Decision Making

by Ian Moore

Five tips for better decisions

1. Intuition is not always right

  • A cup of coffee and a biscuit costs £3.30.
  • The coffee costs £3 more than the biscuit.

How much does the biscuit cost?

Intuition says 30p, but does it add up?

(If the biscuit costs 30p, then the coffee must cost £3.30! So the biscuit costs 15p.)

Tip

Try to notice conflict between your intuitive decision making and your rational decision making.

Double check intuitive decisions by rational reasoning.

2. Too much data

Does the diagram appear to move?

Too much data can overload our brains.

Tip

Try to reduce the amount of data needed to make a decision.

3. Emotion versus rationality

Someone is given £10 and has to make you an offer of some of the money.

  • If the offer is rejected, both of you lose everything.
  • If the offer is accepted, you both get the agreed amounts.

What would you accept?

(Most people will reject offers of less than £5.)

Tip

Try to remove emotion from your decision making.

4. The framing effect

You are thinking of betting £1 on the toss of a coin.

  • You are told that if you get it wrong, you will lose £1.
  • Or, you are told that if you get it right, you will win £1.

Do you think these statements will affect your decision?

(Fewer people bet when they are told they might lose, more people when they are told that they might win.)

Tip

When trying to make a decision, reverse the question, and see if that makes a difference to your decision.

5. The utility of money

Our perception of the utility of money is not linear.

If you had a 100 per cent chance of winning £1500 or a 50 per cent chance of winning £3000, which would you choose?

Tip

Think about what your decisions would be if the consequence were bigger or smaller.