Why are personal decisions so difficult to make?

I have been teaching and training people to make the right decision every time for a good twelve years now. I have had people struggle with questions like, “Should I leave my job and start my own business?”, “Should I sell my house?”, “Should I quit my job and take care of my mom?” and even, “Should I marry this man?” (I kid you not!). Now, even when I help them make the decision, many of them are skeptical of the decision they arrived at, while others use very illogical decision inputs to make their decision. Invariably, all of them are prone to making the wrong decision. So, in this article, we will examine what causes us to make decision mistakes, especially for personal decisions. Spoiler alert: This is a LONG article because there are MANY biases! Make sure you are ready…

CAN WE REALLY MAKE THE RIGHT DECISION EVERY TIME?

First off, let us address the elephant in the room – can we REALLY make the right decision EVERY TIME, and how do we do that? Before we answer how, we must first decipher what is the right decision. Indeed, many people are susceptible to what is called the outcome bias. This is a bias that makes people judge the rightness of a decision based on its outcome. I know, you are thinking, “What is wrong with that?” A good decision maker must be making the decision to get the right outcome, right? Well, it is not as simple as that.

Let me give you an example.

You have an ailing pet. You brought him to the vet, and he says that your pet has a serious illness, and if left untreated, he will probably have about 6 months to live. He also tells you that there is a new drug that can be used. There is a 70% chance of success with the drug, which would give your pet another 2-3 years of life. Of course, the downside is that the pet’s demise may be hastened. You are a logical person, and you calculate that the expected value of life expectancy with the drug is 1.75 years as opposed to just 0.5 years if left untreated. So, you decide to take the treatment. Unfortunately, your pet did not respond well to the treatment and died 2 weeks later! You berate yourself for making the wrong decision because if you did not do anything, your pet would at least still be alive!

Question: was it the wrong decision to have opted for the treatment? You know that it is not, because the expected value of the life expectancy was 1.75 versus 0.5. So how can it be wrong? It so happens that you (and many people as well) are outcome biased, where you take the outcome of a decision as a means to determine if the decision was right or not. In this case, you call this decision wrong because your pet responded poorly to the treatment.

Yet, logically speaking, at the point of making the decision, the decision was right! An expected life expectancy of 1.75 years versus 0.5 years is too great a disparity not to take. Of course, there are no certainties in life, so the right decision might still lead to the wrong outcome, and a wrong decision might lead to the right outcome. That is the twist of fate or luck. But you cannot replicate luck. You cannot consistently make the wrong decision and get the right outcome.

So, if outcome is not the means to decide if a decision is right or wrong, what is? As in all systems, there is an input, a process and an output (or the outcome). Since the output cannot be used as a judge for the right or wrong decision, then it would be up to the inputs and the process. Indeed, the quality of inputs and the quality of decision process are key determinants for the right decision. And, if all the same decision inputs were to present themselves again, you would make exactly the same decision once more! (choosing 1.75 years life expectancy over 0.5 years!) Such is the scientific method for decision making.

Yet, we have seen time and again, humans are very terrible at making decisions! It is not because we are ignorant or unintelligent, it is because we are… well… human! And humans are filled with biases! At the last count, there are more than 100 different biases that affect human decision making! No wonder we are prone to making the wrong decisions! And personal decisions are more susceptible to such biases, as compared to professional ones, because of all the emotions and personal issues. This is not to say that professional decisions are not difficult and are not prone to biases; but the incidence is less compared to personal decisions.

SOME COMMON BIASES

Let us now look at some of the more common biases that affect us, their effects on our decision-making and how to overcome (or minimize) them…

a. Affect heuristic – where your immediate emotions weigh much more strongly than the facts. For example, when you see a man in tattoos sitting in your interview room, you immediately think this person is a bad character even before you have interviewed him! That is called the affect heuristic. So, when a person is struggling with a very straight forward decision, look out for the emotional anchors that might be weighing him down, and help the person work though the emotions with facts.

b. Anchoring – where the first idea (or number) called out is the one that would be settled on. This is used a lot in negotiations where people rush to open a number. Oftentimes this number is way higher than the cost of delivering the product or service. Yet, when the negotiations are ended, the agreed number lies very close to that opening number. Everyone is anchored by that opening number! There is no avoiding this; it just is. So, when negotiating, try to be the first to open a number. (But be aware that this may well be below what the other party was willing to pay! But that is another discussion for another day.)

c. Availability bias – when it is easy to recall an event. For example, are there more silver cars or blue cars on the road? One look around and you see more silver cars; or the thought of a silver car comes to you immediately, and so you say it is silver cars. Yet, how do you know for a fact that there are more silver cars if you did not go to the registry of vehicles? The availability bias gives people a wrong sense of reality based on what comes to mind more quickly. The issue is, they become adamant that they are right. To overcome this, use objective information, even if the person claims to be knowledgeable and right.

