Ling- English Management

We’re all rational decision makers? Think again.

We say we make decisions based on an assumption of a rationality that maximizes. In reality, we are imperfectly rational creatures who make sub-optimal decisions. Time to re-visit our assumptions.

The model of rational choice makes several assumptions. It assumes that our goal is to maximize self interest. It assumes that different dimensions of our decisions are “commensurable” (that is, comparable on a common scale—say a “utility” scale). And it assumes that we act with complete information and can meaningfully assign probabilities to every outcome. (…)

What modern research tells us is that we are imperfectly rational in two different respects.

  • One is that we do the “math” wrong; we are bad at thinking about uncertainty and at creating relevant and accurate spreadsheets in our heads.
  • The second is more important: we often want the wrong things.

We mispredict how much satisfaction, or utility, a given outcome will give us. We discount future consequences of decisions too steeply (and thus eat and spend too much, and exercise and save too little). And we mispredict how long a given decision will satisfy us. That is, we tend to ignore the fact that we get used to good things so that they provide us with satisfaction for a much shorter time than we imagine.

The model [of rational choice] is not fine. Virtually all of the assumptions built into it about human beings and the world are false:

It assumes that people are self-interested. Well, yes and no. Self-interest is certainly part of what moves us, but we are also interested in the welfare of others (…), and even the world. And we are also interested in doing what’s right (…).

It assumes that there is a common scale of value on which everything can be compared. There isn’t. Sure, we can assign value numbers to things like salary, colleagues, being close to our families, and the like, but in doing so, we are only kidding ourselves that these numbers actually represent a common underlying metric. Tradeoffs are hard to make, and often can’t be made formulaically. (…).

It assumes that we can attach meaningful probabilities to outcomes. Sometimes we can, but life is not a roulette wheel or a series of coin flips, in which probabilities are well defined. The world is a radically uncertain place, and we deceive ourselves if we think we can always attach numbers to our uncertainty.

via Barry Schwartz.

By Richard Brisebois

I help companies develop their leaders. I help managers develop themselves and their teams.
Richard Brisebois is a leadership development professional who has worked with 7,000+ managers, leaders, and business owners in 40+ countries, from Fortune50 executives to SME business owners and tribal leaders. He specializes in designing and facilitating leadership development programs as well in team coaching.