How Rational Are Humans As Decision-Makers
As humans we are looked upon as the most rational beings on the planet. Our ability to think, act and adapt to our surroundings is found to be superior to any other living being. But are humans really rational beings? Are all our decisions based on a rational decision-making process? Before we go ahead let’s try to define decision making and the rational decision-making process.
Decision making is a process that involves the selection of a course of action from a set of possible alternatives. The most important act in deciding is to make a choice. We make choices on a day-to –day basis in our private and professional lives. These choices are made within several constraints and are manifestations of lessons we learn from experiences of our prior decisions. The book “Judgement in Managerial Decision Making’, written by Bazerman and Moore, is a great read on understanding the complex nature of decision making. The book suggests that, the rational decision-making model is said to involve six steps that humans must take while making a judgement- 1) define the problem,2) identify the criteria, 3) weigh the criteria, 4) generate alternatives, 5) rate each alternative on each criterion and, 6) compute the optimal decision. The rational model assumes that humans are capable of taking these steps and they are perfect decision makers. Research suggests that there are two types of systems to human thinking. The System 1 thinking is our intuitive system which is fast and automatic. The System 2 thinking refers to reasoning that is slower conscious, effortful and logical. The rational model asserts that we as humans use System 2 thinking to make all our decisions.
Bounded Rationality
Herbert Simon, an American economist and political scientist won the Noble Prize in Economics in 1978. Simon, was amongst the first political scientists to question the foundation of the rational decision-making process. Simon argued that the rational model of decision making only focuses on how ‘should’ the decisions be made rather than understanding ‘how they are actually made’. Simon founded the concept of human judgement being bounded in its rationality. He claimed, “Bounded rationality is largely characterized as a residual category, rationality is bounded when it falls short of omniscience.” The bounded rationality framework accepts that there are limits to individuals making rational decisions due to lack of information. It is impossible for humans to have all the information and hence humans search and then they satisfice. Satisficing, was defined by Simon as, searching until we find a satisfactory solution that will suffice because it is good enough at that moment.
Simon’s ground-breaking work built the foundation for increased efforts in behavioral decision research. The concept of bounded rationality made it clear that human judgment deviates from rationality. Humans are influenced by systematic biases, motivation, emotion, commitment and framing errors that influence their judgment. Researchers found that humans rely on simplifying strategies which are called heuristics to make sense of the complex environment around them. Heuristics is defined as any approach to problem solving, learning, or discovery that employs a practical method, not guaranteed to be optimal, perfect, logical, or rational, but instead sufficient for reaching an immediate goal.
Heuristics and Biases
In their seminal work Tversky and Kanheman, explain how heuristics and biases affect our decision making in uncertainty. The scholars suggests that, humans use heuristics to deal with the complicated world they live in. When heuristics are used for right situations they can help us take good decisions but, if used inappropriately they can lead us to disastrous results. Heuristics also become victim of cognitive biases. Some examples of biases include, availability bias- it can emanate the ease to recall bias i.e. when individuals judge events that are easily recalled being more than events of equal frequency that are difficult to recall. Representative biases emanate biases like insensitivity to size- where people do not give importance to the size of the sample, and regression to the mean- when people forget the fact that extreme events tend to regress to the mean. Lastly, confirmation heuristic can lead to biases like anchoring- where people only pay attention to the initial value and do not make adjustments while considering the final value.
Bounded Awareness
Bazerman and Moore also suggest that, just like rationality our awareness to seeking information is also bounded. When humans are fed too much information they find it difficult to pay attention to all information. Rather they only pay attention to what is visible easily to them. Psychologists came up with the notion of inattentional blindness, which literally means our inability to see the obvious. Humans tend to not notice things they are not looking for even when they are looking directly at it. As humans, we are victims of focalism, i.e. we tend to focus on an important event and do not pay attention to focus on other important events happening at the same time. A great example of focalism is the Challenger space shuttle disaster in the United States. The scientists had available all the information they needed to not launch the space shuttle but they still focused on the immediate information available, rather than looking beyond it.
Moods and Emotions
Humans find it difficult to take decisions without letting their emotions collide with cognition. Universal emotions like happiness, sadness, fear, anger influence the way we respond to situations . There is a constant battle between what we want to do and what we should be doing . As humans, we take decisions sometimes by totally discounting the future. Humans have multiple selves, there is a duality in the way we behave. We are self-serving individuals, our preferences for a certain result determines the path we take to achieve it as fair or unfair. Our moods too, play an important role in the type of decisions we make. Depressed people tend to make bad decisions than happier people.
We as humans need to be cognizant of the fact that we live in a world of probabilities. Most of the times we take decisions surrounded by uncertainty. We do not have superhuman powers and cannot really predict the results of the decisions we have made. We can only work consciously towards following all the logical steps of decision making by being cognizant of our own biases, awareness, emotions and hope for a favourable result. It is important to remember that the process we choose to make our decisions is more important than the results of our decision. Because it is only the process that is in our hands, not the result!