d. Base-Rate neglect – where one person ignores the base-rate numbers (aka, regression to the mean). You have heard that the survival rate of startup companies is very low, right? Some say only 20% of new companies survive the first five years, and from there, another 20% survive the next five years. This puts it at a 4% survival rate for new companies to reach 10 years. Such a statistic is called the base rate which is surprisingly accurate. (Recall that the sample poll from our elections is quite indicative of the final election result.) So, when one asks if they should quit their job and start a new business, they must be fully aware that 96% of those that are starting out with them today will be gone by 2030. And at the back of this, ask them whether they are willing to accept these odds, and what they will do if they are part of the 96%. And what happens when one is willing to accept such overwhelming odds? Here’s another statistic – research has shown that less than 3% of SMEs in the US earn $250,000 or more a year. That is a surprisingly low number! (Very close to the 4% survivability rate, actually!) Although that is a US statistic, it is probably not far different in Singapore (base rates, remember?) So, if you are not afraid of your odds of survival, maybe you should be prudent about how much you stand to earn by striking out on your own. Oh, and one more thing; $250,000 is too low to ensure scalability and growth of an SME.

e. Clustering illusion – the propensity to see a picture or pattern where there is none. How many of you have seen a dog or lamb in the clouds? Or the face of Donald Trump in the burning ambers? The human mind is very adept at finding patterns where there is none! So when someone says, “If A, B and C happen, I am sure we will be successful!”, you know they are being anchored by their clustering illusion. To help them, get other people to share what they see will happen after A, B and C happens.

f. Confirmation bias – finding a “yes” in a sea of “no’s”. Closely linked to clustering illusion – but not exactly the same – is the confirmation bias. This is a bias where someone ignores all the many evidence to the contrary, and just focuses on the one that confirms. For example, Donald Trump is filled with confirmation bias. Even when everything is crumbling around his presidency, all he sees is the momentary uptick in the employment figures in June 2020 (but which later turned out to be a calculation error!) to say that he is doing a fantastic job as the US President! When people are blinded by confirmation bias, it takes a very strong personality and persistent data gathering to change one’s bias. A very tall order, unfortunately!

g. Effort bias – where one overly values effort over outcome. While we did say that outcome is not a determinant for the right decision, we did not say that outcome is unimportant! Indeed, some people go the other extreme regarding outcome where they completely ignore it; they only care about the effort that they had taken. When you find that someone is undeterred when there is no outcome to their efforts, but is very determined to do more and more, this person probably is effort biased. To minimize this, it is good to discuss KPIs and timelines, with a specific no/no-go decision at a particular point in time. This allows the person to work hard but to also kill the decision if there is no outcome or movement.

h. Endowment effect – when we value what we own more than others value it. This is very typical in a personal marketplace. Take for example someone selling his property to buy another one. When people come to view his place, and make an offer, he rejects all the of the offers because he says they are too low. Yet, when he goes out to view other (similar) property, he makes an offer much lower than what he values of his property! This is a very typical effect in almost all people, one which says that we value what we own much more than what the market or others value it. In the end, the person may be illogical in rejecting a great offer, only to regret it some time later, yet not being able to regain that offer! It is very difficult to overcome endowment effect and the way to minimize it is to acknowledge its presence and hopefully to let go of the endowment early enough.

i. False causality – mistaking correlation for causality. Let’s say, for example, every time a certain person in a remote village sneezes 3 times in succession, it rains. This has been happening for quite some time to the effect that word spreads to say that the person causes the rain to fall by sneezing! It sounds ridiculous, I know, but that is an example of false causality. There is correlation between sneezing 3 times and raining, but not causation. Yet, many of us mistake our own infallibility through false causality, leading us to think that we control the factors around us, where in fact, we don’t. Use scientific discourse to overcome this.

j. False Consensus effect – where we think that what we like/dislike or are good at or not, are the same with everyone else. In other words, we think others are like us. This will cause us to make assumptions and statements about others which are totally wrong, but we cannot see its effects. To overcome this, we need to acknowledge that everyone is unique, and we need to uncover each person’s strengths and weaknesses, rather than treat everyone like us.

k. Framing – the way you position your perception. Everyone is framed. We see things the way we want to. If we are in a conflict, we see anyone not from our camp as bad; as wrong. To overcome fixed framing, we must learn to shift our focus and see things from others’ eyes.

l. Hindsight bias – where we believe we had done everything right, or had predicted the outcome, after the fact. Again, Donald Trump is so guilty of hindsight bias. He will say something against an outcome, yet when that outcome happens, he will say that he always knew it would happen and even done things to cause it to happen! The thing is, with hindsight bias, we actually believe that we had done everything right, and all memories of doing the contrary had been erased! It might seem that we are delusional, but it is simply the hindsight bias at work. A very good way to overcome this is by keeping a journal or record your thoughts, so that you can check back at it. But of course, if you erase it, or destroy the journal, then you certainly are delusional!

m. Illusion of control – thinking we can control everything when in fact we have very little control. This is very closely related to false causality. To overcome this, think more analytically, identifying what indeed is under your direct control, what is indirectly under your control, and what is not under your control. Then, only focus on those you are directly under your control.

