A helpful manual on how to avoid decision-making pitfalls and simplify your life by selecting options quickly and effectively.
Biases: Motivated Reasoning
Motivated reasoning is the propensity to analyse data in order to reach the outcome we desire. Most people are likely to attribute success to hard work and attribute failure to bad luck.
Motivated reasoning prevents you from using your experiences to improve your decision-making. In order to make wiser decisions, it is preferable to accurately perceive the world.
Future happiness: a key metric in making decisions
Understanding the effect of a decision on achieving long-term goals can be done well by using happiness as a proxy.
The test entails determining whether the choice’s result will probably have a sizable impact on your happiness in a year, month, or week. You can make that decision more quickly the shorter the time frame for which your response is “no” (sacrificing accuracy).
Use an explicit probability rather than an ambiguous term
Obtaining more information, frequently from other people, is one way to make decisions of higher quality. It’s more difficult to identify disagreement when you use these ambiguous terms with other people (and disagreement can help you get relevant information).
If your friend believes something has a 70% chance of happening while you only give it a 30% chance. If you say you believe it has a 30% chance of occurring, your disagreement is made clear right away.
Hindsight Bias
The tendency to think that how something transpired was inevitable or at the very least predictable is known as hindsight bias.
Your memory of what you knew at the time you made the decision may be distorted by hindsight bias.
Additionally, result and hindsight bias can reduce your capacity for compassion. It may increase your propensity to hold others accountable for negative outcomes even when they weren’t at fault.
Common Cognitive Biases: Part 2
Overestimating the frequency or likelihood of events that are readily accessible is known as availability bias (e.g., more vivid events are easier to recall, so they are more available).
Recency bias is the tendency to overestimate the likelihood of recent events happening in the future.
Why you should care about making better decisions
The outcomes of your decisions and your luck both affect how your life turns out. Although luck cannot be changed, the caliber of your decisions can. You increase your chances of having positive outcomes by making better decisions.
Since the future is inherently unpredictable, good decisions cannot ensure success. Just to increase the likelihood of positive outcomes.
Assessing the quality of past decisions: Outcome Bias
In general, people struggle to tell the difference between a decision that was of high quality and one that worked out well. They frequently only evaluate the decision’s outcome rather than how it was reached.
This is referred to as “outcome bias” by psychologists.
The paradox of experience
Good decisions can still go wrong, and bad decisions can still go right because of the luck factor. But in the long run, better decisions produce better results.
The idea that experience is necessary for learning, but that personal experiences frequently obstruct learning, is known as the paradox of experience. This is due to a variety of cognitive biases that limit our capacity for objective decision-making.
Steps to make better decisions: identify the reasonable set of possible outcomes
These outcomes could be general scenarios or ones that are more centred on particular issues that are important to you.
For instance, if staff turnover is your top concern when hiring a new employee, possible outcomes include whether they will leave in less than six months, between six and twelve months, between two and two years, etc.
Identify your preference using the payoff for each outcome
Given your values, how much do you like or dislike each result?
Listing possible outcomes on the tree in the order of most preferred to least preferred is the simplest way to accomplish this.
Consider the size or magnitude of each preference as well as how good or bad each result is.
Handling biases: make a decision tree
The various decision-related outcomes are similar to the numerous decision tree branches before making a choice. There is only one past, but many possible futures. The result (outcome bias) and hindsight bias lead us to mentally “chop off” branches that never happened once the decision’s outcome is known.
Common Cognitive Biases: Part 1
Confirmation bias is the propensity to look for and notice information that supports our preconceived notions.
Disconfirmation bias is the propensity to be more sceptical of data that conflicts with our preconceived notions.
Overconfidence: Putting too much stock in our own abilities, knowledge, or talent.
Estimate the likelihood of each outcome unfolding
Even if you’re unsure, it’s still important to estimate. You can’t provide an objectively perfect response because you don’t have all the necessary information.
One of the biggest barriers to making wise decisions is the belief that there is only “right” or “wrong,” with nothing in between.
You almost always have some information that is useful for determining the probability, and any information is preferable to none.
Combine the inside view and the outside view
The inside perspective is how you see the world from within your own experiences, viewpoints, and convictions.
Independent of your own point of view, what is actually true about the world is what is visible from the outside.
The outside and inside views should be combined. Your chances may be better or worse than average based on information from the inside view. But a realistic perspective from the outside is helpful.
A decision is evaluated by results
The assumption that the outcome of a decision indicates anything about the decision’s quality is quite persuasive (but wrong). Even if you give someone the exact same information about a decision, their assessment of whether it was good or poor will typically alter based on how it turns out.
