Decisions, decisions, decisions. They fill our activity every day. From what to wear and eat, to which words to use, to which project to tackle next, to how to spend money. As a manager in the feed and grain industry, your job is filled with problems and decisions, too: Should the business expand into new products or into a different geographic area? Should you purchase new equipment or just repair the old stuff? Should you let that low-performing employee go or try to modify his/her performance? Problem solving and decision making are your primary roles. These types of decisions are important to your business, and to your career. So, you want to be good at decision making, and you probably already are.
Good business sense tells us that it is often productive to take a step back to examine and evaluate the way we do things. Does the process you use in decision making matter? Are the approaches you use effective and appropriate? Are there other methods and tools available to help you sharpen your skills? Asking and answering these and other questions can provide credence to the methods you use, or can suggest areas where opportunities for improvement exist. We focus this issue’s column on the psychology of how people make decisions, the elements of making good decisions, and potential tools and tips for helping managers make decisions.
Decision making is in your head
To understand how choices are made, research suggests you should recognize the impact economics, psychology and neuroscience have on how people make decisions. Academics are currently examining how people make decisions and the activities of the neural mechanisms in the brain as people make economic choices. Don’t worry, we are not planning to go into these details. We do find it interesting though that some experts suggest multiple higher-level and lower-level systems in the brain are involved in different types of decisions. The brain has some far-sighted or rational systems, some low-level systems involving emotions, and some systems concerned with rewards and consequences.
Cognitive psychology is generally the area of psychology that examines how people arrive at their decisions and choices. Research in this area suggests that past experiences, cognitive biases, age, socioeconomic status, other individual differences, and an escalation of commitment and “sunk” outcomes are some of the factors that affect your decision making. Since these might be factors that we are all more aware of (rather than the workings of the brain’s neural system!), let’s look at some of these more closely.
Everyone is different, and clearly these differences — age, socioeconomic status and intelligence — can influence your decision making. Older people may see their decision-making performance decline as they age; or, they may become more confident making decisions.
Our minds help us remember, and so past experiences often influence our decisions. People tend to repeat actions that brought about positive results and tend not to repeat actions that resulted negatively; but past performance may not always be indicative of future performance and so past experiences may not always lead to good future decisions. Certainly, past experiences may be relevant to consider in decisions, but we should remember that decisions should be evaluated and made based on several elements.
Cognitive biases are distortions in the mind that lead to a perceptual distortion, inaccurate judgment or illogical interpretation. Some common examples of cognitive biases include:
- Hindsight bias — an inclination to view past events as being predictable (I knew it all along)
- Confirmation bias — the tendency to interpret information such that it confirms one’s own preconceptions
- Bandwagon effect — a tendency to do or believe something because many other people do
- Planning fallacy — a tendency to underestimate the time necessary to complete tasks
- Social comparison bias — a tendency in hiring decisions to prefer candidates who do not compete with one’s own strengths
- Stereotyping — expecting a member of some type of group to have certain characteristics without having any actual information about the individual