10 Ways to Make good Decisions
Our lives are full of decisions to make from the small mundane things such as what to wear or what to eat, to life changing things such as whether to get married and to whom, what job to take and how to bring up our children. As an entrepreneur, you are responsible for your business decisions and if you make the wrong decision it can be very costly.
In this section we will explore some of the latest scientific thinking on how to make better decisions so that you can give your new business every chance of success. Also keep in mind that your potential customers make decisions based on the same processes as the rest of us. Remember this as you read through and think about how your customers might make decisions about buying your product or service.
Making good decisions involves balancing emotion and rationality. In order to make a decision we have to predict the future, and accurately perceive the present situation at the same time. We also have to have insight into the minds of others and deal with uncertainty.
Most of us don't really understand the mental processes that lie behind our decision making process but this has recently become a hot topic for investigation. Psychologists and neurobiologists are finding out how we can make better choices.
1. Go with your gut instincts
Most people think you need lots of time to make good decisions and systematically way-up all the pros and cons of the various alternatives, but in fact, an instant decision or instinctive choice is just as good if not better than one we ponder over for ages.
In our everyday lives we make fast competent decisions all the time about who to trust and interact with. We make snap judgments about a person's trustworthiness, competence, aggressiveness, likeability and attractiveness within the first 100th of a second after seeing a new face. Even with a little bit longer to decide, researchers have found that observers hardly revise their views at all, they only became more confident in their decision.
As you get to know someone better, extra information will allow you to revise that first impression so that you can make a more rational and well-informed decision about them. Yet paradoxically, sometimes, even with more information you are better off going with your initial gut instincts.
Information overload can be a problem in all sorts of situations, from choosing where to go on holiday, to which ‘hot product’ to choose for your business. Sometimes rather than churn it all over in your mind in the logical way it's better to just relax and tune into your gut feelings about it. Researchers found that when confronted by a complex decision, their subjects became ‘baffled’ and actually make the best choices when they did not consciously analyxe the options.
2. Consider your emotions
You might think that your emotions are the enemy of decision-making, but in fact they are integral to it. Our very basic emotions evolved to enable us to make rapid and unconscious choices in situations that threaten our survival. Fear leads to the flight or fight response, disgust leads to avoidance and so on. Yet the role of our emotions in decision-making goes much deeper than this. Whenever you make a decision, your limbic system -- the emotional center in your brain -- is active. Our brains store emotional memory of past choices, which we use in the present to make decisions.
Emotions are critical when we make decisions -- but do they allow us to make the right decisions? Ironically, if you are emotional when you actually make a decision, this can affect the outcome. For instance if you are angry when you make a decision, researchers have found, it can make you impetuous, selfish and risk prone.
The best way to overcome this, is to make sure you feel calm and in complete control when you tune into your gut instincts in order to make a decision.
3. Keep your eye on the ball
Our decisions and judgments have the rather disconcerting habit of becoming attached to arbitrary or irrelevant facts and figures. This is called the ‘anchoring effect’. Anchoring kicks in when we need to make decisions based on very limited information. With so little information to go on, we seem more prone to latch onto irrelevancies and this sways our judgment.
So how can you overcome this when you make business decisions? The best way is to gather as much information as you can -- and this is where your market research comes in -- gather as much information as you possibly can, then when you are feeling calm and in control – tune into your gut instinct.
4. Look at it another way
Often, our decisions are unconsciously influenced by the way the alternatives are presented. This is called the ‘framing effect’. In particular, we have a strong bias towards options that seem to involve gains and an aversion to ones that seem to involve losses. Advertisers make use of this all the time and is why things like a healthy snack tends to be marketed as ‘90% fat-free’ rather than ‘10% fat’ and why we tend to buy things based on their benefits alone.
You can use this to your advantage when advertising your own products and services. Always sell benefits!
Brain scans show that when a person goes with the ‘framing effect’ there is a lot of activity in the amygdala -- part of the brains emotional center. There may not be much you can do about this unconscious response, apart from wait for the wisdom that comes with age, but knowing it exists can help you look at your options from more than one angle.
