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The illusions behind decision-making

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It’s not that you can’t trust your judgment. It’s that some of the decisions your brain’s frontal lobes come up with can lead you seriously astray. That’s why it’s important to pause, reflect, gather data and consult as widely as possible before you make a decision.

Here’s a sampling of the thought processes that can mess you up:

• One pitfall is “money illusion,” or people’s tendency to ignore obvious information about what things are worth. This happens when people remember what they paid for a house, for instance, while forgetting other prices of the time, leading them to overlook the long-term effects of inflation and to imagine that home prices have risen faster than everything else.

• A set of ancient, deeply embedded decision-making skills called heuristics give you rules of thumb you can employ quickly in a crisis—the idea being that measured reasoning isn’t an option if you’re facing a woolly mammoth. Heuristics also can be loosely defined as intuition or common sense—and they can be wrong.

• Another trap is confirmation bias,
in which people place too much weight on information that confirms their own points of view. In business, it’s called groupthink and the main reason you should surround yourself with people from diverse backgrounds, with varied talents and opinions, so that you aren’t blindsided by competitors or quick turns in the marketplace.

• Hindsight bias—the feeling that something was obvious all along—dogs decision-makers. This can be debilitating for leaders, so remember that the signals were never as strong as they appear after the fact.

• Even subtle emotional cues are now thought to have big effects. Recent research indicates that exposure to happy faces, as opposed to angry or neutral ones, more strongly activates a reward center in the brain and prompts riskier behavior.

—Adapted from “The Science of Economic Bubbles and Busts,” Gary Stix, Scientific American.

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