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Friday, February 26, 2010

I was reading HBR this morning when I came across a small article by Dan Ariely (I am a big fan). In the article Ariely states that being in an emotional state can cause people to make bad decisions before and after the fact. He backs this up with an experiment:

Participants watch a movie clip which puts them in a good or bad mood. Afterwards, they split $20. The rules of the split state that one participant picks an amount they are willing to give up. If the other participant rejects the amount, neither participant gets to keep the money. In other words, a $10 split is fair, but if the offer is $1 it might be rejected just to spite the unfair proposal. Rationally, any offer should be accepted (see pirate gold).

People in a bad mood are more likely to spite the offer. Fair enough. The interesting part is that a week later, if offered the same $20 split again, they will follow the same decision – rejection.

This makes sense to me because making a decision is difficult. Once a decision has been made, we tend to use that decision as a baseline. We need a reason to deviate. For example, a grocery store sells thousands of items, but how many are you interested in?

After reading the article, I got off the train and went to catch an underground. For over a year I caught this particular underground going south – but today I need to go north. I wasn’t thinking about it and I went the wrong way.

So here is what I find interesting: decisions are made based on previous decisions. The first time I caught that underground train it was difficult. I had to spend time reading signs and determining which direction I should take. After the initial decision, I no longer thought about. It became a habit.

Past decisions will only be re-evaluated if we can see and understand the mistake. In the case of catching the wrong train, the mistake will be obvious. ...but what if we were driving into work? How do we know we are taking the most efficient route? Most decisions we make are not made in the context of a feedback loop – or at least, the feedback does not indicate if our decision was optimal.

Therefore, the process for making better decisions is to recognize when you have made a mistake, admit it and move past it. For most people (myself included) it is difficult to admit previous failures. If I were offered $.01 of $20 I might very well reject it as being unfair. Is this a mistake? One the one hand, I have lost money. On the other, I have stood up for my principles. After the decision has been made, I am sure I would grow more confident in my decision.

It is naive to think that ego doesn’t affect your decision making. Once you have made a decision, to make the opposite decision later may mean you lose face. Also, it would be a confusing world if every decision we make had to be re-evaluated again and again. Trips to the supermarket would last for hours.

Another interesting point here is that when we talk about re-evaluating the decisions that have been made in the past, we are very close to talking about creativity. Seeing things in a different light. Not taking the same road twice. Exploring.

...and, of course, creativity is intelligence.

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