?Discuss some the factors which influence our thinking, judgement and decision-making Our everyday lives are filled with many choices and decisions which will impact on our lives both in the short and long-term. Our perception of the impact of these decisions on our own lives and those around us will affect how much time and effort is given to arriving at these decisions.
There are several factors which impact on thinking, judgement and decision-making and it is important to note that often these occur simultaneously rather than as individual areas but in order fully understand the entire process we must analyse the factors in each individual area. While it is neither practicable or possible to consider all the factors in every decision, knowledge of the factors, process and how they interact can be of critical importance.
By understanding the factors, we can ascertain how we make decisions and by gaining knowledge on the entire process, we can ultimately arrive at better decisions by being conscious of our thought and application process. How we think and apply our thought process to the decisions often determine the paths we choose to take. There are two systems, or modes, which determine how we think (Kahneman, 2011). The first system is fast, automatic, emotional and frequent and the second system is slow, logical, infrequent and conscious.
The title of the Kahneman’s book, Thinking, Fast and Slow, gives us an indication of the two systems. The first system, thinking fast, is associated with quick response taking into consideration the environment in which we are in which then allows us to respond immediately. This can be important especially in times of danger and the system relies heavily on general rules and guidelines, known as heuristics. These heuristics are primarily geared towards helping us in the moment and protecting us from immediate danger and are very useful in this regard.
However, the heuristics are designed to work in the environment from which we have evolved and outside of this environment can lead to errors. The second system, slow thinking, is the one we would normally associate with the thought process in the strictest sense. The process is a slow one which is both deliberate and conscious and we would feel that we are in control. The slow system may be used to determine what clothes we will wear today or which shares we should invest in to gain a higher return of investment. While both these systems operate in different ways, they too are interconnected and rely on each other.
Any impressions that are formed through system one will be fed into system two. In situations where system one encounters an environment to which it is unfamiliar, it will automatically mobilise system two to give assistance. The information and thought process in system one is crucial in protecting us from day to day; it is nevertheless much less effective for any long term planning. Any short –comings of one system is made up for by the ability of the other system and combined can ensure better outcomes whether in the immediate or longer term.
While the way in which we think, using either of the systems or modes of thinking described by Kahneman, is important, so too will logic play an important role in our thought process and how we reach decisions. Deductive reasoning, also known as deductive logic or logical deduction is the process of reasoning from one or more general premises or statements to reach a logical conclusion which is certain. Deductive reasoning makes a clear link between premises and conclusions and it recognises that if all premises are true and the terms are clear and the principles of deductive logic are followed then the conclusion that is reached is true.
For example, if all students eat in the canteen, and Martin is a student, then Martin must eat in the canteen. Inductive reasoning, on the other hand, is reasoning whereby the premises would seek to supply strong evidence for the truth of the conclusion. While a deductive argument is supposed to give certainty, inductive will giveprobable certainty. Using the example above, more evidence would need to be sought in order to determine of Martin does indeed eat in the canteen and it would not be taken as given until further evidence is provided.
The application of either deductive or inductive reasoning will be a vital factor in our decision-making. In certain circumstances it may be suitable to apply either, depending on the importance and certainty required in decision and the impact of making assumptions. However, there are also some factors which can distort the outcome of any decision and the logic may not be true where a fallacy exists. A fallacy is “a mistaken belief, especially one based on unsound arguments” (www. oxforddicionaries. com). An argument can be fallacious, irrespective whether or not the conclusion is true.
There are two types of fallacy, formal and informal. A formal fallacy is an error that stems from a poor logical form whereas an informal fallacy is an error in reasoning that does not originate in improper logical form. A formal fallacy results in a pattern of reasoning that will always be wrong due to a flaw in the logical structure of the argument which will render the argument invalid. A fallacy can be of presumption which fails to prove the conclusion by simply assuming that the conclusion in itself is proof. A fallacy of weak inference would fail to prove the conclusion without sufficient evidence.
