Decision Making

Browse the pages below related to decision making.

Being human

To understand how we make decisions, it is important to understand some of the fundamental things we share as humans - our biology.

Bounded Rationality: The idea that humans are rational, within our cognitive limits - there are biological limitations to our ability to process information.
Cognitive Load: The amount of information flowing into our working memory at any given moment.
Decision Fatigue: The more decisions we make, the quality of our decisions deteriorates.

How we make decisions: biases and heuristics

Humans are prone to taking mental shortcuts when making decisions. These biases and heuristics are often predictable, and can negatively impact our decision making. Some examples include:

Action Bias: We tend to favour action over inaction.
Affect Heuristic: We often make quick judgements and decisions by consulting our current feelings, rather than concrete information.
Anchoring: We often use initial pieces of information or references to make decisions.
Availability Heuristic: We rely on examples that come to mind to make decisions.
Hindsight Bias: We tend to overestimate our knowledge at the time of an event, after the fact.
Hyperbolic Discounting: We tend to value the present more than the future.
Optimism Bias: We tend to overestimate the likelihood of experiencing positive events relative to others, and underestimate the likelihood of experiencing negative events.
Recency Bias: We tend to treat recent events or information with more weight when making judgements or decisions relative to those further in the past.
Status Quo Bias: We tend to prefer that things stay the same.
Survivorship Bias: We tend to view information or stories about success and ignore information about those that failed or did not survive.

Implications of our biases

Since we have a tendency to make predictably irrational decisions, there are some common implications that we can observe and realise:

Arbitrary Coherence: Once we make a decision about prices of goods, which can be arbitrary, this will shape future decisions about price.
Bandwagon Effect: We tend to adopt behaviours or beliefs because many other people do the same.
Conjunction Fallacy: When we wrongly judge the conjunction of two events to be more likely than one of the events, when compared directly.
Ikea Effect: We tend to value things relative to the amount of time, energy, and money we personally invest to complete them.
Paradox of Choice: We often believe that having more choices is better, but having too make choices makes decision making more difficult and regret about the choices we make.
Path Dependence: Past decisions tend to influence future ones.
Sunk Cost Fallacy: We let past investments of time or resources influence future investment decisions.

Decision making strategies

When we are aware of our biases and their implications, there are some strategies and mental frameworks we can implement to make better decisions:

Choice Architecture: The design of environments in which people make choices.
Fabian Strategy: A strategy of patience and restraint over defaulting to action when making decisions.
Occam's Razor: A strategy of adopting the simplest solution to a problem.
Opportunity Cost: The value of what is given up when making a decision is important to keep in mind.
Satisficing: A strategy for decision making to stop the process when the first good enough alternative is found.
Wu Wei: A Taoist principle that generally translates to "action without action".