Decision Making Heuristics - Make good decisions faster
Intro
Have you ever wondered how some people are able to make quick (and often effective) decisions the majority of the time?
They are likely using a shortcut system that even you and I use involuntarily every day: heuristics.
Since this blog covers all-things lifestyle business, we’ll focus on how you can use heuristics to fast-track your way to success.
But beware that using too many shortcuts in life (as well as in business) will inevitably lead you to make mistakes.
What are heuristics?
Rather than being a single technique, the term heuristics encompasses a series of mental shortcuts that many of us use to arrive at a conclusion that is not necessarily correct, but it’s close enough.
Since the middle of the last century, many psychologists have studied heuristics to understand better human behavior and how it can be easily influenced by outside factors.
Some of these techniques include: availability, affect, representativeness, or anchoring.
Let’s have a look at them now.
Read this: How to instantly adopt a growth mindset
Examples of heuristics
Availability
This heuristic is based on the assumption that if you can remember a piece of information, it may be more important than other information.
And since we tend to remember more recently acquired information, you may rely more on new knowledge to solve problems or to explain situations you don’t understand.
Affect
The affect heuristic points out that we tend to reach conclusions based on our feelings rather than empirical evidence or data.
This allows us to have a consistent internal dialog and keeps us feeling safe and in control of our feelings. And most times, our “gut feeling” is right! But it also prevents us from making truly informed decisions.
Representativeness
This heuristic allows you to quickly pair two elements together based on superficial similarities.
For example, as a baby learns what a tree looks like -a trunk with branches and leaves, she can easily recall those elements to recognize other types of trees, even though they may look different.
This is a simple way to fast-track decisions.
But since not all cause-and-effect circumstances (or other correlated elements) present these similarities, you can’t rely solely on representativeness to understand the world around you.
Anchoring
This heuristic tends to be one of the most inaccurate ways to predict a final result.
The idea is that, when trying to estimate a result, we put a lot of emphasis on the first piece of information that we gather, even when that information is irrelevant (or even random.)
Read this: Making Good Decisions: A foolproof system
For example, when researchers Kahneman and Tversky were studying this heuristic, they asked the participants to estimate how many African countries were part of the UN.
As a starting point, though, participants had to spin a wheel with numbers from 1 to 100, which obviously gave them a random number.
The surprising result was that the participants’ answers were very much influenced by the random number they got from the wheel.
Substitution
When faced with a hard question, this heuristic lets us get faster to an answer because, instead of answering the question itself, we answer a simpler one.
For example, if you are looking to hire a babysitter, your main question would be, “is this person qualified to watch my baby?” but if you were in a rush, you might just ask yourself, “does this person look like he/she’d be a good babysitter?”
This shortcut could save time, but you can probably see how using a substitution heuristic to answer an important question may not be a good idea.
An Educated Guess
Even though educated guesses are not a specific type of heuristic, they do fall under this category since they use many types of heuristics combined.
When faced with an immediate decision to make, in the absence of a proper way to double-check the answer, most people will draw past information from their memory and come up with an answer that follows a (somewhat) logical path.
For example, if today is a sunny day, and you remember that the weather forecast called for sun in two days, you may make an educated guess and say tomorrow should be sunny.
Even though the conclusion may make sense statistically speaking (especially if you are familiar with the local seasonal climate), it is still a guess nonetheless.
The Limitations of Heuristics
While heuristics are a great way to improve your decision-making and to organize scattered information in your mind for future use, you need to guard yourself against the temptation to oversimplify the decision-making process.
A perfect example of this issue comes from Colin Powell’s 40-70.
Mr. Powell’s theory states that you should make a decision when you have between 40% and 70% of the total information.
If you make a choice before you reach 40%, you are simply guessing. But if you wait to get more than 70% of the information, you are likely wasting your time.
This idea is also in line with Jeff Bezos’ decision-making technique when he wrote in one of his shareholder letters that he tries to make decisions around the 70% mark.
And he continues by saying that if you wait to get 90% of the information, you are probably being slow.
So now that you know the knowledge threshold you should be aiming for let’s look at the possible mistakes you can make when making a decision too early. Enter cognitive biases.
Just as heuristics, cognitive biases have been studied and discussed by many psychologists and researchers.
But for the sake of this blog post, we’ll cover a few of them that directly relate to business and lifestyle decisions. And to do that, we’re diving into Robert Cialdini’s book "Influence: the psychology of persuasion”
Examples of Cognitive biases
Reciprocity
Humans tend to like people that help them out. After all, if someone does you a favor, you will likely return that favor sooner or later.