5. Beware of social pressure
You may think of yourself as single-minded, independent and a true entrepreneur -- not the sort of person to let others influence you! However, the truth is that no one is immune to social pressure. Countless experiments have revealed that even the most normal, well-adjusted people can be swayed by figures of authority as well as their peers into making bad, and sometimes dangerous decisions. We have all gone along with the crowd on occasions, but it seems this happens more than we care to admit…
Generally it is an unconscious response but simply being aware of it can help you avoid making decisions based on social pressure.
-If you suspect you are making a choice because you think it's what somebody else would want -- think again.
-If you are a member of a group, committee or partnership, never assume that the group or your partner knows best. If you find everyone else agreeing, be contrary and look at everything from a different angle.
-Beware of situations in which you feel you have little individual responsibility -- that is when you’re most likely to make irresponsible choices.
Although undoubtedly, social pressure can adversely affect our judgment, there are occasions when it can be harnessed to our advantage. Use peer pressure to persuade your customers that they need your product or service -- after all everyone else is using it!
6. Be the Devils advocate
Have you ever been frustrated when you get into discussion with somebody because they only ever draw on evidence that supports their own opinions and conveniently ignore anything to the contrary? This is called the ‘ubiquitous confirmation bias’ to give it it's fancy scientific name. It can be very infuriating when we see it in others, yet we are all susceptible to it every time we look for evidence to guide our decision-making. Experiments have confirmed this over and over again.
The confirmation bias is a problem when we believe we are making a decision by rationally weighing up alternatives, when in fact we already have a favored option and we are simply justifying it. To make matters worse, we tend to over estimate the extent to which other people's judgment is affected by the confirmation bias yet we deny it in ourselves.
If you are trying to make decisions, you need to be aware of it and thoroughly research any issue if you want to make good, unbiased decisions. If you suspect you already know the answer -- the trick is to try to suspend judgment until all the facts are in. Actively searching for evidence that could prove you wrong can be quite a painful process and require lots of self-discipline. But if you are to make good business decisions you need to become the Devil’s advocate!
Simply recognizing that this bias exists and that we all susceptible to it is a good thing. At least it might make us a little less dogmatic about our views and opinions and search out unbiased evidence… do your market research thoroughly!
7. Don't fear the consequences
Almost every decision we make entails predicting the future, whether it is what holiday to go on or whether to buy a new car or better house. Every time we make a decision we have to imagine how the outcomes of our choices will make us feel and what the emotional consequences of our actions will be. Sensibly, we usually plump for the option that we think will make as the happiest overall.
This ‘forecasting’ is fine in theory -- the only problem is that we are not very good at it. People generally over estimate the impact of decision outcomes and life events -- both good and bad. We tend to think that winning the lottery will make is happier than it actually will, and that life would be completely unbearable if our business plans didn't work out. Actually research has found, that the consequences of most events are less intense and briefer than most people imagine. This is true for trivial events such as eating out at a restaurant and the major ones such as losing a job.
The main factor that leads us to make bad predictions is called ‘loss aversion’ -- the belief that a loss will hurt us more than a corresponding gain will please. Researchers have found, for instance, that most people are unwilling to accept a 50:50 bet unless the amount they could gain is roughly twice the amount they might lose. They found that most people would only gamble $5 on the flip of a coin if they could win more than $10. The same researchers have recently shown that while ‘loss aversion’ affects people's choices, when they did lose they found it much less painful than they had anticipated. This is down to our psychological resilience and our ability to rationalize almost any situation.
From your customers’ point of view, this is another reason to highlight the benefits of your product or service and downplay any pitfalls with it. Make them believe they will gain twice as much as they have to lose.
Rather than look inwards and imagine how a given outcome will make you feel, try to find someone who has made the same decision or choice and see how they felt. Remember that whatever the future holds, it will probably hurt or please you less than you imagine. Finally don't always play it safe. The worst might never happen -- and if it does you have the psychological resilience to cope!
