How to Make Better Decisions by Avoiding These Thinking Traps
3 common biases & how to outsmart them
Every decision we make has an impact on our life. In essence, you make your choices, and then your choices make you.
And to complicate things, there are dozens of cognitive glitches working against us every second of the day. Wikipedia lists nearly 200 of them. And those are just the ones we’ve identified thus far.
Some examples include…
- The Bandwagon effect: “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” — Mark Twain
- Confirmation bias: “He uses statistics as a drunken man uses lamp-posts… for support rather than illumination.” — Andrew Lang
It’d be nice if we had to deal with only one such bias at a time. We would open the massive Wikipedia index, find our bias, and take the specific steps needed to fix it. But unfortunately, that’s not how it works…
To make things a little easier for you, here’s a list of three common mental biases you can refer to whenever you’re about to make a tough decision. And because explaining something forces you to learn it twice, I hope that writing this article will help me catch these thinking errors in myself as well.
Outcome Bias: Focus on Decisions, Not Outcomes!
Imagine that you’re about to see the simultaneous flip of a coin and roll of a six-sided die. Before it happens, I offer you a choice between two gambles:
1. Gamble on the coin, ignore the die: get $100 if it’s heads, nothing otherwise.
2. Gamble on the die, ignore the coin: get $100 if it’s a 6, nothing otherwise.
Which one do you pick?
The better decision appears to be the coin, which has a 1/2 chance of giving you money compared with the 1/6 chance on the die. Right? Right. If you want to win the $100, it’s a no-brainer.
Now the actions happen and we see their outcomes: the coin lands tails up while the die shows a 6. Dang, you should have chosen the die!
No, you shouldn’t have. Definitely not. No matter how you slice it, a 50% chance to win is always a better gamble than 17% for the same prize.
“A stupid decision that works out well becomes a brilliant decision in hindsight.”
— Daniel Kahneman
“Dang, I should’ve chosen the die!” is a prime example of outcome bias and it’s a habit you should kick as soon as you can if you want to be a better decision-maker.
Outcome bias states that we should always evaluate decision quality based only on what was known at the time the decision was made.
This is especially important when we’re evaluating decision-makers in the real world. For instance, if you want to properly evaluate the decision-making skill of a political leader regarding the current corona crisis, ignore outcomes.
Instead, look only at what was known at the time of the decision. In our example, that was a 50% versus 17% chance to win. The decision-maker chose 50%? Good. I hope they’ll choose the same way next time.
Loss Aversion: We Hate Losing More Than We Like Winning
When Nobel Prize winner Daniel Kahneman handed people mugs and told them they were worth $5, he discovered that nobody would sell for less than $10. Behavioral scientists call this the endowment effect. We value things more, simply because we own them.
The endowment effect leads to loss aversion: As soon as we have something, we have something to lose — and losing hurts up to twice more than winning makes us happy.
Research has shown that if someone gives you $50, you’ll experience a small boost in satisfaction, but if you lose $50, you will experience a dramatically higher loss in satisfaction. Although the responses are exactly opposite, they’re not equal in psychological magnitude.
The results of loss aversion? We spend most of our days preserving what we have instead of going after what else we want.
The Availability Heuristic: Easy ≠ True
We are living in the least violent time in history. More people are living in peace right now than ever before. The rates of homicide, rape, and child abuse are all falling.
Most people are shocked when they hear these statistics. Some even refuse to believe them. “If this is the most peaceful time in history, why are there so many wars going on?” “Why do I hear about rape and murder and crime every day?”
Welcome to the availability heuristic.
The availability heuristic refers to a common mistake that our brains make by assuming that the examples which come to mind easily are also the most important or prevalent things.
The total number of dangerous events is decreasing, but the likelihood that you hear about one of them (or many of them) is increasing. And because these events are readily available in our mind, we assume that they happen more often than they actually do.
In other words, we overestimate the impact of things that we can remember, while we undervalue and underestimate the prevalence of the events we hear nothing about.
People tend to assess the relative importance of issues by the ease with which they are retrieved from memory — and this is largely determined by the extent of coverage in the media.
— Daniel Kahneman
I’ll finish this one with the example of sharks saving lives of swimmers. If you analyze the deaths in the ocean near San Diego, the data shows that on average, the death of each swimmer killed by a shark saves the lives of ten others.
Why? Every time a swimmer gets killed, the number of deaths from drowning goes down for a couple of years before it slowly turns back to normal.
This effect occurs because reports of someone being killed in a shark attack are remembered more vividly than reports of drownings. The memories of shark attacks are tied to strong emotions and therefore more ‘available’.
What those swimmers probably don’t realize are the many other dangers that lurk at the beach.
For instance, coconuts.
Did you know you’re twice as likely to be killed at the beach by a coconut than by a shark? Because it’s easier (and scarier) to imagine being killed by a shark than a coconut, death-by-shark comes to mind more easily than death-by-coconut, so it’s more likely to affect your behavior.
Where to Go From Here
The world is an extremely complicated place, and cognitive biases are often a result of your brain’s attempt to simplify the input it’s receiving. And that’s not necessarily a bad thing.
Biases are often extremely useful. They help us act fast, filter information, and remember what’s important. Cognitive biases have evolved for a reason. They are hardwired into your brain because you need them to navigate the world.
However, as we’ve seen, they can also become problematic. At times, our biases can lead us to perceptual distortions, inaccurate judgments, and irrational decisions.
In cases like these, here are 8 bite-sized decision heuristics that have been useful to me when making hard decisions. Take what you need and leave the rest:
Schedule time to think. “Without great solitude no serious work is possible.” — Pablo Picasso
The rule of 5. Think about what the decision will look like in 5 days, 5 weeks, 5 months, 5 years, and 5 decades.
When you have a hard problem, explain it to a rubber duck (or another thing) in simple terms. This helps verbalize the problem and often, fix it. In the wise words of Captain Jack Sparrow (Pirates of the Caribbean): “The problem is not the problem. The problem is your attitude about the problem.”
Read books and learn from others. Your personal experiences comprise around 0.000001% of what’s happened in the world but maybe 80% of how you think the world works. Essentially, we’re all biased toward our personal history. Learn from others and read often to bridge that ‘gap’.
Play poker. Professional poker players are probability machines, which helps them be less affected by mental biases. Not only can they estimate the likelihood of events more accurately, but the habit of constantly trying to estimate alone comes with plenty of benefits.
Read Thinking, Fast and Slow by Daniel Kahneman. It’s an amazing book that explains how irrational we humans are, and what to do about it. If you only read one book on human behavior, make it this one.
Most regret often comes from the things you decide not to do. This is something my dad often tells me whenever I’m facing a hard decision. In other words: to try and fail is at least to learn, whereas failing to try is suffering the inestimable loss of what could have been.
Regularly reflect on your choices (without falling for outcome bias, of course!). Correct your mistakes before they become your habits.