Why do we make wrong decisions? (contd..)
(Emotional Management for Personal & Professional Growth Series)
We have discussed two thinking traps, "giving excess weightage to first information," "not to disturb the status quo," which affect our decision-making quality. The third thinking trap is "justifying past choices even though it is irrelevant."
Justifying the past decision even though it is not relevant now:
We continue to make decisions based on past choices. Even though we believe that we make rational decisions, we sometimes fall into the trap of justifying the past decision even though it is not relevant now or future. Economists term this decision-making behavior as sunk cost fallacy.
For example,
Assume that you have booked a ticket for a movie of your favorite star before releasing. After the film is released, you are getting more negative reviews about the movie, and your logical mind realizes that the movie is a flop.
Will you decide to go with your earlier decision of watching the film as you already booked?
If you decide to drop to watch the movie despite your advance ticket booking cost, you are not falling into the trap of sunk cost fallacy.
If you decide to go and watch since you do not want to waste your invested money, you are in the trap of sunk cost fallacy.
Similarly,
In a stock market, our tendency to average the stock, which is continuously falling. That decision is sunk cost fallacy. We hope that we recover the past investment.
Most of us get into this sunk cost fallacy in decision making, not only from a money perspective, even from the time and efforts we spent on something in the past. That is why in the organization, we use to justify some of our people's mistakes and build decisions over them repeatedly because we have invested our time and effort with them.
Why do we get into this thinking trap?
Internally, we do not want to admit our mistakes or accept the failures and try to cover up the old errors with new efforts or decisions. That is the nature of us.
How to overcome this thinking trap?
1. Even smart, logical decisions sometimes go wrong. Failing is not a sin, but building over the past mistake and making decisions to cover up may lead to blunders which we can avoid with awareness. We need to accept the failures as part of our decision-making process in personal and professional life.
2. Reward yourself and your team for the process of decision-making with available data then, rather than punishing for the outcome. We need to realize that we are making judgments based on some assumptions, and the outcome depends on the various factors. The ability to distinguish between the process and result will help you accept some of the failures in the decisions.
When we make decisions, we are driven by various emotions and need to be aware of those emotions to make better decisions. Awareness is key.
Let us discuss some other thinking traps next week.
Have a great week ahead!
Justifying the past decision even though it is not relevant now:
We continue to make decisions based on past choices. Even though we believe that we make rational decisions, we sometimes fall into the trap of justifying the past decision even though it is not relevant now or future. Economists term this decision-making behavior as sunk cost fallacy.
For example,
Assume that you have booked a ticket for a movie of your favorite star before releasing. After the film is released, you are getting more negative reviews about the movie, and your logical mind realizes that the movie is a flop.
Will you decide to go with your earlier decision of watching the film as you already booked?
If you decide to drop to watch the movie despite your advance ticket booking cost, you are not falling into the trap of sunk cost fallacy.
If you decide to go and watch since you do not want to waste your invested money, you are in the trap of sunk cost fallacy.
Similarly,
In a stock market, our tendency to average the stock, which is continuously falling. That decision is sunk cost fallacy. We hope that we recover the past investment.
Most of us get into this sunk cost fallacy in decision making, not only from a money perspective, even from the time and efforts we spent on something in the past. That is why in the organization, we use to justify some of our people's mistakes and build decisions over them repeatedly because we have invested our time and effort with them.
Why do we get into this thinking trap?
Internally, we do not want to admit our mistakes or accept the failures and try to cover up the old errors with new efforts or decisions. That is the nature of us.
How to overcome this thinking trap?
1. Even smart, logical decisions sometimes go wrong. Failing is not a sin, but building over the past mistake and making decisions to cover up may lead to blunders which we can avoid with awareness. We need to accept the failures as part of our decision-making process in personal and professional life.
2. Reward yourself and your team for the process of decision-making with available data then, rather than punishing for the outcome. We need to realize that we are making judgments based on some assumptions, and the outcome depends on the various factors. The ability to distinguish between the process and result will help you accept some of the failures in the decisions.
When we make decisions, we are driven by various emotions and need to be aware of those emotions to make better decisions. Awareness is key.
Let us discuss some other thinking traps next week.
Have a great week ahead!
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