Decision Making

Hardly a minute ever goes by without each and every one of us making some type of decision. It can be something as small as “should I say ‘may I’ or ‘can I’”, or something as big as how to plan for retirement. You have to choose between instant gratification and long-term commitment all the time. Whether you want to do what you know to be right or what you know to be wrong.

For it to play such a huge part in our lives it was only a matter of time before scientists started doing actual studies and different research on how we make decisions. One of the most famous studies on decision making was in the 1670s, Pascal’s Wager. The entire basis of the wager is deciding whether or not to believe if God exists. Pascal reasoned this way, “If God exists, belief in Him will mean eternal salvation. If He doesn’t exist one loses nothing by believing.” So the choice seemed obvious, you may as well believe in God.

We now call what he explained, the theory of Expected Value. It states that “when faced with a choice between uncertain alternatives, you should determine the positive or negative values of every possible outcome, alone with each outcome’s probability, and then you should multiply the two and choose the option that produces the highest number.”

It sounds super simple, perfect ! SIKE. In real decisions are rarely ever the cut and dry no matter how rational the person making the decision is, because we are all human. So later on in the 1730s a guy came along with a different but similar theory called Expected Utility. To sum it up it was everything the previous theory entailed but he also factored in “aversion to risk and the utility of a given payoff depending on his or her preferences.” So it stressed the fact that value was super subjective. For example, a free box of pizza would have greater utility and therefore inherent value for a pizza enthusiast than for someone who hates pizza.

Again though, as we eluded to, real world problems are often complicated. Really, really complicated. There’s often hundreds of variables included when making a decision and we usually don’t have time to fully process them all and visualize every outcome. So instead our brain just takes short cuts ! These shortcuts are called heuristics. 

One heuristic we use often is to referred to as respresentativeness. This is our natural tendency to ignore statistics and other hard data and just go with stereotypes. Yikes. You can imagine all the reasons that can be a horrible idea, right ? 

Another one that we use equally as often is known as anchoring. This is peoples tendency to base all subsequent like items based off the first of its kind that you see. For example, if someone offers you a Mortar Hawk for $300 but they tell you it’s usually $1000 and you have no idea what that even is, an anchor has now been created whether you even believe the person or not. If you’re skeptical you mat try to average the prices when you come across it again but either way, it will forever be your reference. 

The last heuristic we’re going to go over is the affect heuristic. This is people’s tendency to assess situations based off how they feel towards the options available. If you have better feelings towards one option you’re going to judge it as less risky whether it really is or not.

So how can we use our new found knowledge to make better decisions or to appeal to the way that others make decisions ? One of the best ways is to appeal to our natural laziness. Make the best option of things the default option. Whenever there is a default available most people accept because it requires almost no energy and because many people do assume that the default is the best.

We will cover other ways in a future blog ! Subscribe down at the bottom of the page and get notifications in the future.