How Do You Make Decisions?
Earlier this month we were pleased to host the first in our series of four interactive workshops with leading academics and practitioners aimed at understanding the fundamentals of behavioural economics, and the role they can play in how we make decisions, manage risk, and engage with technology in today’s fast paced business environment. During the first half of the session, the series main speaker, Dr Edmond Smith, Senior Lecturer in Economic Cultures at The University of Manchester, provided an overview of the topic and explored the main ideas from behavioural- and neuro-economics that have had a significant impact on how academics and thinkers approach decision making. Over time, there has been a shift away from the idea of presumed “rational” actors towards a wider analysis of all the emotional, social, and cultural factors that may influence the way in which people make choices or behave in a specific situation.
The second part of the session consisted of a workshop-style discussion led by our two panellists Bob Garratt, Director, Good Governance Development Ltd and Edward Sankey, BSc, MBA, FIO. Divided into two groups, the participants had the opportunity to reflect on practical examples of “irrational” business decisions during their careers and on which types of influence have had an impact on the way in which they have been making choices, in their everyday lives and in business alike. The discussion developed around a few of the key “biases” that are commonly used in behavioural economics to explain people’s decision-making processes. One of the main concepts that were explored was that of “bounded rationality” and the idea that all the decisions we make are inherently based on limited information. In other words, it is practically impossible to have all the data and insights needed, especially when we are dealing with future predictions in rapidly changing environments.
As a result of this lack of ‘perfect knowledge’ when it comes to making a decision, we might fall victim of a tendency to overestimate our level of knowledge on a specific topic, a phenomenon also called the “Dunning-Kruger effect”. Similarly, we may, often unconsciously, base our decisions on “heuristics”, mental shortcuts that use generalisations or rules-of-thumb that are not based on a deep analysis of the situation. A third example can be the choice to transfer the ‘responsibility’ to make a decision onto experts. Perhaps counterintuitively, this can also be considered as a factor in irrational decision-making due to what is called “authority bias”, whereby we trust a person because of their credentials or previous good advice, not because we are actually able to evaluate the validity and accuracy of the new advice they provide.
Following the group discussions, participants were brought back to the plenary session and had an additional opportunity to reflect on how these irrational processes and attitudes are a common part of their everyday decision-making process. The aim of the session was to move away from the idea that these are mistakes, and to accept that this is how we all reach decisions based on the influences that surround us. The upcoming workshops will continue to explore the way in which we make decisions, evaluate information and manage risk by providing different perspectives and tackling a wide range of related topics including bioengineering, artificial intelligence, neuroeconomics, and conspiracy theories.
In case you missed it, you can access the recording of this workshop here, and you can find a description of the whole of the Risky Business programme here.