Fallacies of distraction are those that fail to prove the conclusion with irrelevant information such as emotion while a fallacy of ambiguity would fail to prove the conclusion due to the impreciseness of the words or grammar. Some fallacies may be committed intentionally in order to either manipulate or persuade by deception or unintentionally due to a lack of understanding or carelessness. Either way, such situations can result in an alternative action than that which may have being taken if complete or accurate information was supplied.
As with all information supplied for the basis of decisions, it should be checked to ensure greater accuracy throughout the decision-making process and to reduce the likelihood of judgemental biases. “Decision makers are susceptible to a number of judgemental biases that systematically lead to predictable inconsistencies and decisional errors” (Nisbett & Ross, 1980). We often use our judgement to quicken the decision-making process and we will use of judgement to assist us during this process. However, as Nisbett and Ross have identified, this process can often lead to errors.
Selective perception, impression effects including primacy, regency and halo as well as framing and presentation effects and hindsight are all examples of judgemental biases with can distort our analysis and ultimately impact on our decision-making. Selective perception is whereby an individual perceives what they want from a message, in any form of communication including a picture or an advertisement, and ignoring everything else. People tend to see things from within their own frame of reference and as a result the message they receive may be distorted or inaccurate.
This may occur due to the amount of information we receive and our inability to accurately process all the information our brain receives. We subconsciously scan the information that we receive and as a result we often not only see what we want to see but also what we expect to see (Plous, 1993). An example of this bias is the Hostile Media Effect, which refers to the finding that people who have strong biases towards a certain issue perceive media coverage as being biased against their opinions, irrespective of the reality. The results of a study carried out
in Stanford University (Valone, Ross & Lepper, 1985), which showed news clips from the Sabra and Shatila massacre in Beirut to both pro-Palestinian and pro-Israeli students, found thatboth sides considered the clips to be slanted in favour of the other side. The strength of our emotional attachment can have a significant influence on how we can perceive situations and can therefore distort our perception and influence our decisions. We have often heard that first impressions last so we are advised from childhood right through to preparing for interviews to make a good first impression.
The basis for this is the primacy effect which “occurs when initial impressions are believed to be more relevant and important in rendering a decision than later impressions” (Williams, 2002). While this instinctive reaction is often correct, it can also be misleading and allowing us to form the wrong opinion. In such cases, because our opinion is already formed, it can be difficult to change this as we are unlikely to allow ourselves time to develop the relationship further.
As well as the primacy effect occurring in instances such as the interview, it can also occur in situations when, for example a presentation that is presented first will leave a greater impressions, irrespective of the value of the content. In certain situations, it is, however the most recent incident which will be perceived to be most relevant and this is referred to the regency effect. This is often the case when recalling words or number or even items such as when contestants on TV shows such as The Generation Game would recall the items that had previously passed before them on a conveyor belt.
Research showed that in most cases, contestants recalled the last item first in most instances (www. bbc. co. uk). The timing of when a decision will be made is a crucial factor and if a decision is to be delayed by as much as a week, then the primacy effect will take precedence whereas if the second or final argument isn’t delivered until a later date then the regency effect will carry more weight. Another factor which may influence our judgement and decision making is the so-called ‘halo effect’, a cognitive bias whereby the judgement of a person’s character is influenced by one’s overall impression.
The manner in which this can manifest itself it best illustrated with an example: you are at a party and meet a friendly person. Later that week you have asked to become involved in a charity event and are seeking sponsorship. You contact the person you met at the party as you suspect they will make a donation. In reality, there is no link between the pleasant nature of the person you met at the party and generosity. Yet, the halo effect is leading you towards the assumption that the two are connected.
Many people use the halo effect to sway peoples judgement and it very often exploited by politicians. A local GP may seek election to local or national government having made numerous promises in their bid for election. The electorate may determine that because they are educated and medically qualified they will make good politicians. In reality, there is no correlation between the two but the halo effect in many cases convinces the electorate. The opposite of the halo effect is known as the devils horns effect and is essentially the reverse.
