The Irrationality of Our Lives

I’m reading books right now about how we make decisions and how irrational we can be. I’ll share them with you here, and suggest you find time to read them. They are easy reads because, unlike many business books, they are full of  examples that make the ideas come alive with real world stories.

There’s some interesting research being done on decisions in the field of behavioral economics, which is a merge of psychology and business thinking. Apparently, we do not make decisions as logically as previously predicted by traditional economists.

In fact, we are predictably irrational when it comes to buying, investing, gambling, and goal setting. We make the same errors over again. The people who do experiments even have names for some of our common mistakes in judgments:

  • Negativity bias
  • Loss aversion
  • Arbitrary coherence
  • Value attribution

Could it be that our decisions and goals have been carefully crafted based on erroneous input? Have we made arbitrary decisions at some point in the past assuming they were wise, not knowing they were based on faulty thinking? And then have we stuck with those goals because we want to remain coherent to our plan?

Without engaging in self-doubt to the point of inertia, I think a certain amount of introspection is worthy once in a while. At least when we become aware of these vulnerabilities, we can avoid making even bigger mistakes.At the very least, we owe it to ourselves to take a look at our decisions and evaluate what worked and what didn’t. And when we make a poor decision we can learn where the vulnerabilities are.

Are we too strongly motivated by fear of loss? Does this cloud our judgment because we refuse to look at possible gains? Once we make a decision, are we stuck with it, and unlikely to reevaluate it? Or does it signal a cascade of other decisions based on our original thinking? Have you ever “thrown good money after bad?”

What’s been your experience?

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