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This blog is the first in a series of three this month based upon the topic of decision making. As humans, we believe we are generally rational but unfortunately we are far from the ‘rational being’ that traditional economic theories suggest. In fact, 90% of our thought processes are automatic. In this blog we’ll explore what makes us biased, the most common biases we are subject to in everyday life and what this means from an occupational psychology perspective.

Research into decision making and behavioural economics has found that human behaviour is characterised by cognitive biases and irrationalities. Traditional behavioural economics have come to conclusions by identifying patterns and trends that people have in common. Psychologists on the other hand come from an individual perspective and explore the degree to which individuals recognise these biases- some people will be more prone to them than others.

But what makes us biased and irrational? The answer is a combination of both our cognitive function and the techniques used to influence our behaviour and decision making.

The concept ‘Bounded Rationality’ coined in 1957 by Herbert Simon (an American political scientist and economist) refers to the limited resources that we as humans have when making decisions. It suggests that we are rational only as far as our resources permit. Not only are we often under time constraints, we regularly have limited information available regarding the decision (alternatives, consequences etc.) as well as limited capacity to evaluate and rationalise the information we do have. On the other hand, too much information can also be a problem- we are less likely to even make a decision (let alone a rational one) when there is too much information and choice available. Have you ever sat in a meeting with so much information you don’t even know where to begin? Think about that concept next time you have to make a decision at work; too much information is as bad as too little– and we have a limited time and capacity to understand it all. Be critical when deciding what information will inform your decision, think- will that bit of information add any value to the decision?

We are also biased by a series of mental shortcuts. Evolutionary psychologists argue that we have evolved over time to make best efficient use of our mental capacity which has led to shortcuts in decision making. Terrarium One example being Heuristics which are simple, mental rules and shortcuts that we have learnt to speed up the decision making process. Whilst they allow us to make decisions quicker, they often reduce the rational quality of decision making as well as limiting the information we process to consider a decision. Shortcuts can often mean we leave out important information- speed may be efficient but it is not always effective.

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Another bias that humans are regularly subject to is loss and risk aversion. As Kahneman and Tversky said “people don’t mind having, but they don’t like losing”. This concept has been researched in great depth and suggests that people have a tendency to strongly prefer avoiding a loss rather than obtaining a gain. Would you rather guarantee not losing £100 or take chance at winning £200? Evolutionary psychologists have claimed that this aversion to risks stems from a natural human instinct that has evolved over time. In decision making, this can have a considerable impact on one’s rationality; the avoidance of risk may seem like the best option and therefore chosen without consideration of whether it will provide the maximum value. Of course individuals are different, some more risky than others. Take a step back next time you’re making a decision and think- is this just a safe bet or actually my best option? An important aspect of risk aversion is framing which describes how options are presented; information can be manipulated to appear as a loss or gain, depending on the language used. A positively framed option opposed to a negatively framed one, is far more likely to be chosen, regardless of its comparable value!


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Kahneman and Tversky show the value people attribute to losses and gains

Irrational assessment is another form of human bias that leads to irrational decision making. Have you ever bought a more expensive version of something, assuming that the quality will be greater? It is that assumption that defines an irrational assessment. “Price equalling quality” is a heuristic that is embedded in many people’s decision making despite not always being the case. A non-biased and rational decision would involve assessing the difference in quality and definitively weighing up the cost implication of that difference to reach a decision that utilises cost and value. Sounds complicated right? We simply don’t have the time or capacity to evaluate a decision in that way every time. So despite thinking we are being rational- paying more for something doesn’t automatically mean it will be better (sorry!).

The biases we are subject to in decision making are often unconscious and used by marketers to influence our behaviour. Unfortunately, despite how incredibly powerful the human brain is, we do not have the capacity to make truly rational decisions every time. We have evolved to use biases in making the decision process more efficient. Look out for the second blog in this series which will explore how you can improve your decision making at work…

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