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Last Updated on January 12, 2021

How People Make Decisions That Are Bad For Them

How People Make Decisions That Are Bad For Them
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He looked shocked.

I was having a conversation recently with a guy who was telling me about his nephew, a high school senior. “He should be an engineer,” the guy told me. “Engineers make great money. The job market for engineers is good. My nephew should definitely become an engineer. Don’t ya think?”

“No,” I said.

(That’s when he stared at me, stunned).

“What?” he replied.

“No,” I repeated. “I don’t know your nephew. What are his strengths?”

“His strengths?”

“Yes, his strengths. What are his strengths, his gifts, his passions? What is he interested in?”

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“Passion?” The guy scoffed. “Nobody chooses a job based on PASSION!”

I calmly replied, “It’s important for him to discover who he is…what his strengths, passions, and interests are…” and he looked at me like I was speaking gibberish.

I haven’t seen the guy again, and am not sure which career path his nephew will choose. But I know one thing for sure: if the nephew doesn’t understand himself, and if engineering doesn’t align with his strengths, passions, and interests, it might not be a great decision to become one.

We’re all guilty of making bad decisions. These decisions can greatly affect the course of our life. Whether we get involved in relationships that aren’t good for us, choose a career that doesn’t light us up, neglect our self-care repeatedly… we make bad decisions at times.

Why So Many People Make Bad Decisions

Making bad decisions can drastically change your life, leaving you unfulfilled and dissatisfied. When people make recurring poor decisions, they may not reach their potential.

People make bad decisions for many reasons. Their mindsets, lack of self-expertise, and following societal norms are three of the reasons they make poor decisions.

Your Mindset Determines the Quality of Your Decisions

Mindset, according to Merriam-Webster, is a mental attitude or inclination. It is important to recognize that your mental attitudes and inclinations are present and can greatly affect your ability to make decent decisions. Living your best life starts with your mindset. If you think small, make decisions based on limiting beliefs, and consistently avoid taking meaningful action due to fear, you will never reach your full potential.

Jim Taylor, PhD, explains cognitive biases as:[1]

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“the tendency to make decisions and take action based on imited acquisition and/or processing of information or on self-interest, overconfidence, or attachment to past experience.”

He describes many cognitive biases. One bias, the myopia bias, he explains, is when you

“see and interpret the world through the narrow lens of your own experiences, baggage, beliefs, and assumptions.”

The homecoming queen/king bias, Dr. Taylor writes, is when you “act in ways that will increase our acceptance, liking, and popularity.”

When you make decisions based on your cognitive biases, your choices aren’t always wise. It’s important to realize your mental inclinations are present.

Understand Yourself, but Don’t Let Your Feelings Lead You Astray

If we aren’t self-experts, it’s hard to make good decisions. Lions are amazing, strong, powerful, majestic animals. They know where they belong in the food chain, and they know where to live. They know how to hunt and how to act. However, what if a lion didn’t understand this, and attempted to live in the ocean? Surely it would NOT thrive in the ocean. The same goes for us. If we don’t understand who we are at the core, it’s hard to make the best choices that enable us to fully thrive.

When you understand yourself, you are better equipped to make good decisions. This does not, however, mean that you should always make decisions based on “how you feel.” In fact, making decisions based on your feelings can sometimes significantly restrict your growth.

For example, recently I was asked to speak to a group of business professionals. While I’m an extrovert and love being around people, and am very comfortable working with my coaching clients from around the world, standing in front of a crowd as a speaker is currently out of my comfort zone. My immediate response was discomfort, but I said “yes” to the invitation. Why? Because speaking is one of my goals, and I know as I move toward that goal I will be uncomfortable at first.

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Stepping out of your comfort zone is necessary in order to experience growth. As Brian Tracy says,

“Move out of your comfort zone. You can only grow if you are willing to feel awkward and uncomfortable when you try something new.”

Following Societal Norms Can Lead to Bad Decisions

Societal norms affect people’s choices every day. The people you spend time with and society in general often influences the jobs you choose, the hours you work, the level of success you reach, your habits, and everything from your worldview to your view of what a “good” relationship with your significant other is.

Blindly following the crowd can cause you to live an unfulfilled life. Just because everyone you know works 9-5 in an office doesn’t mean that’s the best fit for you. Just because everyone you know has their kids in a bunch of activities doesn’t mean that’s the best plan for your family.

How to Make Great Decisions That You Won’t Regret

Three keys to consistently making great decisions are being aware of our mindsets, understanding ourselves, and making decisions intentionally instead of passively following the crowd.

Be Aware of Your Mindset

It is important to understand that your mindsets can lead you to make poor decisions. Success starts between your ears, with your mindsets. People often avoid making positive changes in their lives and doing big things because they believe achieving their biggest dreams is not possible for them. They settle for less than their full potential. Many people have an internal dialogue that is less than friendly toward themselves.

