The Psychology of Decision Making

Decision-making is a part of everyday life. From simple choices like picking out a snack to major decisions such as buying a house, the way we make choices is influenced by many psychological factors. One of the main areas studied in Cognitive Psychology is how the mind processes information to come to a decision. Cognitive psychology explores these decision making processes, and other factors that determine how we make decisions. Several models have been proposed to explain how we make choices. Let's look at some of the processes and models.

The dual-process theory says that there are 2 different systems in our brains that do our decision-making. System 1 is fast, automatic, and works without much thought. It’s like the autopilot of your brain. It helps you make decisions quickly, like choosing what to wear or deciding which route to take to work. These quick decisions are often based on habits, intuition, or past experiences. System 2 is slower and requires more effort. It’s used when we face a more complicated decision, like choosing which job offer to accept or deciding whether to move to a new city. These decisions require thinking, weighing pros and cons, and considering the long-term effects. We might take our time to research, plan, and analyze all the details.

Dual-process theory explains how most everyday decisions are made quickly and intuitively (System 1), but we use more deliberate thinking (System 2) when decisions are important or complex.

While System 1 helps us make decisions fast, it can also lead to mistakes. This is where heuristics come in. Heuristics are mental shortcuts or rules of thumb that people use to simplify decision-making. They help us make quick decisions without having to think too hard. However, relying too much on heuristics can result in errors in judgment.

One common heuristic is the availability heuristic, where people make judgments based on how easily something comes to mind. For instance, after hearing about a plane crash on the news, a person might start to feel that flying is more dangerous than it actually is, just because that event is fresh in their memory. This decision is based on the availability of information in their mind, rather than actual statistics.

Another common heuristic is the representativeness heuristic. This happens when we make decisions based on how much something resembles a typical example or stereotype. For instance, if someone meets a quiet, introverted person, they might assume that person is more likely to be a librarian than a salesperson, even though there are more salespeople in the world than librarians. This type of decision-making is often based on assumptions or stereotypes, not facts.

Overconfidence is a bias in which people tend to overestimate their own abilities, knowledge, or predictions. This can lead to poor decision-making because individuals may take on risks or make choices based on their belief that they are more capable or accurate than they actually are. For example, someone might be overconfident in their driving ability and take dangerous risks, believing they are unlikely to crash, even when statistical data shows otherwise.

Conditional reasoning involves making logical conclusions based on "if-then" scenarios. The "if" part is a condition that must be true for the "then" part to follow. For example: "If it’s raining, then the ground will be wet." Conditional reasoning helps us make predictions or understand relationships between variables. It’s commonly used in decision-making, problem-solving, and even in everyday conversations to express dependencies or causal links.

Deductive reasoning is a form of logic where conclusions are drawn from a set of general premises. It’s a top-down approach that moves from broad principles to specific conclusions. If the premises are true and the reasoning is valid, the conclusion must be true. For example:

• Premise 1: All mammals have hearts.
• Premise 2: A dog is a mammal.
• Conclusion: Therefore, a dog has a heart. Deductive reasoning ensures the conclusion is guaranteed (as long as the premises are correct).

Inductive reasoning is the process of making generalizations based on specific observations or experiences. It’s a bottom-up approach where you observe patterns or specific instances and use them to formulate broader conclusions or theories. Inductive reasoning is probabilistic, meaning the conclusions are likely, but not guaranteed to be true. For example:

• Observation 1: The sun has risen every day in my lifetime.
• Observation 2: The sun has risen every day in recorded history.
• Conclusion: The sun will rise tomorrow.

Hindsight bias is the psychological phenomenon where, after an event occurs, people believe that they "knew it all along" or that the outcome was more predictable than it actually was. This bias makes it harder for individuals to learn from their mistakes because they perceive the events as being inevitable, even when there was uncertainty at the time. It’s often summarized as the "I knew it was going to happen" feeling after something occurs.

