Business

How to avoid mistakes in decision making?

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In the last article, we learnt how we predictably err, how default options run our lives, how planning-fallacy derails our plans, how we are susceptible of certain cognitive illusions that mar our judgement of any experience and how context trumps cognition for our decision-making process.

There is more to it so let’s get going to know more about the psychology of irrationality so that we can benefit from it.

When there is a good option and a bad option it’s very obvious and easy to make a choice.

The problem comes when we have two good options and we have to make a choice, in those times context plays a crucial role.

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We rarely choose in absolute terms: let’s say we have to adjudge which one of (A) a vacation in Goa and (B) a vacation in Andaman is a better option and we need to make a decision.

It’s hard to make a decision as they sound like absolute and there are relatively less parameters to compare (assume costings are same). Which one will you choose and why?

Let’s add a third option (Ā) vacation in Goa minus breakfast. Now A is better than aĀ and surprisingly we translate this comparison to other parameters, ie comparing with B now since A> Ā now A is better than B too.

Surprisingly, the addition of a slightly inferior option but easy to compare makes a huge difference.

This is because thinking is difficult and comparing in the same category is ‘easy’ and the brain does the easy things easily.

Have you heard of the 2/3rd rule while clicking pictures, if not then google it, please.

So why we love asymmetric pictures of a scene? Evolution! Yes, our evolution makes us love symmetry in faces and objects but non-symmetry in scenes.

In the last article we learnt about the priming effect, what it entails is – we often accept the first offer or do just minor correction around that number… This is known as ‘anchoring effect’.

People who have bought something from Delhi’s Palika market know it well when you bought a watch in 700 after haggling from the initial price of 1000 only to know few days later that another friend of yours bought it from the same place at Rs 125.

What happens here is initial anchors sets the expectations bar and your discussion and decision are coloured after that.

So always take care of your 1st decision as after that there will be herding of thoughts and if tied with the wrong anchor will give wrong results.

What if something is free? Have you ever resisted the power of free? Place to place and 10 times in value! Such is the power of zero.

Free is very powerful and hence try to make some part of your offering free and you’ll reap the benefits.

When we take a pledge to do something or not to do something, it’s more of a resolution in a cold state.

We miss the point that things will be quite different at the time of decision when we are in a hot state.

So have some trigger control and planning about your hot state while you’re in your cold state so that you can mange the hot state well.

Socio-economic systems have some market norms and some social norms.

Social norms usually prevail while market norms are like a set of rules, yet when there is a case when market norm takes over social norms, the social norm is thrown out of the window, it never returns or takes a long long time.

 

shekhar
Shekhar Chandra is an IIT-Delhi alumnus. He has over a decade of entrepreneurial experience and leadership excellence. He is also a member of Big Wire team. Reach him at YouLEAD)

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