Irrational Decisions wrapup

Posted by 78a7e62a tiny Jonathan Soma on may 26, 2010 under Class Recap

Kyle's How To Make Irrational Decisions wrapped up on Monday. I took plenty of notes, so let's go through the things that complicate the choices we make, then look at what we can do to make our decisions easier!

Why Making Decisions Is So Hard

Every time we make a decision, we're looking at two different parts of the result, what we get and when we get it. Sometimes deciding between the two is easy. Do I want $50 or $80? I'll take $80, thanks! Do I want it now or a month from now? Now, obviously!

Life isn't like that, though - the whats and the whens get all mixed up, and the decisions get harder. $50 now or $80 a month from now? Sure, having $50 in your hand right now feels a lot better, but an extra $30 sure makes waiting attractive. Let's illustrate this with adorable children waiting for marshmallows:

There are three different ways to focus your energy - the past, the present, and the future. Would you just eat the first marshmallow? You're present-oriented. Would you wait for the second? Future-oriented. Things like studying hard in school or saving for retirement are good examples of being future-oriented out in the non-marshmallow-related world.

But oh, oh, oh, it gets harder, even! Once uncertainty comes into the picture, everything gets much worse. Do you want $50, or a 50% chance at winning $100, but if you lose you get nothing? Math gives us a way of comparing the two - multiplying the probability by the payout gives the "expected payoff". $100 times 50% is $50, and $50 times 100% is also $50 - math is telling us the two are the same, but our brains sure don't think that way. (Confused? Check this out, or just trust me!)

Once outcomes are uncertain everything becomes a lot more personal. Do you just need $50 to buy a pair of new shoes, or do you really need that $100 to make rent? Are you a risk taker? This is all under the umbrella of risk aversion, which gets a lot more complicated if you head over to Wikipedia.

Now, once we start thinking about how "personal" a decision is we need to start thinking about what that really means. We have an idea that we operate in our own little sphere and are in complete control of all of our ideas and actions, when that's really not true at all.

If you ask someone to write down the word "see" half of people will write 'see' and the other half will write 'sea.' If you make a waving motion with your hand, though, suddenly everyone's writing 'sea.' Right, waves! Every decision you make is influenced by things you've experienced recently, and this is called priming (Wikipedia). Holding a cold drink will make you think more negatively than a hot one. If you just watched a romantic comedy, it might be harder to break up with your boyfriend. You don't make decisions in a vacuum.

Priming doesn't necessarily make decisions easier or harder, it's just something that complicates the idea of making a "best" or "rational" decision - what you think is a perfectly thought-out decision right now might not be the same an hour later after you've had to sit on the subway for a while, or look at an ad, or aren't nearly so hungry. Realizing that in every moment your choices are going to look a little different can go a long way in relaxing about decision-making.

While talking about the "best" decision, regret is an important aspect. Once you've made a decision, you're locking out all the choices you didn't make. You might have a tendency to fixate on everything you've lost out on when you make a decision - this is called the opportunity cost. If you buy this shirt you can't buy those shoes, or how taking one job prevents you from taking another.

Another big thing is sunk costs, which is anything you've spent on something that you can't get back. These costs usually make you want to go further with something, even if you don't like it: spending years in a relationship is a deterrent to leaving it, spending thousands on grad school makes you determined to work in a specific field. I think these are big big big factors when dealing with long-term, important decisions.

Okay, enough depressing stuff, let's talk about how we can make some better decisions!

How to Make Better Decisions

The most important thing about making better decisions is acknowledging that there are a lot of factors at play, and nothing you do is the One True Best Awesome Decision.

The past, the present, the future - all of these are different times to revel in, and one isn't necessarily better than the other. Saving for retirement is a good example: partying down now might seem wasteful to some people, but you don't know if you'll even be alive in 50 years to enjoy the money that you've saved. Maybe spending that money on seeing a band is going to mean more to you than an extra night on a Seniors Cruise down the line. On the other hand, giving up that extra drink might be worth not living in a cardboard box later down the road. Chances are you're looking for balance.

Uncertainty isn't always a bad thing. Understand that there are always unknowns. While we used the $50 or 50% chance at $100 example before, nothing in life is ever that clean-cut. Uncertainty exists along the way, just not in the results. When you go to grad school, you aren't just taking a gamble that you'll get a fancy job when you get out of school - you're also meeting new people and experiencing things you wouldn't have if you were just out in the working world. In the same way, if you get a job instead of going to school you're amassing experiences and business contacts, and each of those interactions changes where your decision is taking you.

Kyle brought up chaos theory as a way of thinking about this - life isn't just X causes Y, it's X sends you towards Y, A interrupts, steers you towards B, but then C edges you back in the direction of W, and etc etc etc forever and ever. No matter how well-informed you are, you never have perfect information about what a decision is going to do and what it is going to mean in the future.

An important take-away from the class for me was that when you are making a decision, you aren't determining the result. When you pick someone to date, that's all you're picking - you haven't secured them in eternal marriage, you don't know if you'll hate how they fold laundry in six years, you don't know if you'll fall for an especially charming gas station attendant. All decisions can do is guide you in a direction, not guarantee an outcome, so you definitely have room to relax.

We talked about priming before, the idea that everything around you is affecting your decision-making. I think the best way to deal with this is to just acknowledge that it exists and move on. Understand that even though you might love to be 100% in control and perfectly rational all of the time, it just can't happen. You can try to look around and see what recent experiences are influencing your decisions, but don't stress out about it too much. Experiences are what make us who we are, and a decision influenced by them is no more or less natural than something perfectly "rational."

The most important thing to remember about sunk costs is that sunk costs are sunk. You are not getting them back, no matter what, so just ignore them! You buy tickets to a baseball game, but it's raining. Don't go. You're miserable in your relationship, but you've been there for 5 years, and you feel like you owe it to all of that effort to keep on going. You don't. You aren't getting your time or money back, so go ahead and make the decision that will make you happiest in the future. Realizing that sunk costs are so much of the reason you want to go to the game or stay in the relationship will help empower you to make the tough decision to ignore the costs and do what will make you happy.

A fun idea some people brought up was the mindset that "Every Decision I Make Is Right." Instead of worrying about your decisions, you just make them, and trust that you've done the right thing. Just like the fox and the grapes, sometimes the way you think about things is even more important than what actually happened.

The toughest part about making a decision is the period before you actually make it. You stress out, you overthink things, you take ages of pain to come to a conclusion. Just decide! There are enough unknowns out there that neither can really be the best, I promise. My rule of thumb is to take the path that seems to give you the most options down the road - even if you didn't make the "right" decision right now, one of those choices later on is sure to make up for it. So just embrace the fact that there's a lot more going on that you could ever account for, take a deep relaxing breath, and go on making those irrational decisions!

Tagged with decision making irrational decisions may 2010

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