n. Information bias – aka overthinking. This is a bias where the person needs more and more information to make a decision. The bias keeps one away from the decision and focused on getting more information. And what does the person use the information for? Creating new and more scenarios of possibilities, forming assumptions and conclusions about the situation where there is none. This is very close to the clustering illusion.

o. Loss aversion – people are many times more likely to avoid a loss than to take advantage of a gain. In other words, people feel more delighted at avoiding a $100 loss than in receiving a $100 gift! Pain avoidance seems to be deeply wired in people which causes them to make sub-optimal decisions – in fact, wrong ones! This has been ingrained in us since birth and we can only try to mitigate its effects through awareness.

p. Not-Invented-Here syndrome – where we assess our personal efforts/decisions much higher/better than others’. This affects people who are creators, developers, inventors. They rate themselves much higher than they do others; they believe that their product/solution is far superior to others. However, the fact of the matter is, theirs may not be as good, and less effective, but they will never be able to accept that because it was Not-Invented-Here. To overcome this, we need to set aside ego and personal pride, and to judge others’ efforts as we judge ours. We must see the merits of ALL products/solutions, whether it is ours or somebody else’s. And when we find that others’ ideas are better, we need to acknowledge that and work with that. This is closely related to the endowment effect.

q. Outcome bias – judging the right decision by its outcome. We have discussed this earlier.

r. Pygmalion Effect – where expectations alter a person’s actions and, thus, outcome. This is also known as the placebo effect. Basically, when someone of authority and trust tells us to expect something, that something happens because it shifts the way our psyche responds to the situation. This is a great way to effect change, although it is not 100% reliable.

s. Self-serving bias – when we attribute success to ourselves and failure to external events. Again, this is the Donald Trump bias. It is also related to the Not-Invented-Here syndrome. It is not easy to minimize this because awareness is not easy to achieve nor easy to maintain.

t. Substitution effect – replacing the actual decision question with one that his more easily accepted. For example, in Singapore, when a man asks his girlfriend, “You want to apply for BTO?”, is usually euphemism for “Shall we get married?” He substitutes the actual decision question with one that is more sanitized so that if the answer is no, it would not be a rejection of him, but of the BTO. But, let’s not be fooled; we all know what the “No” or “Yes” mean. Similarly, when we disguise the real issue, e.g. “Shall I sell my house?” to stand in for, “How can I pay off my gambling debts?”, ultimately the decision might not address the root cause, and you go back to gambling again after selling off your house. That would lead to a vicious cycle – until you face up to the real issue that is confronting you. To overcome the substitution effect, be brave and call a spade a spade, so that you progress along the right direction.

u. Sunk cost fallacy – taking your sunk cost into the cost of the decision. For example, you have decided to trade-in your current car for a new one. However, you recently spent $1,200 replacing all four tyres, and also renewed your road tax for $750. When the dealer makes you the offer, you reject it because you mention that you just spent money on the tyres and on the road tax. In effect, these costs are already sunk, there is no getting them back if you want to trade in your car. But many people cannot separate the past expenditure with the current realities which may make their decision sub-optimal or wrong. So how do we deal with sunk cost fallacy? Basically, just ignore them. They were the outcome of a previous decision. Unfortunately, humans, being humans, find this next to impossible! And that might even lead them to walk away from a great deal and into a much poorer one in the future!

v. Survivorship bias – where people overestimate their chance of survival. This is akin to the self-serving bias, the illusion of control, base rate neglect and hindsight bias. Essentially, people with survivorship bias neglect the base rate and think that they will be the exception, rather than the rule. The key to overcome this is to expect the best but plan for the worst!

w. Swimmer’s body illusion – when you look in the mirror and see an illusion of a swimmer body, and not that of a couch potato. Finally, the swimmer’s body illusion is the self-denial bias. It cannot see the faults in themselves and are delusional about their efforts. To overcome this, ask others to be truthful and tell you what they see in you. Then learn to accept that and work on improving that. But remember, all the other biases listed above are working against you!

WE ARE STACKED AGAINST NATURE

Personal decisions become increasingly more difficult because we are part of the decision. We are affected, one way or another, by the above cognitive biases. People say that we should make decisions without emotion, but as the above has showed us, emotions are deeply embedded within us and rear their (sometimes-ugly) head when we make decisions. This leads us to becoming stubborn, illogical, blind, judgmental and even dismissive, to outside influence or help. Yet, it is this very help that will keep us on track to making the right decision every time!

So, with this in mind, can we REALLY make the right decision every time? Unfortunately, we are stacked against nature and we need to consciously pull ourselves from her clutches before we can do so.

Is it impossible? No. It requires a large amount of effort and a strong will to overcome nature. And that is why in most situations, you may well need a Decision Buddy to be that strong sounding board to tell it to you straight so that you can look past your own self-serving bias and do the right thing.

Because, you do want to make the right decision every time, don’t you?

If you want to know more about our Decision Buddy scheme, please email us at jessie@growthconsultingasia.com.