than usual.
5. Confirmation Bias.
Confirmation Bias can be called the Grandaddy of them all. It refers to our tendency to search for and favor information that confirms our beliefs while simultaneously ignoring or devaluing information that contradicts our beliefs.
Smart Decision Making Through The Use Of Mental Models
The smartest way to improve your decision-making skills is to learn mental models. A mental model is a framework or theory that helps to explain why the world works the way it does. Each mental model is a concept that helps us make sense of the world and offers a way of looking at the problems of life.
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