In our everyday lives, we are faced with hundreds of decisions. These decisions may be as big as which college to enrol in, or as small as which pair of socks to wear in the morning. Thus, the path we choose out of the many options available to us determines our lives in significant ways. Let’s look at the underlying mental processes which are active during decision-making.
Human Decision-Making: Prospect Theory
Psychologist Daniel Kahneman, along with his colleague Amos Tversky, was awarded the Nobel Prize in 2002 for his work on prospect theory. Kahneman developed the prospect theory by conducting experiments on human choice behaviour. Initially, he intended to establish a theory of human choice in financial decisions, and the experiments consisted of choices among a series of financial bets and gambles. However, the experimentation resulted in a comprehensive theory of human decision-making, which was generalizable to other fields such as law, politics, and economics.
The main tenet of prospect theory is that decision-making in humans consists of choosing among many options. However, this choice occurs through ‘heuristics’. Heuristics are cognitive shortcuts or biases that can create errors in how we estimate risks. More than 200 such cognitive biases have been identified, a few of which are:
- Groupthink: People tend to make irrational decisions because they want to conform to the group opinion, and minimize the chances of a conflict.
- Availability Heuristic: People tend to make decisions based on information that immediately comes to mind (it usually happens because of recent exposure or personal experiences).
- Anchoring: While making judgements, people rely heavily on information they received first.
- Authority Bias: People tend to trust the opinions of authority figures in decision-making.
- In-Group favouritism: People prefer other people belonging to their in-group.
- Risk Aversion and Loss Aversion: People avoid risk-taking behaviours in uncertain situations because of the fear of negative consequences and suffering losses.
Kahneman suggested that there are two different modes of decision-making. The first mode is fast – it involves automatic judgements based on instinct and emotion. The second mode, on the other hand, is slow – it involves a deliberative process based on rationality. Usually, both these modes work hand in hand, but sometimes, one overpowers the other.
Also Read: The Psychology Behind Risk-taking
Fear and Risk Assessment:
Often, the slow method of decision-making prevails, and people become too careful and averse to taking risks. In such a scenario, the loss aversion and risk-aversion cognitive biases become very strong. This happens when a person is overcome by fear, which causes them to perceive risks as much larger than the actual threat of negative consequences. Research has shown that fear is associated with feelings of unpredictability, pessimism, and loss of control.
Risk Aversion and How to Overcome It:
An example of this extreme risk aversion can be seen in certain people who refuse to fly in aeroplanes because of a fear of air travel. Despite being presented with statistics that show that injuries and accidents in road or rail travel are much more likely, they are not convinced. It is even seen in much less serious scenarios, such as when a person is averse to asking the person they like out on a date, because of the fear of rejection. Similarly, employees are often too scared to propose their creative ideas to their superiors, because they are afraid of the risk of getting rejected. Even when dining out, people stick to options on the menu they have already tried before and consider ‘safe’, instead of taking the risk of trying a new dish, just because they might not like it.
But, when you end up at a crossroads like the above people, the best strategy is to ask yourselves – “What’s the worst that could happen?” Posing such a question in itself can reduce the fear of negative outcomes significantly. It can allow you to reason that the benefits of taking risks far outweigh the negative consequences. It can help you assess that the outcomes you are fearing are very unlikely to occur, as in the case of aeroplane travel. But the benefits are far greater.
By choosing to travel by air, the person can save a large amount of time and also reach their destination much more comfortably. In the case of asking your crush out on a date, the worst that can happen is that you receive a polite ‘no’ for an answer. But, on the other hand, if you receive a ‘yes’, you get the opportunity of forming a lifelong connection. When it comes to the presentation of ideas to your bosses, taking the risk could result in appreciation from the boss, which may even lead to a promotion. Choosing to try a novel dish at a restaurant might just result in the discovery of your new favourite dish.
The other side
Here, it is important to sound a word of caution: Even the fast mode of thinking overpowering the other can be detrimental. A person who is too risk-taking becomes impulsive and reckless and may make decisions without proper risk assessment, which could land them in dangerous situations. Fear is not bad in all scenarios. You should strive to create a healthy balance of risk-taking and risk aversion. For example: it is good to be risk-averse if you are being robbed at gunpoint. But, it is good to take risks when it comes to approaching a person you admire. The main fact you should remember is that you must never let fear dictate your decision-making, and always assess the risks and benefits rationally. More often than not, the risk could result in something beneficial and positive. Even if not, what is the worst that could happen?
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