Effective at Personal Decision-Making

Last week, I presented the topic of Behavioral Economics, recommending to slow down our decision-making and establish decision criteria beforehand to minimize bias. This week, I'll explore personal decision-making, as it is often recurrently irrational, and next week I’ll do the same for decision-making at work.

Where to attend college? What to major in? What job to take? Should I get an MBA? Which city should I move to? Is this the right time to get married? - Many of us have faced these, but… how can we make these decisions effectively?

Effective at Personal Decision-Making

Bad decisions can often be traced back to lack of planning or due diligence. We don't always evaluate options thoroughly, seek opinions, or consider all outcomes. According to a survey, 81% of Americans chose their college major based on passion rather than income potential, but 6.2 out of 10 later regretted their decision, and 65% ended up in unrelated occupations.

[Note to self: I am adding "Effective decision-making" to the curriculum of my fictitious "Things they should teach in schools (but don't)" Program. Also included: Personal Financial Planning, Time Management, Sales, and many more!]

But, our own cognitive biases can also sabotage us. Just like Daniel Kahneman explained, status-quo bias incentivizes staying put and not make any decision, confirmation bias encourages us to seek evidence confirming our initial preference, and optimism bias makes us think negative outcomes won't happen to us (e.g. over-costs when doing a house project).

Emotions can also influence our decision-making. The "Somatic Marker Hypothesis" proposes that bodily sensations (somatic markers) influence our decisions as they can be associated with external events. I guess that's why they say never to go grocery shopping while hungry.

How to make decisions effectively?

I am sharing three tips that have helped me greatly:

1. Know your decision-making style. Take this Problem-Solver Profile (PSP) and determine your archetype (adventurer, detective, listener, thinker, and visionary). Then, play to your strengths and mitigate blind spots. [This test is only eight questions but does require to create a login].

2. List the important criteria in advance. This case study impacted my decision-making. It shows a person who had to choose job offers, and acknowledged he would be biased after the interview processes. So, he selected the criteria that is important to him beforehand and have it a weight (all criteria added to 100%). After receiving offers, he evaluated each one by giving a score of 1 to 5 (best to worst) per criteria. The lowest score was his “logical” decision.

[I have used this framework to choose jobs and even where to move during the pandemic. Sharing my personal example].

3. Apply second-order thinking. Some decisions may not benefit our present (first-order) selves but greatly impact our future (second-order) selves (e.g., working out, eating healthy). How to overcome this? Use one of the following:

• Fake make a decision: Write the email accepting one option (but don't send it). See how you feel in the following days - any regrets?

• Ask others who've gone through similar decisions: Ask about their greatest surprises as time passed, not necessarily for recommendations.

• The 10-10-10 Rule: Create a table with columns for 10 minutes, 10 months, 10 years. List how each option affects important areas (family, health, finances, etc.) across these time frames.

Deciding to end it here,

Jorge Luis Pando

"In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing." - Theodore Roosevelt

PS: I am a “Thinker” according to the PSP test. What did you get?

Reply to this email with your result, or click on the web version (link above - top right).