If a negative characteristic is identified in an individual, then further negative attributes may be associated with them without sufficient evidence. In order to try and form a balanced and more objective opinion, it is important to be aware of the existence of the halo or devil’s horns effect and begin to ascertain what the actual characteristics or traits rather than simply forming an opinion without sufficient evidence. How information is both presented and framed to the decision maker can impact on their final judgement.
The manner in which the information is received can impact on how the information is processed. For example, if we are asked how if we consider if someone is tall or small, or if the question of weight is presented as how large or small is someone, we may give different opinions. Similarly, anchoring may occur when the questions is presented with data which may influence the decision-maker. Anchoring is the “act of basing a judgement on a familiar reference point that is incomplete or irrelevant to the problem that is being solved” (www.
businessdictionary). Again, the manner in which the information is presented may influence the decision-maker. In the event of a company deciding on a projected return-on-investment, the CFO may ask the general manger if a 15% return would be acceptable. The general manger may anchor to the figure of 15%, whereas this should not be a reference point at all and if the information was presented with a certain tone, the general manager’s opinion may be swayed by this too.
“When information becomes an anchor, we adjust insufficiently form that amount when making decisions” (Williams, 2002). Our decisions are also influenced how a problem is framed. This effect can occur when decisions makers are more inclined to avoid risk and problems are famed as gains and when they may seek risk problems are viewed as losses. Framing can also influence the decision maker when the information is presented in a positive rather than a negative manner. For example, there is a 90% chance of a positive return of investment rather than a 10% chance of a loss.
In order to minimise presentation and framing effects and reduce the tendency to anchor, it can be beneficial to review the number of items under consideration in order to get a better picture of the situation in question. This can remove any bias by ensuring a greater range and reduces the focus from the presented information to increases the overall assessment and reduce and judgement bias. Hindsight, or the ‘knew it all along effect’, can also have an impact on our judgement. It refers to the inclination to recall past events as being more predictable than they were prior to the event taking place.
Hindsight bias may lead to memory distortion whereby those recalling the past events can reconstruct the event in such a manner that it leads to false or misleading theoretical outcomes. Studies carried out by Kahneman and Tversky show that the effect can cause problems when trying to analyse, interpret and understand results. One of the basic problems with hindsight it that the person may consider that they “knew it all along”, and examples have been cited in historians accounts of battles and in judicial systems when responsibility is being attributed.
In business, hindsight may influence a decision and may cause an element of overconfidence in the decision when the decision maker sees themselves who remember correctly when in fact they are forgetting they made the wrong decision the first time. “The illusion that we understand the past fosters overconfidence in our ability to predict the future” (Kahneman, 2012). When faced with new information, hindsight can cause the distortion in the original analysis and can lead impact on future similar decisions In making any decisions, as outlined above, how we think and the factors that influence our judgement are critical.
However, the factors that influence our decision making process is not limited to those. Groupthink, the levels of risk associated with the decisions, the rationality of the decision-maker as well as cultural and political influences all play an important role in influencing our decision making. Understanding the role of all these factors and how they ultimately influence to decision-making process us can assist us in making better informed decisions. Groupthink can occur within a group of people when a desire for conformity within the group results in an incorrect outcome in the decision-making process.
The members of the group, in an effort to avoid conflict and reach a general consensus, do not critically review or evaluate the ideas sufficiently as doing so may result in isolation. As a result of groupthink, there is a loss of creativity and there is little or no encourage for independent thinking, which can lead to a dysfunctional group. The group is likely to encounter an illusion of invulnerability, an inflated certainty that they have made the right decisions and “to deterioration in mental efficiency, reality testing and moral judgments as a result of group pressures”, (Janis, 1972).
Janis has extensively researched ways to avoid groupthink including the examination of all alternatives, an independent leader and the appointment of a ‘devil’s advocate’. He also advocated the “vigilant appraisal “, (Janis, 1982), as used by President Kennedy during the Cuban Missile Crisis when the President invited experts in to give their opinion and allowed those experts to be questioned. The level of uncertainty and risk is an important factor influencing the decision-maker. The entire process is an attempt to try to reduce, or, if possible remove risks and uncertainties.
