Decision Making Guide: How to Make Smart Decisions and Avoid Worst Decision that Will Affect Our Life

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What is Decision Making?

Let’s define decision making. A decision can be defined as a course of action purposely chosen from a set of alternatives to achieve organizational or managerial objectives or goals. Decision making process is continuous and indispensable component of managing any organization or business activities. Decision making is just what it sounds like: the action or process of making decisions. Sometimes we make logical decisions, but there are many times when we make emotional, irrational, and confusing choices. This page covers why we make poor decisions and discusses useful frameworks to expand your decision-making toolbox.

Why We Make Poor Decisions

Tim Ferriss shares a line by one of his mentors in which I feel sets the tone for why this topic is an incredibly important one. His mentor said, “Easy decisions make for a hard life. Hard decisions make for an easy life.” It had me reflecting on some of the decisions and choices I’ve had to make in recent times.

Decision making is one of the most laborious processes I know. For somethings, I can make decisions with relative ease, and for others, it can be a daunting task. I’ve made some excellent choices in life, some inferior ones, and at times when there are tough decisions to make I avoid them like the plague. Why?

I’m always inspired to research motivation and reasons behind why as it relates to how the journey of my life rolls out. How is it possible that by making hard decisions in life we can lead to an easier one? Why do we make poor decisions? In awareness and understanding perhaps I will be able to make wiser decisions moving forward.

In Dan Gilbert’s Ted Talk, titled “Why We Make Poor Decisions,” he shares an insightful formula as to how we calculate the expected value of something. This formula may help us better understand the reasons, errors and the why behind some of the decisions we make.

It was Daniel Bernoulli who apparently came up with this formula. He was an 18th-century Swiss mathematician known for his work on probability and statistics. The recipe looks like this, Expected value = Odds of gain + Value of gain. This relates to the actions or decisions we will likely make.

Here is how it works. If we can calculate the odds and value of any gain, we will be able to know might better how we will behave. For example, if in taking action the odds of something occurring is high and the value we attach to its occurrence is also high, we are likely to make a decision in favor of the action. If these elements are low, we will likely to make poor choices or none at all. At least this is my understanding of the formula.

According to Gilbert, there are a few reasons why people make bad decisions, and usually, it results from an error of judgement. What influences our ability to reason is our upbringing, conditioning, experiences and everything else we’ve been exposed to in life. That is the hard wiring of our brain, and it will affect how we calculate odds of gain and value. Emotions have an important role to play.

Gilbert also said that when we compare we may even make errors in judgment. Comparing is contextual to a particular experience. In one instance the odds may look favorable based on other positive elements occurring at the same time however in different contextual circumstances it may not be so.

There is the social comparison that effects our decisions and comparison to our experience. For example, many of our purchasing decisions are driven by social comparison. How will this make me look? Also, if we did or had something in the past that we remember as being good we might decide to purchase or do it again but this time be disappointed because the conditions were not the same.

These factors will contribute to either an overestimation or underestimation of odds and misrepresented perception of value.

Having experienced something more frequently in life, we will be in a better position to calculate the odds of it happening. For those things we are unfamiliar with it is more challenging to do this. For example, I can safely predict the odds of how good I will feel after going for a run in the morning, something I do a few times a week. On the other hand, waking up to go for a surf, something I’ve never done, will be more difficult to determine the expected value.

However, I can form assumptions based on my interactions with other surfers and their shared experiences and my knowledge that exercise and swimming in the ocean positively influence how I feel. In practice, I will be better able to calculate the odds. It reinforces to me why it is important to experiment and try things in life before ruling out possibilities that may lead to regret.

If we can easily see that the gain of something happening is more likely to occur because it has been something we’ve been more heavily exposed to or experienced, that will increase the overall expected value and the motivation to act. However, the odds of gain are based less on calculated fact and more so driven by emotions. In my experience, even with hard evidence, emotion usually overrules.

According to Lisa Feldman-Barrett, the theory that emotions are hard-wired is flawed. She proposes the constructionist theory which states that emotions are learned and built over a lifetime of experiences. Neuroscience research has found that emotions result from numerous brain networks working in tandem and influenced by “effect” – the mind and body relationships to stimuli.

As mammals, in life, we are influenced by the need to survive. To do this, we seek to fulfil our fundamental needs that are purposeful to our survival. Reward and punishment drive our actions. The brain functions as an efficiency tool. To help us remember what is good or bad and hence improve our ability to survive. The issue is that it is not necessarily always right.

The brain, now filled with pre-conditioned tendencies, will interact with the external environment and how the body feels to produce emotions, either positive or negative. Emotion will powerfully motivate our decisions, and how well we determine the odds of gain and value of gain despite evidence or fact, that may suggest otherwise.

How many times do we do, say, eat, or think things that even against our best judgment we still proceed? When angry I may lash out violently, and yet I know it’s not the best solution. When tired or sad I eat unhealthy foods or drink despite my knowledge that such things are not suitable for me long-term. I buy something that I want in anticipation of how happy it will make me feel and yet a couple of days or hours later I’ve forgotten all about it. I realize that most of what I think I want is driven by perceived needs and that without it I wouldn’t be any worse off.

In summary, and this may sound obvious to many of you, emotions affect the quality of decisions we make in life. Emotions affect the quality of life. I believe that with increased awareness and growth in our knowledge we will be able to understand better how our emotions work and therefore how they direct our decisions. From there, may we all make better decisions and live a life with greater freedom, fulfillment and happiness.

I like to think of myself as a rational person and reasonable person, but I’m not one and I am not perfect. The good news is it’s not just me — or you. We are all irrational. For a long time, researchers and economists believed that humans made logical, well-considered decisions. In recent decades, however, researchers have uncovered a wide range of mental errors that derail our thinking. The articles below outline where we often go wrong and what to do about it.

  • 5 Common Mental Errors That Sway You From Making Good Decisions: Let’s talk about the mental errors that show up most frequently in our lives and break them down in easy-to-understand language. This article outlines how survivorship bias, loss aversion, the availability heuristic, anchoring, and confirmation bias sway you from making good decisions.
  • How to Spot a Common Mental Error That Leads to Misguided Thinking: Hundreds of psychology studies have proven that we tend to overestimate the importance of events we can easily recall and underestimate the importance of events we have trouble recalling. Psychologists refer to this little brain mistake as an “illusory correlation.” In this article, we talk about a simple strategy you can use to spot your hidden assumptions and prevent yourself from making an illusory correlation.
  • Two Harvard Professors Reveal One Reason Our Brains Love to Procrastinate: We have a tendency to care too much about our present selves and not enough about our future selves. If you want to beat procrastination and make better long-term choices, then you have to find a way to make your present self act in the best interest of your future self. This article breaks down three simple ways to do just that.

How to Use Mental Models for Smart Decision Making

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.

You can learn more about mental models, read how Nobel Prize-winning physicist Richard Feynman uses mental models, or browse a few of the most important mental models below.

Top Mental Models to Improve Your Decision Making

  • Margin of Safety: Always Leave Room for the Unexpected
  • How to Solve Difficult Problems by Using the Inversion Technique
  • Elon Musk and Bill Thurston on the Power of Thinking for Yourself

Best Decision Making Books

  • Thinking, Fast and Slow by Daniel Kahneman
  • Poor Charlie’s Almanack by Charles T. Munger
  • Seeking Wisdom by Peter Bevelin
  • Decisive by Chip Heath and Dan Heath

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Author: Mark Joseph Digamon

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