Decision Making Errors That Unknowingly Lead To Irrational Decisions
We all make decisions every single day - from deciding whether to go out on a weekday to choosing a career path or life partner. Some decisions are small and insignificant, while others can have a major impact on our lives.
Regardless of the magnitude, we all like to think that we make logical, rational decisions. But the reality is, that our decision making process is often flawed and susceptible to errors, biases, and mental mistakes.
As the saying goes, "To err is human." We're not perfect decision-making machines. Our minds play tricks on us through cognitive biases, faulty logic, and intuitive shortcuts. Making errors in decision making is not only normal, it's hardwired into how our brains work.
What is a Mental Error
How do we overcome these decision making errors?
The answer lies in awareness and the will to improve our choices. Understanding and recognizing the factors that led to problematic decision making allows our mental capabilities to kick in, enabling us to go over our choices and change our bad choices into good ones.
Learn how to avoid these decision making errors, understand how to identify the signs, and train your brain to make smarter and well-informed choices in our guide.
A. What Is Smart Decision Making?
Smart decision making means thinking through decisions rationally and objectively, weighing all available information and different perspectives, avoiding cognitive biases and mental mistakes, and ultimately making the most logical choice that will best help you achieve your goals.
What is Smart Decision Making
It's about rising above the flaws in human judgment and tapping into the part of our mind that can evaluate options deliberately and wisely before taking action. However, true smart decision making is extremely difficult because of our innate mental blind spots and prejudices.
“Why do smart people make stupid decisions? There’s no obvious answer, but my hypothesis is that there’s an inclination among the affluent to lapse into insularity. Even smart people often stick to the like-minded, those who share their assumptions and prejudices.”
There’s no clear-cut reasoning behind a lapse in judgment which leads to decision making errors. However, most people tend to stick closer to people with similar thinking.
For example, mothers in the corporate world and stay-at-home mothers have different perspectives on the way of raising children. This limited exposure to diverse perspectives and different thinking, can lead to incomplete information or a more limited style of decision making. This can cause errors in choices with even the smartest people making bad decisions.
There can be many reasons behind decision making errors, some obvious while others not so apparent. Being aware of these common mistakes can prevent us from making the wrong choices, creating awareness and promoting critical thinking.
In the next section, we’re going to explore some of these common decision making errors that can lead to making flawed choices.
B. What are Mental Errors in Decision Making?
In the context of decision making, mental mistakes refer to the flaws, lapses in logic, and cognitive errors that cause us to make irrational, sub-optimal choices that deviate from what would be considered a sound, logical decision.
Types of Mental Errors in Decision Making
Let’s break this down:
I. Flaws
These are weaknesses or limitations in our thinking process that can consistently lead us astray. They can be biases (prejudices) built into the way our brains work or limitations in processing information.
Imagine finally having enough money to buy a new phone. The excitement might cloud your judgment, leading you to purchase the most expensive model with all the bells and whistles, even though a slightly less expensive option might have been sufficient for your needs. You prioritize the immediate gratification of having the latest model over the long-term benefit of saving money.
II. Lapses in Judgment
These are temporary slip-ups in reasoning. They might happen due to fatigue, emotional distress, or simply not paying close enough attention.
For example, rushing out the door in the morning and grabbing a sugary pastry because you're late might seem like a quick solution to get some energy. However, this is a lapse in judgment fueled by the immediate need for a pick-me-up, overlooking the long-term negative consequences on your health..
III. Cognitive Errors
These are specific mistakes in thinking that lead to faulty conclusions. They can involve overlooking important information, illogical reasoning patterns, or misinterpreting what's happening around us.
Connecting back to the pastry example, a cognitive error might be overlooking the information readily available on the packaging regarding sugar content and its impact on energy levels.
These factors can lead us towards decisions that may not provide optimal outcomes or are not completely logical because our mental thinking convinced us.
However, making mental mistakes is part of being human. As Nobel Prize-winning psychologist Daniel Kahneman said:
“We’re biased, incoherent buyers in this free market of ideas.”
Our decisions are influenced by deep-rooted mental shortcuts, emotional influences, false assumptions, and flat-out mistakes in reasoning.
There are dozens of other mental errors, lapses in logic, and cognitive biases that can sabotage our decision making. Following are the most common types of mental errors:
Types Of Cognitive Biases
1. Bandwagon Effect
The tendency to do or believe things because many other people do the same. This rationalizing decision by consensus hinders individual, critical thinking.
2. Choice Paralysis
Having so many options that you get overwhelmed and struggle to make any firm decision at all, or end up making a poorer choice.
3. Hindsight Bias
After an event has occurred, you falsely convince yourself that you predicted or knew the outcome beforehand when in reality, your judgment was already clouded.
4. Recency Bias
Giving more weight and significance to recent events versus older examples. This makes sense on the surface but often causes us to overlook or discount highly relevant past data or experiences.