The decision makers risk preference will also impact on the level of risk and uncertainty which will remain. In the face of uncertainty, key decisions may be put on hold until such time as the level of uncertainty is eliminated or, at least, reduced. It is important to note that there is a distinction between risk and uncertainty. Uncertainty is the situation whereby multiple outcomes are possible but are not yet known whereas risk is a situation of uncertainty whereby the possible outcomes will involve some degree of losses dependent on the actual outcome of the situation.
The decision maker’s perception of risk, the framing of the risk and the level of personal involvement will also be a factor in the final decision and these will assist to determine the level of control the decisions maker has over the situation. The level of control the decision maker will play an important role because while a particular action may be riskier it may be taken if greater control can be exerted on the possible outcomes.
In most situations the level of risk will never be completely eliminated, however it is important that all actions are taken to reduce its impact and in this regard a good understanding of our perception of risk and risk preference is a key consideration. In making any decision, it is usually assumed the person or persons making the decision will act in a rational manner. A rational decision maker will use “a method for systematically selecting among possible choices that is based on reason and facts” (www.
businessdictionary. com). During the process those tasked with making the decision will often use a number of analytical steps to review the facts and possible outcomes before they decide on what course of action to pursue. A rational decision is one that is not only reasoned but one that is the optimal one for solving a problem or for achieving a goal. Determining the optimum course of action will require collating and quantifying information and making several key assumptions.
These assumptions must be clearly identified, otherwise, the decision maker may be seen to be acting in their own self-interest, and thus in an irrational manner. “Good decision making involves sufficient search for possibilities, evidence and goals, and fairness in the search for evidence and in inference”, (Baron,1991). However, the decision-maker may also be limited bounded rationality by the amount of information available to them, the time constraints imposed upon them, the cognitive limitation of their minds or the amount of resources, financial and non-financial at their disposal.
This notion of bounded rationality was proposed by Herbert Simon whereby “the decision-makers lack the ability and resources to arrive at the optimal solution, they instead apply their rationality only after having greatly simplified the choices available” (www. princton. edu). Thus, it can be argued that the decision maker’s choice will be limited given the information available to them and the ability of those to act in rational manner, and they will often become satisfiers, seeking a satisfactory outcome rather than an optimal one.
We constantly strive to make the best possible decisions and to make the most rational decisions can. However, as outlined above, we are subject to bounded rationality and therefore must, in reality try to determine the best possible outcome. The decisions we make are also affected by our nature, our chemical make-up, our environment and importantly, the role our emotions play. Our emotions can often overrule our reasoning and affect our logical approach to decisions, and it is important that we take time to consider options and alternatives before making unnecessary impulsive decisions.
The desire to make quick and compulsive decisions can result in good decisions on occasions but finding an ability to restrict our inclination to make compulsive decisions, which can be strongly influence by our emotions, can often result in improved decision making. Decision making is part of everyday life both personally and professionally. As outlined above there are many factors which influence our thinking, judgement and decision-making.
However, the factors and process is not limited to those mentioned but also involves consideration of a cost/benefit analysis, which will impact of the rationality of the decision, as well as the emotional condition and level of involvement of those making the decisions and there may even be an element of luck, however “the idea that large historical events are determined by luck is profoundly shocking, although it is demonstrably true” (Kahneman, 2012). The time horizon and the effects of any decision should, where possible, be considered in the context of both the short and long-term to fully understand its implications.
It is evident that the entire process does not involve one, or even several of the factors mentioned, but is rather a combination of both conscious and subconscious actions which, when combined, will impact on the decision. It is also clear that the correct or most favourable decision will not always be reached but recognition of the processes and the factors which influence our thinking, judgement and decision making will ensure that the choices we make will be better informed and therefore result in greater probability that the decisions we make are the optimal ones.