Knowing this, make sure you are not letting this bias dictate essential decisions in your life and business.
For example, if one of your friends was kind enough to help you move apartments, you may not want to blindly hire him to work for your company just because he’s a nice guy.
There are many other ways you could return a favor without compromising your hiring process.
Consistency / Commitment
This bias comes from the need of most humans to feel like they have made the right decision.
If someone committed to a choice in the past, they would likely stick to it in the future because they don’t want to admit to themselves (and others) that they had made a wrong decision.
So next time you find yourself making a decision solely based on your past choices, take a second and think about the actual reason why. Is that choice better, or are you getting your ego involved in the process?
Social Proof
This bias works because people trust other people rather than the source of information itself. For example, if you are on the phone with a salesperson, your guard is likely up.
You know that the rep wants to close the deal, so instead of believing him blindly, you may want to get the opinions of other people like you.
Social proof is a great way to get unfiltered information, but when making important decisions, ask yourself if the source of the social proof is reliable.
Just because it’s social proof, it doesn’t mean that it applies to you or is genuine.
Liking
The Liking bias states that if you already like someone for any reason, you will process their words and ideas with a positive filter (also known as Halo Effect.)
Think about the last time a friend or a family member you really like said (or did) something questionable.
Unless the action was totally out of character, you probably tried to justify it in a way that lessened the importance of that occurrence.
In contrast, if a person you dislike did or said the same thing, you probably would be very quick to judge them or label them as inappropriate or disrespectful.
So next time you need to make a choice, make sure you are not basing it solely on your past perception of the situation or person.
Authority
Hierarchy and authority are real and will change your mind if you let them. Authoritative figures are everywhere in our society.
Teachers, police personnel, doctors, pilots, managers, and sports coaches are a few examples of authority figures we were brought up obeying and listening to.
Following rules is important as it allows us to live peacefully in a well-oiled society, but guard yourself against blindly following someone's orders or ideas just because they are in a position of authority.
To avoid falling for this bias, ask yourself if that authority figure is actually an expert in that field or if you’re just delegating your decision-making to someone else.
Read this: Making Good Decisions: A foolproof system
Scarcity
People hate to miss out on opportunities. So much so that a new term was created in recent years: FOMO (fear of missing out.)
Even though FOMO often refers to young people’s fear of missing out on social events and fun activities, the principle is the same across the board.
For example, let’s pretend that you are debating whether or not you should hire a marketing agency to manage your Facebook Ads.
You are still not sure if it’s a good idea, but the sales rep lets you know that they have a 20% discount and that there are only two spots available.
If you don’t take a step back and reflect on it, you may fall for this tactic and buy just because you don’t want to miss out on the “opportunity.”
How to improve your heuristics for decision-making
While everyone uses heuristics one way or another throughout their life, many people overuse these shortcuts. So, here are a few things you can do to avoid falling into the oversimplification trap.
Consume more information
The best way to improve your heuristic decision-making is by increasing the amount of information you can tap into when it’s time to make a choice.
Let’s take the Educated Guess heuristic, for example. Let’s pretend you need to go to the mall to buy a suit, but you don’t want to get stuck in traffic as you have a hectic day.
On a typical day, you’d check your Maps app, but your phone is dead, and you need to make a choice on the spot.
If you are new to the area and have no idea about the traffic patterns in the city, your “educated guess” is not really “educated” as you don’t have that much information to tap into.
However, if you have been driving on those streets for a while, you can predict how busy the roads will be.
Not only that! You could brainstorm a faster way to get to the mall and avoid traffic altogether.
The more information you consume about a specific topic, the more accurate your heuristic decision process will be.
Practice mindfulness
As you just learned, heuristics are neither good nor bad. They are just tools you can use to shorten the time it will take you to decide.
Some types of heuristics, though, are based on hard data, while others are solely based on your emotions and memory recollection, making the latter kind automatically less reliable.
So to avoid making gut decisions at all times, your best bet is to stay in the present moment and realize when you are falling into the trap of a cognitive bias.
And when you do, take a step back and ask yourself, “Are these the best tools I can use to reach an important decision?”
In most cases, You’ll find that you could spend a little more time and energy finding more accurate information.
But if you can’t, you’ll at least feel comfortable knowing that you are arriving at a conclusion from the most complete perspective you have access to at the moment.
