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Won’t get fooled again (part 1)

15-Jul-2010

Here is the first in a 2 part series of common decision-making pitfalls that can trick our minds into making irrational decisions - derived from an article in Litemind.  

Anchoring.

The start point can heavily bias your subsequent thinking. Initial data “anchors” our perceptions. E.g. a salesperson offers to sell you something at a high price.  This anchors that price point in your mind.  Then when offered a “discount” you can be tricked into thinking you are getting a good deal.

Solution:

Do some research and thinking on your own before asking others.  Seek information from a wide variety of sources.  Avoid being anchored by a single point of view early in your decision making process.

The Status Quo.

We tend to repeat patterns of behavior, unless strongly compelled to change them.  While it may not be the most effective solution, we tend to give the status quo preference over other alternatives.

Solution:

Clarify your goals.  The status quo is just another alternative.  Practice zero-based thinking.  Would you choose your current course of action all over again if it weren’t the status quo?  Avoid exaggerating switching costs.  They frequently are not as bad as we tend to assume.

Throwing good money after bad.

The money has already been spent.  It’s a sunk cost, and it shouldn’t influence your future decisions. Don’t keep doing the same thing and expect different results.

Solution:

If you made a bad decision in the past, admit it and learn from it.   Find people who are not emotionally committed to past decisions and ask their opinion.  What is the right decision to make now - that will best serve your goals?

Seeing what you want to see.

We look for evidence to support our biases - while conveniently avoiding information that challenges them.  This is called confirmation bias.  No matter how neutral we think we are, our brains tend to tune out things that don’t conform to our initial idea of what is right.

Solution:

Deliberately expose yourself to conflicting information.  Ask someone to play devil’s advocate.  Surround yourself with people who will challenge your point of view and offer contrary opinions.  Force yourself to keep an open mind.

First impressions.

Our prejudices and preconceived notions can make us jump to conclusions before checking whether we have enough information to really justify such a decision.

Solution:

Question your assumptions.  Are they really true?  Always favor hard data over mental simplifications and opinions.  Our preconceptions are only mental shortcuts.  Be careful to not over-rely on them.

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