C. Decision Making Biases
In addition to those broad categories of mental mistakes, Daniel Kahneman and Amos Tversky's pioneering research on decision making identified 12 specific cognitive biases that distort rational judgment. 12 cognitive biases are as follows:
Decision Making Biases
1. Anchoring
Relying too heavily on one trait or piece of information when making decisions (the "anchoring" factor).
2. Availability
Judging something as more likely or frequent because relevant examples come to mind easily. Like making up your mind on products or areas because of hearsay or reviews.
3. Representativeness
Assuming something represents or is highly correlated with a particular prototype, stereotype, or category without critical analysis. Like looking at someone large and muscular and immediately assuming they are an athlete or seeing someone in a fancy suit and assuming they are rich.
4. Gambler's Fallacy
The flawed belief that future possibilities are altered by past outcomes when they are truly statistically independent. For example, thinking smoking isn't bad for you because your father smoked and never got sick and had a long life.
5. Overconfidence
Having inflated faith in your estimates, judgments, and capabilities. This can lead to risk-taking and overestimating the accuracy of your decisions. For example, just because you’re good at a sport you will win every time, even when you don’t put in the same level of dedication. There’s always someone who can do better so it's better to be prepared.
6. Hindsight
Believing an event was predictable or completely obvious after it has already happened, though it wasn't so clear beforehand. For instance, thinking after losing a soccer match that you were bound to lose it anyways because of the stronger team even though it could have gone either way.
7. Framing
How something is presented or "framed" influencing your choices, despite the same core information being conveyed. Like looking at two ads for the same phone and thinking that one is better than the other because of the wording.
8. Foreshortened Valuation
Overvaluing short-term rewards at the expense of long-term outcomes. Remember the expensive phone you bought which gives an instant dopamine hit, excitement and gratification?
9. Loss Aversion
The tendency to strongly prefer avoiding losses over acquiring gains of equivalent value. Running to buy items you don't need because you feel you might miss out once they are not available.
10. Mental Accounting
Separating money into different mental accounts based on subjective criteria like the source of the money or intent for what it is spent on. For example, getting a bonus and not using it all to pay off loans or saving them and keeping some aside to give yourself a treat at a spa or a fancy dinner.
11. Sunk Cost
The tendency to irrationally follow through on something due to money, effort, or time previously invested in it. After studying medicine for three years, and still continuing and not switching because you’ve invested 3 years into it.
12. Confirmation
The inclination to favor and absorb information that confirms your pre-existing views while ignoring contradictory evidence. Not talking to a certain person because of the way they act or dress or making judgments based on your bias.
“People only see what they are prepared to see.”
One of the biggest culprits behind bad choices is confirmation bias - the tendency to search for, favor, and recall information that confirms our pre-existing beliefs or assumptions, while conveniently ignoring or discounting any contradictory evidence.
Confirmation Bias In Decisions
For example, let's say you believe the new Italian restaurant in town has terrible service based on one bad experience from a friend. From then on, you're more likely to only notice and focus on examples that reinforce your belief that the service is bad, like a long wait to be seated or a grumpy server. But you may overlook or rationalize away instances of good service, like when your food came out quickly.
Confirmation bias causes us to be close-minded, prevents us from seeing the full picture, and results in poor, biased decisions based on incomplete information.
Here’s another example to help understand another common metal error, the anchoring bias:
To illustrate the anchoring bias, let’s look at an example. You walk into a store and see a pair of headphones for $100. You may browse and look at a similar set before making up your mind, having no opinion of whether the price is fair or not as there is no anchoring bias.
But if you walk into the store and see the same headphones with a for sale sign with the original price being $150 crossed out and the sale price is $100, you might think it's a pair price because of the anchor of $100. This example highlights how marketers use anchoring bias to influence our perception of value. By showing a higher initial price (even if it's not a real price), they make the final price seem more attractive.
E. How to Make Logical Decisions?
Making logical decisions means striving to see things rationally and objectively, being aware of your personal biases, avoiding knee-jerk emotional responses, and meticulously weighing all options and evidence. It's difficult, but not impossible.
As the late, great statistician W. Edwards Deming advised:
“Rational behavior requires theory. Reactive behavior requires only reflex action.”
Tips on How to Make Logical Decisions
Tips for logical decision making are as follows:
1. Slow down - Don't rush into choices. Take time to pause and reflect.
2. Step back - Look at the big picture without emotional entanglements.
3. Gather as much relevant information as you can from credible sources.
4. Encourage other viewpoints that challenge your assumptions and preconceptions.
5. Leverage data, facts, and evidence over pure gut instinct.
6. Question your motivations and assumptions for why you feel a certain way about choices.
7. Remove yourself from the situation and think about how an objective third party would assess it.
8. Don't be ashamed - be the first to admit when you're biased or have made a mistake. Learn from it.
F. James Clear on Decision Making Errors: Unlocking the Secrets of Smarter Choices
James Clear, author of the bestselling book "Atomic Habits," delves into the fascinating world of decision-making, revealing the hidden biases and mental shortcuts that often lead us astray. He argues that while we often believe ourselves to be rational beings, in reality, we are prone to a range of cognitive errors that can significantly impact our choices.
