Of course, some decisions are more important than others, but decision-making often involves both conscious and unconscious thoughts. All humans are flawed when it comes to making decisions. Most decisions are subject to biases or are made using heuristics, essentially rules of thumb to make quick estimate answers. Heuristics are by no means systematic, but provide a practical solution to meet an immediate goal.
Increasing our understanding of biases and heuristics improves our ability to identify and minimise those that are a liability to decision-making. So with no further ado, its time to start the countdown!
1. Status quo bias
People generally prefer things to stay the same and look for decisions that involve the least amount of change. The status quo bias explains why statistically people are likely to favour a default option when overwhelmed with a number of choices.
2. Choice overload
Choice overload often gives us decision fatigue, which makes us more susceptible to heuristics and biases. Giving customers too many choices can result in unhappiness, as it often results in discomfort. For example, ordering food from a take away menu with too many items can result in choosing the same food as last time.
3. Endowment affect
The endowment affect is closely linked to the status quo bias. Once something is owned its value becomes much higher in value to the owner. Overvaluing a good that we own can explain why so many people find it hard to part with an item once they have established ownership of it.
4. Sunk cost trap
Have you ever ordered too much food at a restaurant and then over eaten to get your moneys worth? If so, you would likely have encountered the sunk cost trap. This is when we consider already invested resources when making decisions. Rather than only considering the future costs and benefits, we often consider the resources already invested.
5. Cognitive dissonance
Dissonance is a painful experience resulting from a lack of harmony. Cognitive dissonance therefore occurs when a person hold two thoughts which are psychologically inconsistent. Contradicting thoughts can result in irrational and biased decision-making due to the tension, which motivates people to seek harmony. High commitment purchases such as houses, cars or expensive vacations may result in high levels of cognitive dissonance. It is important to consider the impact of post purchase dissonance on customer satisfaction when marketing and selling products.
Overconfidence is one of the most prevalent biases in decision-making. As humans we like to create an illusion of control and overestimate the extent to which we can achieve certain outcomes. Overconfidence stems from exaggerating the amount to which you can control an outcome.
7. Over precision
Fuelled by overconfidence, we tend to be over precise in our judgments. This is particularly prevalent when we are making decisions that are outside of our areas of expertise. Allowing more margin for error can help to remedy the over precision bias, particularly in times of uncertainty.
The anchoring bias is the tendency to be unconsciously influenced by irrelevant numbers when making decisions. The anchor can be set internally from our own perceptions or externally from an outside source. The implications of anchoring on marketing can be substantial! For example, if you were to place a promotional sign limiting customers in a supermarket to ten cans of soup each, the external anchor would likely result in customers purchasing more cans than they had originally intended.
9. Confirmation bias
Confirmation bias is the tendency to focus on information that supports our beliefs rather than seeking information that contradicts it. One of the best ways to avoid confirmation bias is to deliberately seek out opposing viewpoints when making important decisions.
10. Availability heuristic
People will often make decisions based on the availability of information that comes to mind. If an event or outcome is easy to imagine, it is much more likely to impact decision-making. On the contrary, events that are difficult to imagine may also reduce the likelihood of the event occurring. A vivid experience can also alter a person’s perception and thus decision-making.
Current student in the Master of Marketing program at the University of Sydney Business School