The Decision-Making Process
Making the right choices is an important factor in the success of our personal life and as well as in business. Here are the common heuristics, biases, and other factors that affect our decisions.
Key Takeaways
Heuristic is an approach to problem solving that employs a practical method that is not guaranteed to be optimal, perfect, or rational, but is sufficient for reaching an immediate, short-term goal.1
Bias is a disproportionate weight in favor of or against an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair.2
The framing effect is a cognitive bias where people decide on options based on whether the options are presented with positive or negative connotations; e.g. as a loss or as a gain.3
What do you think is more likely someone dying from a shark attack? Or someone dying from a fireworks accident? To answer that question, you have to make a decision.
Heuristic
In decision making, we make a judgement about the desirability, or in this case the probability of some outcome. If you're like most people, you used a heuristic or mental shortcut to make that decision. You may have thought about all the instances in which you've read about shark attacks in the news versus fatal accidents involving fireworks. That method is called the availability heuristic. You're using examples that readily come to mind or easily available in your memory. Most of the time, that's a very helpful shortcut. But unfortunately, our easily memorable experiences don't always match the real state of the world.
In this case, even though you've probably read more stories about shark attacks, the risk of dying from one is about one in 3.7 million, whereas the risk of dying from a fireworks accident is about one in 340,000. A much higher risk but usually much less publicized.
Another heuristic that can lead us astray in decision making is the representativeness heuristic. In this case, we judge the probability of an event based on our existing prototype, or general concept of what is typical.
For example, say I tell you that a person named Linda is 30 years old, single, outspoken, and very bright. She majored in philosophy. And as a student, she participated in anti-nuclear demonstrations and organizations that fought discrimination. Now, which do you think is more likely:
that Linda is a bank teller?
Or that Linda is a feminist bank teller?
If you're like most people, you answer that she's more likely to be a feminist bank teller. Even if you don't know any feminists, or even anyone who's exactly like our imaginary Linda, she fits your prototype of how a feminist would act. She is representative of a feminist. And most of the time, the representativeness heuristic can help us make quick judgments.
However, in this case, it leads us to something called a conjunction fallacy, which is when people think that the co-occurrence of two instances, being a feminist and being a bank teller is more likely than a single one, just being a bank teller. Because statistically speaking, there are a lot more bank tellers than there are feminist bank tellers. So it's actually more likely that she's just a bank teller, even though your instincts are telling you otherwise.
Now, be careful not to get confused between availability and representativeness.
When you're using the availability heuristic, you're thinking of actual memories that can come to your mind that are available in your head.
With representativeness, you're not necessarily thinking of exact memories, you're thinking of a prototype of this idea.
Biases
Okay, so we've talked about some heuristics that guide our decision making processes. So now let's talk about some biases that prevent us from making correct decisions or from changing our decisions once they're made.
One bias is overconfidence, which is just our tendency to be more confident than correct. You may have experienced this going into a test when you thought you'd ace it, but then you didn't know a lot of the information. And this overconfidence could be due to fluency while you're studying or the ease of processing.
In other words, things might have felt really easy when you were studying in your room. But if you never tried to test yourself to see if you really knew the answers, then you might overestimate your ability to produce answers when you need to.
You may have also experienced overconfidence if you've ever been in an argument. When you're positive, you're right until someone shows proof that you're not. If you don't change your mind after you get this new information, though, then you're falling prey to the bias of belief perseverance. And this happens a lot around election time. Whenever people hear something they don't like about their favorite candidate, they often ignore it or rationalize it away.
Overconfidence is slightly different than something called the confirmation bias, which is when you actively seek out only the information that confirms your existing beliefs.
So in our election example, you would be exhibiting confirmation bias if you only read stories that talked about how wonderful your favorite candidate was, but you'd be exhibiting belief perseverance, if you learned about, but then ignored information that you didn't like about your candidate.
Framing
Another factor that can affect decision making is framing, which is just how you present the decision.
For example, there's a disease about to strike the population that will kill 600 people. However, there are two options for programs to combat this disease:
Option A: then there's a 100% chance that exactly 200 people will be saved.
Option B, there's a 1/3 chance that all 600 people will be saved and 2/3 chance that nobody will be saved.
Which do you want to pick? Now try this, the same diseases is coming through and you again have two options:
Option A: there's a 100% chance that exactly 400 People will die.
Option B: there’s a 1/3 chance that no one will die and a 2/3 chance that 600 People will die.
Now which option do you want to pick? If you're like most people, when the decision is framed in terms of how many people will be saved, you're more likely to pick Option A: save 200 people for sure.
But when the decision is framed in terms of how many people will die, you're more likely to pick Option B: to avoid killing 400 people for sure.
Even though saving 200 people is the exact same thing as letting 400 People die.
In this example, it seems better to pick that option when it's framed or presented in terms of how many people will be saved. Likewise, it seems better to pick an option that offers a chance of no people dying, rather than to risk not saving some people.
Hopefully, this doesn't make you paranoid but our decisions are not quite as black and white or even as consistent as we think they are. Next time you have to judge something, try to take a step back and consider all the factors that could be influencing your decision.
https://en.wikipedia.org/wiki/Heuristic
https://en.wikipedia.org/wiki/Bias
https://en.wikipedia.org/wiki/Framing_effect_(psychology)