Decision making and Judgement

By Hardik 

Every day one has the opportunity to make countless decisions: should you eat dessert, attend a class, or watch a movie. If we reflect ony our own history of choices we will realize that they vary in quality; some are rational and some are not.

In his Nobel Prize-winning research, psychologist Herbert Simon put forth the idea that our decision-making is confined within the boundaries of rationality. According to this concept of bounded rationality, humans strive to make rational decisions, which involve considerations like weighing the pros and cons of a choice. However, our cognitive limitations act as constraints, preventing us from achieving full rationality. Factors such as time constraints and budget limitations restrict both the quantity and quality of information accessible to us. Additionally, we're only able to retain a relatively small portion of information within our usable memory. Furthermore, even highly intelligent decision-makers face limitations in their abilities to make the best possible choice accurately, given the information at hand, owing to constraints on intelligence and perception.

What would a rational decision look like?

People often have to use incomplete information and intuition to make even the most important of decisions. A fully rational decision requires a careful, systematic process. Let’s assume that during our final year at college, we want to choose which type of company we want to work in. So, how should we make a decision? Psychologists outline the following six steps that you should take to make a rational decision: (1) define the problem, (2) identify the criteria necessary to judge the multiple options, (3) weight the criteria, (4) generate alternatives, (5) rate each alternative on each criterion and (6) compute the optimal decision. 

Biases in our Decision Process

Concept of bounded rationality taught us that judgment deviates from rationality, but it did not tell us how judgment is biased. Several researchers tried to diagnose the systematic biases that affect the human judgement. These biases are created by the tendency to short-circuit a rational decision process by relying on a number of simplifying strategies. Sometimes, even the smartest people in the room are impacted by biasedness. 

To tackle biases, we need to grasp the concept of two decision-making systems: System 1 and System 2, as described by Stanovich and West in 2000. System 1 is our quick, gut-level, automatic thinking mode, driven by intuition and emotions, which serves us well for everyday decisions. Think of it as our go-to for choosing groceries without overthinking.

However, when it comes to significant choices, System 2 takes the lead. It's the slow, deliberate, logical thinking mode that we should ideally rely on for important matters. Ironically, we often stick to System 1, even for crucial decisions.

To combat bias and enhance our decision-making, the key is shifting from trusting our gut (System 1) to engaging in thoughtful analysis (System 2). Unfortunately, in our busy lives, we tend to default to System 1, even in roles like executives' where the pace is relentless.

Concluding thoughts

Humans, as decision-makers, do not possess infallible judgment. In fact, we not only fall short of perfection but also exhibit consistent and foreseeable deviations from it. These discernible deviations constitute a fundamental aspect of the field of judgment and decision-making. By recognizing and comprehending these inherent limitations, we can uncover approaches to enhance our decision-making, rendering it more adept and efficient. As we understand more about our own biases and thinking shortcomings we can begin to take them into account or to avoid them.

by hardik agarwal