8. Don't cry over spilt milk
Imagine you have a suit or a dress in the back of your wardrobe which cost you a fortune -- you loved it when you bought it, but it doesn't fit and it’s way out of date. The thing is, you can't stand to part with it. Does this sound familiar? The force behind such bad decisions is called the ‘sunk cost fallacy’. It goes like this -- the more we invest in something, the more committed we feel towards it.
The investment needn't be financial. We've all persevered with a boring book or a poor friendship or relationship long after it would be wise to cut our losses. Nobody is immune to the ‘sunk cost fallacy’. Even governments and stock market traders have fallen for it by continuing to invest long after they should ditch a given policy or investment.
In order to avoid letting the ‘sunk cost fallacy’ influence your decision-making, always remind yourself that you can't go back and change the past -- what's done is done and what’s spent is spent. We all hate to make a loss but sometimes it's better to stop throwing good money after bad.
Be aware of the ‘sunk cost fallacy’ when you invest in your business and don't invest more than you can afford to lose.
When you consider things from your customers’ perspective, remember that they are more likely to value something if they have to pay for it. Don't always think that everyone is looking for a bargain.
9. Limit your options
People generally think that more choices are better -- but consider what researchers have found recently.
When people were offered too many alternative ways to invest for their retirement, they became less likely to invest all; and people get more pleasure from choosing a chocolate from a selection of just 5 than when they pick the same chocolate from a selection of 30. Researchers looking at the paradox of choices -- the idea that more choice is best – found that often, less is more.
The problem underlying this is that greater choice usually comes at a price. It makes greater demands of your information processing skills and can be confusing, time-consuming and at worst can lead to paralysis, you spent so much time weighing up the alternative that you end up doing nothing. We've all experienced this!
In addition, more choice increases the chances of making a mistake -- you end up feeling less satisfied with your choice because of a nagging fear that you've missed a better opportunity.
Interestingly, the paradox of choice affects some people more than others. The worst affected are the ‘maximizers’ in life -- people who seek the best they can by examining all possible options before they make up their mind. This strategy works well when you're choices are limited but falls down when things become too complex.
The people who tend to suffer least with this are those who choose the first option that meets their requirements and find a solution that is ‘good enough’. This takes the pressure off the job of choosing something and the decision becomes more manageable. Even when a ‘good enough’ choice is not necessarily the best choice, it may be the one that makes you the happiest.
So instead of exhaustively searching through the web sites and catalogues in search of their ideal product, people will tend to ask a friend if they are happy with theirs. If they are it will influence their choice enormously. This is why advertising by recommendation is always the best way to secure loyal customers.
The message is to limit the number of options you consider -- another reason to go with your passions when you choose your product or service -- and of course, don't offer your customer too many choices or they’ll be too confused to make a decision!
10. Get someone else to choose
We tend to think that we will always be much happier if we are in control rather than let someone else choose for us. But sometimes, no matter what the outcome of the decision, it is the actual process of making it that can make you feel dissatisfied. When this happens it may be better to relinquish control and let someone else decide for you.
When we are given a choice between several options that are all pleasant, we tend to be satisfied with our decision. But when the choice is between things that are not so nice, we tend to be dissatisfied with our decision-making. When people do not like their choice, the tendency is to blame themselves for ending up with something that is unsatisfactory. It doesn't matter that this may have been the least bad option available to them -- they still feel bad about it. They would have been happier not to have to choose at all.
Similarly, when people have to choose without any information to guide them they are less satisfied with their decisions than people who have simply been assigned an option with no choices to make. The reason, say researchers, is that the people who choose are not able to give themselves credit for their decision even if they ended up with a good option. They still felt burdened by the thought that they might not have chosen the best alternative. Even when people have a small amount of information (not enough to feel responsible for the outcome) they feel no happier choosing than having something chosen for them.
You can use this to your advantage when offering your product or service. Give lots of information and guide your customer to make a decision!