Before you make that big decision you may want to read this set of articles,
which will shed light on not only our decision-making blind spots and errors,but also
how to actually make great decisions.
Reams of research show that in general:
1) People assume when they decide on something and it turns out
well that they made a good decisionówhen it easily could have
been attributed to chance (luck).
2) People tend to overemphasize the importance of pain by about
2.5:1 in decision making.(People may not need to feel great but
they donít want to hurt at all.)
3) People rationalize their emotional decisions instead of making ra-
tional decisions.
4) People make their decisions emotionally when the answer to a
question or proposition isnít obvious.
5) People make their decisions impulsively,then stand by their impulse
as if the decision was made rationally.
6) People make their decisions based on their experience and not the
experience of the masses.
7) People make decisions based on the socioenvironmental frames
they put the decisions into.(A woman going to Planned Parent-hood
for counseling will get different advice than the woman
going to her conservative pastor.)
8) People tend to make decisions on their own instead of seeking the
counsel of numerous others who can give additional perspectives.
9) People are unaware of the enormous power of the actual words that
are used to ask the question,and how the phrasing can make an
enormous difference in the actual decision that is made.
10)People are unaware as to how the influence of specific questions
changes their minds unconsciously.(ìAre you sick of driving that
old junker?îversus ìAre you thinking of buying a new car?î)
11)People tend to avoid what they perceive as risky.
12)People tend to lack the skills to calculate the chances that events
will or wonít happen.
13)People tend to decide on the sure thing even when it doesnít make
real sense to do so.They will take a sure $100 instead of a 50ñ50
chance at $250,for example.)
14)People tend to make decisions without a solid understanding of
ìthe real-life likelihood of events.î(Read that as mathematics,sta-
tistics,and probability.)
Not only do most of us make lots of bad decisions,we also tend to
dramatically overrate our decision-making skills! We tend to remember
our good decisions and think weíre actually good at decision making.
But wait! It gets worse! We tend to overestimate everything about our-
selves from the income we earned last year to the grades we got in ele-
mentary school.Here are just a couple of examples of how people
perceive their judgment in the real world to be in contrast to how it
really is.
Ninety-six percent of all men rate their physical appearance as average
or better!
Ninety-four percent of all women rate their physical appearance as av-
erage or better!
What ís wrong with this picture? (Obviously only 51 percent are aver-
age or better.The other 49 percent are below average.)
Ninety-one percent of all business leaders believe they are good or
very good decision makers.
Eighty percent of businesses fail in the first four years.
Ninety percent of new products fail to make a profit.
What is wrong with this picture?!
Now,with these amazing facts behind us,it would seem that seeking
expert advice from your broker,your agent,your attorney,your therapist,
or your mom would be helpful (maybe),but donít get too excited until
you look at this:
Heres an example of how we tend to overrate expert advice:
About 20 percent of all stock mutual fund managers select stocks that
ultimately do better than the S&P 500 index,often called ìthe market.îIn
other words,only 20 percent of experts ,people paid millions of dollars
per year to beat the marketósucceed at doing so.Think about that.Given
reams of computer analysis,data,and information,a full 80 percent of the
worlds smartest professional investors cannot do better than the person
who claims to know nothing about the market and simply invests in the
500 companies in the S&P 500!
Why are these experts so poor at deciding what stocks to buy?
Past performance is not always an indicator of future results ...but
most experts still make investment decisions as though it is.
Most experts donít consider the factors that really will influence the
future. They believe their own publicity clips.
Millions of people buy lottery tickets every day.The lottery (like
Powerball) is one of the worst bets on the planet.The odds are 55,000,000
to 1 that you will loseóand,yes,eventually someone has to win,but letís
put those chances into perspective:If you have been struck by lightning 40
times or have died in 20 plane crashes then you might just be the person
to win the lotteryóthose are the same odds as winning the jackpot in the
Powerball game! The fact is that you arenít going to win the lottery and
neither am I.It is a terrible decision to buy a ticket.Just take your dollar
bill or $10 bill and burn it.Feel better? Ouch!
What about the easier lotto games? What about games where you
only have to match three numbers to win $500 for your measly $1 invest-
ment? From 000 to 999 there are 1,000 total numbers that can be drawn.
Your odds of winning therefore are 1 in 1,000.That means that on aver-
age for every $1,000 you spend on the lotto you will get returned $500.
You should get $1,000 for a winner but the government/lottery sponsor
is giving you $500.I donít know how much you earn,but a lot of people
make only $500 per week and itís worth considering that the govern-
ment,which regulates the lottery,is really extracting a ìstupid taxîfrom
those foolish enough to decide to play.Now,could you pick the winner
tonight in a 1 in 1,000 event and win the $500? Sure you could.Lots of
people will.But itís still a foolish decision to buy the ticket just because it
could happen.
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