Start paying attention to your thoughts. When you think about achieving a big goal you have, what thoughts do you have? Are you encouraging toward yourself? If you discover that your self-talk is discouraging, work on modifying your thoughts. For example, if you think, “I can’t start a business; I don’t know how,” modify that sentence to “I don’t know how to start a business right now, but I can learn.” If you think, “I can’t lose weight; I failed last time I tried,” modify it to “I didn’t achieve my goal last time, but this time I’ll do x,y, and z to get great results.”

One way to minimize the risk of making poor decisions due to your mindset is by collaborating with an expert on your decision, or learning from people who have already done what you aspire to do. For example, when making career decisions, you can hire career counselors or executive coaches. If you want to retire when young and travel the world, learn from people who have done exactly that. Learning from experts and mentors who have achieved what you aspire to do can help you stay inspired and encouraged.

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Become Self-Experts

Becoming self-experts is an important key to making good decisions. When you have a strong understanding of your strengths, your priorities, and the impact you want to make on the world, you can make purpose-driven decisions and live more fulfilling lives.

I highly recommend the book, Strengths Finder 2.0 by Tom Rath. The book helps people discover 5 of their strengths. Having a strong understanding of your strengths can help you choose a career path that allows you to maximize those strengths, rather than choosing a career that isn’t a good fit for you.

Make Decisions Intentionally

Being intentional with your decisions rather than passively following society’s recommendations for your life can help you make choices that align with what matters most to you. Pause to reflect and think about why you’re making the choices you’re making. Are you living your life in a manner that enables you to become the best version of you, and make the impact on the world that you are here to make? Or, are you living the life that society wants for you?

One simple step to being more intentional in your life is to write out a tentative schedule for your day. When you tell your time where to go, it can help you minimize time spent on time-sucking activities that don’t align with who you most want to be.

Also, as Jim Rohn says,

“You are the average of the 5 people you spend the most time with.”

Being intentional with who you spend time with can also steer you toward better decisions.

Although nobody’s perfect, and nobody has a perfect life, working on these strategies can help you make better decisions, leading to less regrets and a more fulfilling life.

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Reference

[1] Psychology Today: Cognitive Biases Are Bad for Business

More by this author

Dr. Kerry Petsinger

Entrepreneur, Mindset & Performance Coach, & Doctor of Physical Therapy

5 Ways to Accomplish Your Biggest Goals to The Fullest 5 Keys to Discovering Your Life’s True Mission Don’t like your job? Here are some solutions. How People Make Decisions That Are Bad For Them How to Find the Purpose of Life and Start Living a Fulfilling Life

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Published on August 2, 2021

What Is Loss Aversion And How To Avoid This Bias

What Is Loss Aversion And How To Avoid This Bias
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Have you been feeling particularly cautious lately? Do you find yourself avoiding making major or seemingly risky decisions until you feel life has returned to “normal”? This isn’t unusual, and you are not alone. In these uncertain times of the COVID-19 pandemic, people would rather stick with what they perceive as safe. They veer away from making any sudden changes that could rock the boat and resort to loss aversion instead.

After more than a year of having to take drastic measures to secure our safety as well as those of our loved ones, it’s not surprising to find that some people would choose to hunker down even when faced with issues that don’t pose any mortal danger to them.

The pandemic has challenged us to become more resilient—a good thing—and even pick up an additional useful skill or two.[1] However, the flip side presents us with a potentially unfortunate side effect—that it could have altered our risk-taking behavior.

Read on to learn what loss aversion is and how you can avoid this bias.

Taking Risks, Making a Change

Why is it important to have a healthy view of risk? Shouldn’t we approach life with caution to avoid making mistakes?

I would say that, indeed, making careful, decisive choices will yield great results, so long as you can identify the line between being reasonably cautious and being downright fearful. There are also certain patterns in decision-making that you must watch out for.

To illustrate further, I present you with this example: Let’s say you meet a kind stranger who offers you your choice of a great deal with absolutely no tricks. He gives you $45. Then, he asks you if you want to hold on to the money or give it back to him in exchange for a coin flip. If it’s heads, he’ll give you $100 right then and there. If it’s tails, you get nothing.

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So, which one do you choose? Instant cash in your pocket or a chance to flip the coin? Think hard before you read further.

When I present this coin scenario to different audiences, about 80% say they’ll take the $45 from the stranger. That’s the choice I made when I was also presented with this scenario many years ago. The same can be said for most people in studies of similar choices.[2] And why not? The $45 is a sure thing, after all.

Back then, I thought that I’d certainly feel foolish if I took the risk just for a shot at getting $100 only to lose out. My gut instinct told me to avoid losing. I suppose anyone would feel the same way initially.

