We like to think of ourselves as rational, well-informed decision makers
In reality, we are not
In this video, I describe this assumption of rationality and being well-informed
and how this assumption often fails in real life
When we think of how we make decisions, we generally do not assume that we're
impulsive
ignorant or illogical
Instead, we often have a vision of ourselves as being something that
economists might call rational, well-informed actors
This model of well-informed, rational actors
has two parts to it
One is the assumption of rationality
and two is this assumption that the person is well informed when making decisions
By rational
I mean that it's assumed we make logical,
objective decisions
In this case, by logical,
I mean clear and sound reasoning
We assume that we don't make our decisions willy nilly,
without reason
or in some other
senseless way. By objective, I mean that we assume that we take a cold, hard
look at the evidence to make our decisions without
bias or
undue sway from
personal preferences or our own
mental glitches
In describing ourselves as well-informed
we're saying that we have a good idea of what our choices are
and the potential consequence of each of these choices
When we're deciding how we act,
we generally assume that we have a good grasp of
what's possible for us to do
and we're not missing any major possibilities
We also assume that we have a good idea
how each of our choices will play out;
what their potential consequences will be
implicitly we're assuming that we have a reasonable grasp
of how the world works
Take a moment and jot down down the five most important decisions you made in the
past week
Jot down the first five decisions made today: Whether or not to hit the
snooze button. What to eat for breakfast. When to check your phone. How to commute
to work
Did you make them rationally?
Did you think through the reasons for your choice?
Did you map out the upside and downsize, and contemplate your
alternatives?
Did you stop to wonder if you considered all of your options?
Did you think about whether or not things could be done better?
Probably not.
Most of our decisions are not done rationally with some processing of
information - at least a deliberate processing of information
There are three problems with this rational, well-informed actor model
Non-deliberative decisions
Low information
Mental errors
Let's think about these errors one by one
The first problem
is that most of our decisions
are made non-deliberatively
The word deliberate has to do with having a discussion back-and-forth
Either you talk about the discussion
with other people or have an internal conversation about it in your head
Deliberative decisions are choices that we make
with extensive thought
about their options and the consequences
Many of our decisions are non-deliberative
They're made without extensive thought
Many of our decisions are made impulsively. That's where there is no
contemplation of our choices or their consequences
A good example of impulse decision making is
when we go to the checkout counter of a store
and our hand just reaches out and grabs a National Enquirer, pack of gum or Five Hour Energy
those products that stores put next to the counter are called "impulse items"
they put them there to capitalize on our proclivity to just
make a decision on the spot without thinking it through
Some of our decisions are made habitually
Those are decisions that we might have thought through once, but ever since
we've been
going through the automatically without thinking about them,
repeating these decisions over and over again
In retail, a lot of products are like that
we decide once that we're going to try Morton's Salt
or Tide laundry detergent, and after that we don't really think when we're at the
shopping counter about which salt or
detergent to buy
We become loyal customers, but our loyalty doesn't stem from the fact
that we
love the brand and have faith in it
Instead, our loyalty comes from the fact that we just stop thinking about the
choice
and do it over and over again
A third example is practice called "sufficing"
Those are decisions where we
don't contemplate all our choices
or their consequences fully, but rather
we start
a decision making process and then we stop as soon as we find a choice that's
good enough
It's not a completely rational
way of making decisions
in terms of selecting your best option
although might be rational in terms of not wasting time on decision that you
don't care a lot about
The thing is that we often suffice
decisions that do what matter to us
so we turn off for our rational minds
as soon as we find something that could plausibly
be described as having been [a] rationally discerned [optimal solution]
and we just move on
So, for example, I might not like thinking about cars but I know I need a
good car that
has good fuel economy, and I
just ask my friends if they know of a good fuel-economical car, until the
first person gives me a name and then I run out to buy it
That would be a sufficing
type of
purchase decision
I didn't look into to what was the best choice for me all around
but rather
I took the first decent option came my way
The second major problem in our decision-making is that we often lack information
We don't know what our choices are
We don't have a firm grasp of the upsides and downsides of each of our
choices
Think about when you were picking colleges
Were there other colleges that you wish you had considered?
