Are smarter people more rational? Do perfect decisions exist? Do good decisions always involve luck? Read on to learn three surprising truths about decision making.
Surprising truth #1: Even if you’re smart, you’re irrational and make stupid decisions all the time
“The map is not the territory” – Alfred Korzybski (Farnam Street, n.d.)
Are you more, less or about the same as other people when it comes to being impartial? Insightful? Biased? We’ll see how this is relevant shortly.
As we navigate through life we develop mental models, or beliefs, about how the world works. However, these models are only approximations, a sentiment captured in the quote above. Lurking within our mental models are thinking errors called cognitive biases which cause inconsistencies between our beliefs and reality. This matters because it leads to bad decisions.
In his bestselling book Thinking Fast and Slow, Nobel prize-winner Daniel Kahneman summarizes a large body of scientific research that conclusively demonstrates we are less rational than we believe (Kahneman, 2011). Psychologists call the tendency to view ourselves as more impartial, more insightful and less biased than others the objectivity illusion (APA Dictionary of Psychology, 2020)
What do your answers to the questions above reveal about your objectivity? Do you ever make dumb decisions? Would this feel difficult to admit in case it means you’re not smart? The surprising truth, according to Kahneman, is that smart people make stupid decisions all the time. So, let’s differentiate between our intelligence and our decision-making capability. They’re not the same thing.
Surprising truth #2: Perfect decisions don’t exist as certainty is an illusion
“Instead of altering our beliefs to fit new information, we do the opposite, altering our interpretation of that information to fit our beliefs” – Annie Duke (2018)
It’s time to bust a common myth that interferes with our ability to make sound choices: that we can make perfect decisions. This idea is pernicious because it leads us down rabbit holes in search of ever more information or options in the hope that we will be able to control the outcome of a decision. Even if we could overcome the resultant analysis paralysis and make a choice, certainty is not guaranteed. Let’s explore why.
First, we never have perfect information. Since we don’t have unlimited research time, our information is always incomplete. And we have to make trade-offs between time and accuracy, so time restrictions equate to inaccurate information.
But even if we did have unlimited time, our information would continue to be inaccurate. Our many cognitive biases conspire to make it so. What we label an information problem is actually a thinking problem. For example, the spotlight bias (thinking what we see is all there is) and the confirmation bias (the tendency to avoid evidence that doesn’t support our beliefs) lead to a phenomenon called motivated reasoning (Psychology Today, n.d.). We have a dog in the fight, so we overlook obvious and important facts. Motivated reasoning happens outside of our conscious awareness. Because we aren’t aware of it, we don’t think that it affects us, but it certainly affects our conclusions.
Surprising truth #3: Luck and chance play a role in almost every decision
There is a second reason we need to let go of the idea we can control everything that happens to us: there are very few situations in life that don’t involve luck. We can stack the odds in our favor by having a robust decision-making process, but there will almost always be some element of chance.
To make great decisions we have to be able to think probabilistically, that is, be able to estimate the likelihood of particular outcomes from each choice. Cognitive psychologists have studied our ability to predict the future and what will make us happy; it’s not as good as we think. We also overestimate our ability to make good things happen. There are multiple cognitive biases at play here including the representativeness heuristic, availability heuristic, overconfidence bias, optimism bias and impact bias.
What underpins our desire for certainty is that we experience gains and losses differently. Yep, it’s another cognitive bias called loss aversion. It’s estimated the psychological pain of losing is twice as powerful as the pleasure of gaining (The Decision Lab, n.d.). So, when we imagine a decision turning out badly, the feeling of regret is stronger than any positive feeling we get from predicting a favorable outcome. The same is true for past decisions; the sting of regret looms larger than happier memories.
So, what are we to do? We can’t do anything about luck, but we can improve the quality of our decisions: (1) through developing a system, (2) by training ourselves to make probabilistic predictions, and (3) by expanding our comfort zone regarding uncertainty through “satisficing”; instead of aiming for a perfect decision, we can choose options that satisfy and suffice so are ‘good enough’.
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- APA Dictionary of Psychology. (2020). Objectivity illusion. American Psychological Association. Retrieved 23 September 2022 from https://dictionary.apa.org/objectivity-illusion
- Cherry, K. (2020). What Leads to Bad Decision-Making. Verywell Mind. Retrieved 23 September from https://www.verywellmind.com/why-you-make-bad-decisions-2795489
- Duke, A. (2018). Thinking in bets: making smarter decisions when you don’t have all the facts. Portfolio/Penguin.
- Farnam Street. (n.d.). The Map Is Not the Territory. Retrieved 23 September 2022 from https://fs.blog/map-and-territory/
- Kahneman, D. (2011). Thinking, fast and slow. Farrar, Straus and Giroux.
- Psychology Today. (n.d.). Motivated Reasoning. Retrieved 23 September from https://www.psychologytoday.com/au/basics/motivated-reasoning
- The Decision Lab. (n.d.). Why do we buy insurance? Loss aversion explained. Retrieved 23 September 2022 from https://thedecisionlab.com/biases/loss-aversion/