We constantly make decisions in our lives. Some are as mundane as deciding which lettuce to use in a salad, while other options are more complex. Some recommendations could decide the success of a business or possibly even someone’s life. Regardless of the factors involved, we resort to set theories, consciously or unconsciously, to arrive at the decisions we make.
In this case, the recommendations calculate the different outcomes your actions would have in different time frames. For example, if a person is receiving a windfall of thousands of dollars, then he or she could spend it on a new car for instant gratification, invest it in higher education, or in a retirement scheme for potential future income. The question is what is the ideal use of the money?
The factors to consider include expected rates of interest, inflation, the individual’s life expectancy, as well as personal confidence in an investment program. The correct evaluation of these factors will help to arrive at a logical decision. When humans consider timed outcomes, they tend to favor choices that offer quicker rewards instead of thinking about the future.
It’s difficult to make competing decisions because you have to weigh potential responses of others in the decision-making process. Often, people refer to this type of socially oriented analysis as “game theory.” A single-player option is usually the basis for decision theory. However, in socio-cognitive engineering it is a more distributed decision-making process. This is particularly true in the case of organizations, and applies in normal, abnormal, crisis, and emergency situations.
You encounter complex decisions when dealing with a complex range of factors and outcomes. These are often faced in large organizations. In cases such as these, the choice is not made by using the deviation between real and/or optimal behavior, but by the dilemma posed through deciding in the first place what the optimal behavior is.
Heuristics is the approach of making decisions based on routine thought patterns. It is quicker than taking the problem apart and examining it, but poses a risk of inaccuracy. A common and incorrect thought process that has grown from heuristic thought is the “gambler’s fallacy.” Many people incorrectly believe that certain random events affect future random events. For example, there is the notion that if a flipped coin lands on tails the first time, it will land on heads the next flip. This misconception is easily disproved by using step-by-step thinking.
The Compromise Effect
The compromise effect requires you to decide between extreme options. Humans generally favor options with moderate benefits over those with extreme consequences. The decision uses the mindset that the most moderate option of the extremes will result in the highest benefits from each extreme.
Of course, when making decisions you aren’t always aware that you are using these theories because your mind analyzes things in ways you’ve been taught or used since you were born. However, behind the curtain complex processes come to bear so that in the end the decision you make is one you believe will result in the best possible outcome.
To learn more, visit Washington State University’s online MBA.