These shortcuts can be useful but also lead to biases—systematic errors in judgment. For example, loss aversion is a bias where people tend to fear losses more than they value gains. This is why someone might hold onto a losing stock for too long, hoping to avoid realizing the loss, even when selling might be the better decision. Understanding these biases can help people make more rational decisions.

Emotions and Decisions

Many choose not to consider their emotions when making decisions, as they feel that it would lead them to be too emotional rather than rational. But our decisions are very much informed by our emotions too. Our experiences involve our emotions, which inturn will automatically be used by us to make our decisions.

Because of their automatic survival nature, and the speed at which the messages are being communicated to the brain, they may not be particularly accurate sometimes. Therefore it is also important for us to reevaluate them and check if the responses are appropriate to the situation. With that being said, emotions are still important for us to make a rational decision. They can either steer individuals towards or away from particular decisions. Positive and negative emotions will influence us differently.

Ways in which we can effectively use our emotions during decision making are to identify and understand these emotions that are coming in. Taking a moment to recognise and self-examine, can lead to healthy, well-informed decisions, rather than being biased only towards our emotions, and us making decisions based just on the survival nature of the emotions. The emotional brain will prioritise safety over being correct. Therefore, it is always wise to listen to the alarms and evaluate them as well.

High intensity situations will impact our ability to make decisions rationally. Strong emotions can easily make it challenging for us to think objectively and come to a sound decision. Therefore learning how to control our emotions becomes crucial in such situations.

What becomes important for us is to make sure our biases and past experiences don’t cloud our judgement. As important as it is to learn from the past, we should be able to separate the present from the past and focus on what is truly necessary, in order for us to make our judgements.

Emotional intelligence is key in navigating difficult situations and decisions. Emotional intelligence is the ability to recognise, label and manage our emotions effectively. Skills like self awareness, self regulation, empathy and social skills are important towards improving our emotional intelligence.

Focus on the big picture. When we expand our perspective, and focus on our higher purpose, we don't get distracted with minor issues. When decisions are driven by values, we can expect the best outcome.

Social influences also shape the way we make decisions. People are often influenced by the choices and opinions of others. This is called conformity or peer pressure. For instance, a person may decide to buy a new phone just because everyone else in their group has it, even if they don’t need it. The pressure to fit in or to make decisions that others approve of can strongly affect our choices.

Motivation and goals play a critical role in decision-making by influencing the direction and intensity of an individual's choices. Motivation serves as the driving force that propels a person to pursue particular goals, while goals provide clear objectives that guide decision-making processes. According to Locke and Latham's goal-setting theory, specific and challenging goals lead to higher performance because they increase focus and persistence . Motivation, particularly intrinsic motivation, has been shown to enhance cognitive flexibility and the ability to evaluate different outcomes, leading to more thoughtful decisions. Furthermore, goals help in narrowing down options and prioritizing alternatives, making decisions more efficient and purposeful. Overall, motivation and goal-setting work synergistically to influence decision-making by providing both the energy and direction necessary to reach desired outcomes.

Decision-making is a complex process influenced by many factors. Cognitive models, such as dual-process theory, expected utility theory, and the recognition-primed decision model, show that we use both fast, intuitive thinking and slow, deliberate reasoning to make decisions. While heuristics can help us make quick choices, they can also lead to errors and biases. Emotions, social pressures, and personal motivations also play significant roles in how we decide. By understanding these psychological factors, we can make better decisions in our everyday lives.

(All information in this article is Public Domain)

References:

• Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux.
• Lan, J. (2024). Emotional Influences on Individual Decision-Making: A Comprehensive Literature Review. Lecture Notes in Education Psychology and Public Media, 49(1), 142–148.
• Locke, E. A., & Latham, G. P. (2002, September). Building a practically useful theory of goal setting and task motivation: A 35year odyssey. ResearchGate.
• Sternberg, Robert J, and Karin Sternberg. Cognitive Psychology. Wadsworth, 2011.