Decision Making Goals – More Accuracy & Maximize Expected Value

Less is more once again!

Behavioral economics aka decision science aka behavioral decision research.

What is behavioral economics?

An interdisciplinary field that tests falsifiable hypotheses about human decision making using randomized controlled experiments.

Ok, enough of the science…how can this help us to make more accurate judgements while maximizing our expected values of our choices. I will guide and show you!

How do humans decide? We use heuristics (rules of thumb) and biases to make our decisions which are usually fast by association or, less frequently, slow and controlled.

Humans have bounded rationality (limitations). Awareness and identification are most important to do our best to overcome them when making decisions. As I always say, awareness is key whether in cyberbullying or trading or anything in life. If we are aware of potential pitfalls and traps, we can have a better chance of avoiding them. So let’s discuss the key barriers to good decision making.

Condition 1 – Opaque Processes. We are not even aware of our bounded conditions. Yes, we don’t know what we don’t know. Therefore, we will make ourselves aware now.

Condition 2 – Bandwidth Constraint. The human mind is a serial not parallel information processor. We are bombarded with information overload daily beyond our minds capacity so our response is to process in automatic mode which is fast decision making. This can lead to greater errors by relying on many biases we are not even aware of. More information leads to less attention. Less is more once again. Let’s discuss.

We have 2 systems of decision making. Dual Process Thought.

System 1 – Heuristic Thought

Fast, automatic, effortless, associative, and assumes “what you see is all there is”.

System 2 – Systematic Thought

Slow, learned and controlled, effortful, rule-based, and asks “if” what you see is all there is.

A great book by Daniel Kahneman, “Thinking, Fast and Slow” discussed this in greater detail.

Also, I learned this in greater detail while I attended Harvard University, in the class “Leadership Decision Making” taught by one of the top behavioral economists, Dr Jennifer Lerner.