When you look back,
do you think that there was a lot you didn't know
that you know now, and you wish you had known when you were making your choices?
Did you know what qualities to look for college?
Were you misinformed or what what college life was like?
These are all informational problems and they're very frequent
Some it's our fault: we didn't look things up. Maybe should have
bought some books on the topic or done little search on the Internet
but very often, everybody lacks information
there's only so much the people could know with much certainty
and probably if you ask ten different experts about choosing a college or just
about any issue, you get ten different answers
some things we don't know because research is not up where we'd like it
to be
but, as we'll see later, there are some limits to what research can tell us
and what people can know with much confidence
some questions can't really be answered scientifically at all
The third type of problem
that keeps our decision-making from being rational and well-informed
is mental errors
these are common mistakes that we make what we're trying to rationally
calculate our options
One example is "anchoring"
Anchoring happens when you give disproportionate weight to the first piece of
information you received
when you make decisions
be careful not to latch on heavily to the first piece of information that you
get
just because it came to you first doesn't mean it's the most important
a second comment mental error is one that favors the status quo
that means we're making a choice
we give an extra advantage
to the choice
that requires the least amount of change on our part
maybe we do it because it's easier
or maybe we do it because the status quo is more familiar
just because a choice is easier
or more familiar
doesn't mean it's better
A third glitch in our decision making process is something called ignoring
sunk
costs
"Sunk costs"
- ignoring "sunk costs" rather --
occurs when we made a bad decision in the past
but we don't walk away from it because we've already invested so much in it
Here's a kind of ridiculous example
imagined that I'm not popular with the ladies and I decide that my
real problem is that i don't have a mustache
and so I spend weeks trying to grow a mustache, but at the end I find that I'm
no more popular with the ladies than I was before the mustache
Now I have decision to make
do i go back to the drawing board or do I double down on my bad decision and
maybe think that the problem is that my mustaches isn't shapely enough
and so I go out and buy some mustache wax
The smart decision[-maker] says
a mustache probably isn't a great solution to social problems and that you'd be
throwing good money after bad if you
put some money into buying mustache wax
But we have a glitch in our cognition
once we put our time and energy into something, it's hard for us to admit
that it failed and
walk away from it
We often double down on bad choices
That doubling down is called "ignoring sunk costs" and we do it all the time
The third glitch
is that we often look for confirmatory evidence
it means that our senses are more attuned to information
that justifies decisions that we want to make anyways
there's a bias
in the information that we receive or detect or pay attention to
when we're balancing the pros and cons of our decisions
for example if you've ever talked to a friend about them
dumping an abusive
boyfriend or
quitting smoking
and you find that their minds immediately go to
their ninety-year-old aunt who
has been smoking two packs a day or
those moments of
genuine niceness or vulnerability that
that abusive boyfriend
displays
you're seeing somebody exhibit confirmatory bias
They want to find reasons to stay with her boyfriend
or keep smoking
and they're not being dishonest
but instead their mind is hyper-tuned to pieces of evidence that justify the
view
they want to accept as the best one
A final example of
mental traps that we fall into are estimating and forecasting problems
those are instances in which we've experienced something that
resonates with this so vividly
that we give it back disproportion amount of influence
when we're making decisions
for example we've ever gone to the casino
and, on one lucky night, we hit the jackpot
that memory leads us to think that
if we go to the casino we have a
reasonably good chance of walking with more money, when in fact we know that the
odds
are that we will lose money
The vividness of that memory -- the emotional imprint --
distorts
our valuation of the costs and benefits of a visit to the casino
We often like to think that we're rational well-informed decision makers
in general
we're not
we make decisions without thinking them through
we lack information. When we do process things mentally we have glitches that
prevent us from dealing with things in a logical and well-thought out way
Even though we're vulnerable to these types of problems
it doesn't mean that we are trapped in them
we can adopt techniques and practices that improve our decision-making ability
and will focus on those over the course of the semester