Here’s the thing, though. If we run the numbers, the chance of getting heads is 50%, so in half of all cases, you’ll get the $100. In the rest of the cases, you won’t get anything. So, that’s equal to $50 on average, compared with just $45.

Now, imagine if you flipped the coin 10 times, then 100 times, 1,000 times, on to 10,000 times, and then 100,000 times. At 100,000 times, on average you would win $5 million if you picked the coin flip for $100 every time, compared with $4.5 million if you picked $45 each time. The difference is an amazing $500,000.

This means that picking $45 as your gift from the stranger leads to you losing out. The correct choice—the one that will mostly not lead to you losing—is to pick the coin flip. Pick the other choice and you’re pretty much guaranteed to lose over multiple coin flips.

However, you might reason out that I presented the scenario as a one-time deal and not as a repeating opportunity. Perhaps, you’d say that if you knew it was a repeating scenario, then you would have picked differently.

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The problem lies with this: studies have shown that our gut addresses each scenario we face as a one-off.[3] In reality, we are presented with a multitude of such choices every day. We are goaded by our intuition to deal with each one as an isolated situation. However, these choices are part of a broader repeating pattern where our gut pushes us towards losing money. We avoid risks—fearful of losing—and end up losing in the end.

Why Are People Afraid to Take Risks?

We are prone to shying away from risks due to a mental blindspot called loss aversion.[4] This is one of the many dangerous judgment errors that result from how our brains are wired—what scholars in cognitive neuroscience and behavioral economics call cognitive biases.[5]

Research has shown that people are more sensitive to possible losses than potential gains.[6]

Loss aversion goads us into having an unhealthy view of risk, causing us to have a knee-jerk and one-size-fits-all approach to risk-taking, which is to outright reject it. This rejection runs counter to the resilience and flexibility we gained during these uncertain times. It also poses a threat to how we can continue to adapt to the shifting nature of this pandemic, as well as how to smoothly transition to a post-COVID life.[7]

The Sweeping Influence of Loss Aversion

It’s easy enough to think that loss aversion only comes into play during major decisions or turning points. However, we are presented with a multitude of similar choices daily that—much like in the coin-flip scenario—represent a broader pattern that could cause us to lose out in life.

Remember that loss aversion isn’t just limited to decisions that have a corresponding monetary result. It also applies to situations and circumstances where avoiding a possibly negative outcome might blind you to potentially positive changes in your life.

Here are some aspects of life that can easily be derailed by loss aversion.

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1. Exiting Toxic Relationships

Have you ever stayed in a relationship (romantic or otherwise) that has clearly already run its course? Perhaps this relationship already causes you distress or keeps you from reaching your personal goals.

Yet, despite indications that you would have a healthier, happier life without this stressful relationship, you find it difficult to walk away because of the disruption it would cause in your life. You worry about the loss of your routine, and this holds you back.

2. Making Much-Needed Career Changes

People are particularly cautious about making career changes especially during this pandemic, opting to “wait it out” and just trudging on until life returns to “normal.”

We need to remember that we may never get back the version of normal that we had pre-pandemic. Just as the world changed and readjusted to COVID, so did each individual, and so did employers.

Jobs and employment are constantly shifting and evolving, more so now than before, so you have to weigh and consider if the loss of an old job is truly that daunting versus transitioning to a new career that could enrich your life mid- and post-pandemic.

3. Dealing With Your Current Pandemic Life and Looking Forward

Loss aversion can trickle down even to the smallest perceivable things in life. With our wariness of COVID-19 modifying our behavior when it comes to going out, physical distancing, and socializing, it’s perfectly understandable to someday come out of this pandemic more cautious, more health-conscious, and more aware of our security than we were before 2020.

However, as we start to consider what the world will be like after the pandemic, we should also plan our lives accordingly. This means that while our social and networking circles were forcibly shrunk in the last year, there is no need to let our lives deliberately stagnate for fear of leaving our comfort zone.

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It also means that, when the time is right, we must be willing to reintegrate our lives into a changed world and balance the risk with a potentially more meaningful life.

Conclusion

While it might seem daunting, looking ahead into the future calls for a reexamination of loss aversion. If left unchecked, it will keep you from living your best life as it goads you into focusing on what you could lose versus what you might gain.

With or without the pandemic, viewing risk with a steady perspective can indeed be helpful when weighing how to proceed with major life decisions. However, focusing too much on the risk may lead to abject fear, which can keep you from making balanced, decisive choices.

Identifying the repeated pattern of our choices and knowing how to tackle and transform each possible loss into a gain will go a long way in winning in life—with or without a pandemic.

More Biases That Unconsiously Affect Us Every Day

Featured photo credit: AJ Yorio via unsplash.com

Reference

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