In his book Atomic Habits, he discusses mental errors when it comes to decision making:
“Just because you can measure something doesn’t mean it’s the most important thing. Similarly, just because you can’t measure something doesn’t mean it’s unimportant. This is a critical lesson for any kind of decision making. If you focus only on the factors you can measure, you’ll miss the most important things.”
Clear notes that we tend to overemphasize concrete factors that are easy to measure while overlooking crucial qualitative elements that can't be boiled down to a number. He emphasizes that understanding these errors is the first step toward making better decisions.
James Clear also identifies five common mental traps that frequently trip us up are as follows:
I. Survivorship Bias
This occurs when we overestimate the likelihood of success based on only observing successful cases. We hear stories of individuals achieving extraordinary outcomes without realizing the countless others who failed along the way. This skewed perspective can lead to unrealistic expectations and risky decisions.
Let’s look at an example. You're excited about starting your fitness journey and have decided to join a gym. However, as you begin your research, you encounter several hidden roadblocks in your decision-making process.
Scrolling through social media, you're bombarded with stunning "before and after" photos showcasing individuals who achieved incredible fitness transformations. This limited perspective might lead you to believe achieving similar results is easier than it actually is, potentially underestimating the dedication and effort required.
Remember, these success stories often represent a tiny fraction of the entire picture, overlooking the countless individuals who struggled or haven't reached their goals yet
II. Loss Aversion
We naturally feel the pain of losing more intensely than the pleasure of gaining. This can lead to risk-averse behavior, where we prioritize avoiding losses even at the expense of potential gains. Clear recommends being aware of this bias to ensure it doesn't paralyze us from making potentially beneficial choices.
For example, the fear of wasting money if you join a gym and don't stick with it might be holding you back. This natural tendency to avoid losses can hinder your progress entirely by preventing you from even trying. Instead of focusing solely on the potential loss, consider the long-term benefits of improved health, increased energy levels, and the potential joy of discovering a new hobby.
III. The Availability Heuristic
We tend to judge the likelihood of events based on how easily they come to mind. Vivid information, like a news story about a shark attack, can distort our perception of actual risks. For example, this can be applied to gym decisions as well. A readily available news report highlighting dangers of lifting weights with improper form might discourage you from strength training altogether.
IV. Anchoring Bias
Our initial impressions become anchors, influencing our subsequent judgments. This can be problematic when the initial information is inaccurate or irrelevant. Clear advises being mindful of anchor points. For example, your initial gym search might bring up an option with a hefty membership fee. This high price point could become an anchor, making other gyms seem less appealing.
V. Confirmation Bias
As discussed earlier, we favor information that confirms our existing beliefs while ignoring contradictory evidence. Clear suggests actively seeking out and considering opposing viewpoints to challenge our assumptions.
For example, you primarily follow fitness influencers who advocate for a specific workout style. This echo chamber might limit your exposure to diverse approaches that could be more enjoyable or effective for your individual needs.
Step outside your comfort zone and actively seek out information from various sources, including individuals with different fitness backgrounds and training styles.
Acknowledging these biases and adopting strategies like learning from mistakes and focusing on the long-term benefits enables you to make a well-informed decision about your gym membership.
James Clear's insights provide valuable ammunition in the fight against irrationality, empowering us to make conscious, well-informed decisions that shape our lives and navigate the complexities of the world around us.
G. Strategies to Improve Your Decision Making Skills
James Clear also offers practical strategies to improve your decision-making skills which are as follows:
How to Improve Decision Making.jpg
1. Embrace the Second Mistake
He encourages learning from mistakes but emphasizes avoiding the second mistake. The first error might be unavoidable, but repeating it due to a lack of learning and reflection is detrimental. Analyze your mistakes, understand the biases at play, and actively implement strategies to avoid repeating them.
2. Expand Your Time Horizon
We often prioritize immediate gratification over long-term benefits. Clear suggests employing a "future self" mentality, considering the impact of your choices on your future self. This perspective can help you make decisions aligned with your long-term goals and values.
3. Utilize Frameworks
Decision-making frameworks, like the "Eisenhower Matrix" or the "Cost-Benefit Analysis," can offer structure and clarity to the process. These tools can help you categorize information, prioritize options, and weigh potential risks and rewards objectively.
