The psychology behind decision making: How humans think?

Burgers or Pizzas? Winter or Summer? People spend a large part of their day making decisions. An average human makes around 35,000 decisions in a day and it takes around 7 seconds to make a decision. While logic and intuitions may seem to be opposites, a rational person will inculcate both these factors to make a sound decision. However, people often end up making bad decisions due to incomplete and improper information, lack of thinking and being overwhelmed by emotions and intuitions.

The process of decision-making is very complex. It involves extensive thinking about a particular topic, developing a perspective about it and applying logic, reason and intuition to make a decision. It begins with identifying and defining a problem accurately keeping in mind the errors and misconceptions that might occur. It is followed by identifying the criteria and ranking them based on priority. Next, identifying various alternatives to complete that decision and choosing the best one after weighing the pros and cons. After completing all these steps, a person can finally arrive at a sound decision.

A decision can be affected by a lot of factors and that can have a serious impact on the ultimate result. Emotions are an integral part of human beings. It is what differentiates a human from a robot. While making judgements, individuals tend to bring a lot of emotions into it which can affect the soundness of the outcome. There are times when a person deliberately chooses a side because he has a particular bias towards it. This reduces the genuineness of the decision and makes it flawed. Although emotions cannot be completely ignored, inculcating logic, reason and mindfulness can make a decision practical and effective.

Indeed, making decisions can often be very difficult and confusing as to what is the right way to move ahead. In such a scenario, we suffer from the paradox of choice where there are various alternatives to choose from but the individual can opt for only a single one. Here, the individual should try to inculcate logic, and reason and also use criteria and strategies for effective decision- making. The concept of Behavioural Economics deals with all these problems. In traditional Economics, it is believed that humans are capable of making their own rational decisions while are in their interest. Unlike traditional economics, the former emphasizes how individuals are greatly influenced by their environment while making decisions. Human beings do not think rationally while making decisions and often ignore what’s best for them.

There are various factors which influence the behaviour of a person. These include bounded rationality, choice architecture, cognitive bias, discrimination and herd mentality. Under bounded rationality, people make decisions based on the limited knowledge they possess. Choice architecture indicates how humans can be easily influenced into making desired decisions favourable for the concerned party be it a business organization or an individual. All human beings tend to have a cognitive bias while deciding as it’s not possible for a decision to be from any kind of bias. Be it daily decisions such as having a cup of tea or coffee, or going to the USA or UK, these decisions invite the use of cognitive bias. It is followed by discrimination. Every individual has a tendency to have a discrimination towards a particular choice. Lastly, there’s herd mentality. Under herd mentality, people are driven by what others do. The decision isn’t made in their own interest but based on what the pack does.

There are various principles of Behavioural Economics. Firstly, there’s framing which involves the presentation of a message positively or negatively affected by cognitive bias. It is followed by heuristics which involves the use of shortcuts in deciding as opposed to the traditional, long manner. Then, there’s loss aversion. No one likes losses. People are affected more by a potential loss than a win. It is followed by market inefficiencies, mental accounting and sunk-cost fallacy which together sum the principles of behavioural economics.

While making a decision, a variety of strategies can be implemented. These include the Single- feature model, the additive-feature model, and the elimination-by-aspects model. The single-feature model involves relying on a single feature to make a decision. For example, an individual decides to buy a water bottle based on solely, price. Under the additive features model, all the necessary features are considered and then prioritized while purchasing a product. So, now if the same individual buys a water bottle, he will not only consider price but other aspects as well such as quality and durability, etc. before arriving at a decision. The Elimination Aspects Model implies trying out various features one by one and understanding which feature suits the best. It works on a trial- and-error basis and involves the implementation of the best feature to make a decision. For example, the individual considers all the features while buying a water bottle and eliminates them one by one before deciding on the ideal feature.

There are some other decision-making strategies as well including the availability heuristic and representativeness heuristic. A heuristic is a shortcut to make a decision involving a rule of thumb to make decisions quickly. There are primarily two types of heuristics: availability heuristic and representativeness heuristic. In the case of the availability heuristic, the person decides by relating it to a similar past event where he took such a judgement. For example, an individual decides to buy an ice cream based on his previous experience with it. However, in the representativeness heuristic, the person compares the current situation with a hypothetical one which he has never been a part of and makes his decision based on the outcome of the latter situation.

While making important decisions, a person must be calm and composed which succors in making sound judgement. The ability to think critically is key to informed decision-making. The person should arrange all the necessary information and analyse the pros and cons before deciding. All these elements together contribute towards a well-taken decision.

Citations: