The Science of Making 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 children.
As an entrepreneur, you are responsible for your business decisions and if you make the wrong decision can be very costly – not just financially.
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
I want to tell you about 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 bear 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.
Most of us don't really understand the mental processes that lie behind our decisions making process but this has recently become a hot topic for investigation.
Psychologists, psychiatrists and neurobiologists are finding out how we can make better choices.
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 analyse the options.
Consider your emotions
You might think that your emotions of 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 centre in your brain -- is active. Our brains store emotional memories 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.
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.
To 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 to your gut instinct.
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’ in a there is lots of activity in the amygdala -- part of the brain’s emotional centre.
There may not be much you can do about this unconscious response, apart from wait for the wisdom that comes with age and experience, but knowing it exists can help you look at your options from more than one angle.