Drawing on the famous management consultant Peter Drucker, he emphasizes:
There is great wisdom in Drucker's quote:
“What gets measured, gets managed.’ But there is an equal and opposite truth: What doesn’t get measured often gets overlooked.”
Ultimately, acknowledging our mental mistakes is the first step towards wiser decision making. As Clear advises:
“Be skeptical of your own ability to see the world objectively.”
H. Common Errors in Decision Making
While most of the biases that lead to common decision making errors have been covered above, here are a few more to help you avoid these pitfalls:
Tips on How to Make Logical Decisions
1. Rushing To Judgment
Rushing to a judgment or conclusion in the heat of the moment without considering all information can lead to impulsive decisions that lack a strong foundation. Failing to gather enough relevant data or consider all available options before making a choice can lead to errors. Seeing those headphones on sale and impulsively buying them before research can make you pay higher just because you did not do the research and got sucked in by the anchor.
2. Information Paralysis
A lot of information and data can lead to decision making errors. Feeling overwhelmed by the sheer volume of information available, leads to an inability to make a decision or take action. This can be particularly detrimental in situations requiring a timely response. Spending all the time looking at gyms and deliberating too long over your choices is stopping you from the real goal - getting healthy and fit.
3. Neglecting alternative solutions
Fixating on limited options means neglecting alternative solutions. Failure to consider all possible options before making a decision can limit your creativity and prevent you from finding the most optimal solution. Just accepting a pay raise and continuing a job that has no growth and more stress is making you miss out on more lucrative opportunities.
4. Preconceived Assumptions
Letting biases cloud judgment comes from preconceived assumptions. We judge the likelihood of an event based on how easily we can recall examples of it. Like thinking that if we exercise during pregnancy, it can cause complications. However, everyone is different and an active lifestyle is encouraged in a healthy pregnancy. Consulting your doctor and doing your research is the more informed option.
Let’s take an example from my cricketing days. We had a major match against one of the top two teams in the tournament. Losing this could mean being kicked out of the tournament and the stakes were high. I had to make the critical decision of choosing the most formidable batting line.
Based on our past few matches, I chose a comparatively new player who had been making big scores in every game. However, I ignored the fact that he was still fresh and lacked the experience to hold the nerves under pressure in big games. This led to the whole game being almost knocked out of our hands.
It made me realize that we should always consider the entire scenario, analyzing all the information and the current setting before making a decision. A more experienced and reliable batsman who would have held well under the pressure would have been the more logical choice.
I. Real World Example: Kodak's Missed Digital Opportunity
One of the most infamous examples of decision-making errors causing catastrophic consequences is the fall of Kodak, the once-dominant photography giant.
Kodak invented the core digital camera technology way back in 1975. However, the leadership team severely misjudged the disruptive impact digital would have on their traditional film business. They had the innovation in their grasp, but a combination of cognitive biases like:
Confirmation Bias - Writing off digital as a low-quality fad
Anchoring to Existing Success - Kodak was so anchored to its immense success with chemical-based films and prints that it dismissed anything that could jeopardize that lucrative revenue stream.
Overconfidence - Kodak was overconfident that their huge brand recognition and market dominance at the time was impenetrable.
As a result of these mental errors and flawed strategic decisions, Kodak collapsed into bankruptcy in 2012 despite inventing the very digital imaging technology that made them obsolete. It's a painful example of how catastrophic decision-making lapses can be, even for behemoths at the top of their industry when they fail to see the bigger picture.
J. Decyz POV on Decision Making Errors
We all make mental mistakes and cognitive lapses when it comes to decision making. It's an inevitable part of being human. But the wise decision maker is self-aware of their flaws and innate biases - and takes steps to overcome them.
Being cognizant of common decision errors like confirmation bias, overconfidence, the sunk cost fallacy, and so on, we can strive to make more logical, rational choices.
Smart decision making is about carefully weighing all information and perspectives. It's about interrogating your intuitive assumptions with data. And it's about cultivating an objective, rational mindset that is vigilant to the emotional influences and mental shortcuts that so often throw us off track.
“The way to avoid decision-making errors is not by being smarter or more experienced, but by being more systematic and by understanding the decision errors humans are vulnerable to”
At Decyz, we’ve realized that the goal is incremental progress. Even being self aware of these decision-making errors puts you ahead of the crowd who remains blissfully unaware of their own biases.
Cultivate a systematic process, be intellectually humble enough to doubly question your assumptions and motivations, seek out diverse perspectives, and always strive to make decisions rooted in objective facts and data.
“The smarter you are, the more adaptable you have to be to counter those deep mental habits and Decision biases we’re all susceptible to.”
Ultimately, decision-making errors are unavoidable due to the very nature of the remarkable yet flawed human brain. But rather than resigning yourself as a perpetually flawed decision maker, embrace learning about these cognitive blind spots as the first step towards more reliably sound judgment and better life choices.
