Dumb Decisions

Pre-Talk

1)What is the best decision you ever made?

2)What is your worst decision you made?

3)Was the process used for each decision the same?

PictureTalk

1)Describe what is the above picture is trying to represent.

2)Do you agree most people decide in this manner?

3)How do you make your decisions?

Article Highlights

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Think about a decision you've made that you were totally convinced was the right way to go... but in retrospect realize was really dumb.

If you want to make consistently better decisions -- especially when the choice you make is extremely important -- make sure you avoid the following mental traps.

1. Loss Avoidance

We all tend to strongly prefer to avoid a loss than to acquire a gain. (Put more simply, we're much more likely to try to avoid losing $500 than to try to make $500.)

The key is to properly value the potential loss. Often what we may lose isn't as valuable as we might think.

And think of it this way: You can recover from almost any loss, but will you someday recover from not having done everything possible to achieve your dreams?

2. Recall Bias

Scientists call recall bias "availability heuristic" (which is why I refer to it as recall bias).

Recall bias says that if you recall something, it must be important -- or at least more important than an alternative not as easily recalled. That means we tend to give heavy weight to recent information and form opinions and make decisions biased toward whatever is recent.

Recall bias says, "Well, I remember that ... so this must be true."

But that doesn't mean this is the whole truth -- or in any way indicative of a larger truth.

Always use what you recall as a springboard for doing more research to make sure you know everything you need to know... not just what you remember.

3. Survivor Bias

Survivor bias is focusing on people or things that "survived" while overlooking those that did not simply because they aren't visible.

For example, Ryan Gosling dropped out of high school when he was 17 and moved to L.A. to pursue acting. It worked spectacularly well for him, but what about the thousands of kids who drop out and move to L.A. in hopes of making it? Did they all become movie stars?

Nope -- but you never hear about them.

Never base your plans solely on a blueprint that worked for an outlier. Work hard to know yourself: your strengths, your weaknesses, and what will make you happy.

4. Anchor Bias

Setting an anchor is are used in negotiations because the value of an offer is highly influenced by the first relevant number -- the anchor -- that starts the negotiation.

Research shows that when a seller makes the first offer, the final price is typically higher than if the buyer makes the first offer. The buyer's first offer will usually be low and that sets a lower anchor. (If I offer $20,000 for your used car, that first bid is the anchor. Like it or not, that becomes a mental starting point -- even if your first offer to sell would have been $30,000.)

In negotiations, anchors matter.

Know that value before you start.

5. Confirmation Bias

Confirmation bias could also be called "I'm really smart and let me show you why" bias. Confirmation bias is our tendency to look for and favor data that backs up what we already believe -- and to avoid or look poorly on data that goes against what we already believe.

So if I think customers love my new product, I'll pay close attention to feedback from customers who enjoy their experience -- and I'll ignore any data that shows customers are less than satisfied.

The best way to avoid confirmation bias is to draw conclusions after you review data. Instead of assuming customers love your product, go into it with an open mind and see what all of your customers have said.

6. Idea Origination Bias

I like to call this one NIH: Not Invented Here.

It's based on a simple premise: "If I (or we) didn't think of it, it must be worthless."

We've all worked with people who hated any idea... unless we found ways to make them think it was theirs. And we've all fallen prey to the same problem.

Don't be distracted by the source. Employees at every level have good ideas. Assuming an entry-level employee's input is worthless is just as foolish as assuming your VP of sales always has great ideas. The same is true for friends, family, people you've just met.

The value always lies in the idea and the implementation of that idea -- not where the idea comes from.

Don't be distracted by your ego. Being in charge doesn't make you smarter, savvier, or more creative. Being in charge just makes you the person in charge. Leaders aren't granted a monopoly on great ideas.

So never hesitate to let others shine. The more they shine, the brighter they'll want to shine. Then everyone benefits -- especially you.

Discussion

  1. What is your takeaway from this article?
  2. What makes a decision bad?
  3. What are sunk costs and how do you feel about them?
  4. Can you ignore the concept of “loss avoidance”?
  5. If you remember something, do you feel it is important? Why is that?
  6. People say, “if they can do it, so can I.” Do you this is risky now?
  7. Do you consider anchoring before you start negotiations?
  8. How are you biased with your decisions? Do you have an example?