Decision making is “the cognitive process resulting in the selection of a belief or a course of action among several alternative possibilities. Every decision-making process produces a final choice, which may or may not prompt action.”
Here are 13 things to consider about your decision making:
Opportunity costs – when you make a choice you are ignoring the other potential alternatives. Another way to say this is, “If you say yes to this what are you saying no to?” If you contribute to your 401K today rather than spending the extra money to buy a boat (weekend trips to Lake Powell), that is an opportunity cost.
Sunk costs fallacy – is simply a cost that has been incurred and cannot be recovered. Going to college to become a CPA, and then later finding out you hate being a CPA, do you stick it out because you already invested tens of thousands of dollars or do you pivot? Saying goodbye to the hours of studying and dollars spent on the wrong degree is a sunk cost you can’t recover.
Loss aversion – losing something hurts more than gaining something. If you were to lose $5 it hurts way more than the joys of finding $5.
Post decision dissonance – People on the racetrack feel much more confident about their horse to be victorious after they have placed a bet. Why? Because human beings are obsessed with appearing consistent. Once we make a decision, we will put pressure on ourselves to behave consistently with that commitment. Subsequently, we build a narrative to defend and justify these decisions that will drive us to do things we would normally not do to create predictable outcomes.
Confirmation bias – we don’t look at data and change our minds. No, we cherry-pick information to confirm a story we already tell ourselves.
Cultivation theory – the effects of long-term exposure to living in a fantasy world (television, the internet, video games, social media…), you will begin to align reality with what is portrayed in that fantasy world. So, if you spend a bunch of time watching Law & Order, you will begin to believe that New York City is more dangerous than it actually is.
Poverty – Poverty is a psychological problem (and a system error), not an issue of character.
Choice Architects – people that influence the choices and outcomes of others. Particularly, in a positive way, where people are left better off no matter what they decide. Asking a two-year-old what they want for a snack, “Do you want a marshmallow or carrot?”—They will almost always choose the marshmallow. Instead, present a choice between an apple or carrot and the two-year-old is left better off no matter what they choose.
Memes – how an idea or behavior spreads from one person to the next. Planking, Gangnam Style, the ice bucket challenge are examples of internet memes. But it can explain why a few parents choose not to vaccinate their children.
The Big Sort – Why are there so many Type A personalities on Wallstreet? Because Type A personalities are sorting themselves in and Type B personalities are sorting out. As Bill Bishop has pointed out, Americans have become more ideologically polarized as they seek to live with like-minded individuals. How do you stand out from a crowd where everyone is the same? Act and sound a little bit more radical than the person next to you. Creating echo chambers. People like us do stuff like this.
The Werther effect – A phenomenon where a publicized suicide triggers more suicides. Another way to think about this is that many people think about jay-walking but will often choose to wait for the light to change. Except, when we see someone else do it we have now gained the permission to follow-through what we have already been thinking about doing.
The Dunning-Kruger effect – people tend to overestimate their abilities while underestimating the challenge. “I need to get to this meeting in 10 minutes. The office is 12 minutes away. I can make it.”
The infinite game – there are two types of games. Finite games are played with rules, boundaries, winners and losers. Soccer is a finite game. Racing someone to get on a freeway a finite game. The other type is an infinite game. You don’t play the infinite game to win. No, you play the game to keep playing. Someone doesn’t have to lose in order for you to win.