Why do we sometimes regret a decision we've made?
The main problem is that we are all, to use the title of Dan Ariely's great book,predictably irrational. We're people. That's why markets aren't always rational. That's why consumers aren't always rational.
That's why some middle-aged men think buying a Porsche will make them attractive to young women.
Here are some common reasons why all of us make poor decisions and how you can avoid making those poor decisions.
1. Recall bias.
Scientists call recall bias "availability heuristic" (which is why I refer to it as recall bias).
Recall bias says that if you recall something, it must be important or at least more important than an alternative not as easily recalled. That means we tend to give heavy weight to recent information and form opinions and make decisions biased toward whatever is recent.
For example, if you read about a shark attack, you'll naturally decide shark attacks are on the rise even if no others have occurred in the past six months. It's recent, therefore it's a trend. Or if you read about fighting in Syria you might think we're living in exceptionally violent times, when in fact we're living in the least threatening period in history.
2. Survivor bias.
Survivor bias is focusing on people or things that "survived" while overlooking those that did not simply because they aren't visible.
For example, Ryan Gosling dropped out of high school when he was 17 and moved to L.A. to pursue acting. It worked spectacularly well for him, but what about the thousands of kids who drop out and move to L.A. in hopes of making it? Did they all become movie stars? Nope -- but you never hear about them.
3. Loss avoidance.
We all tend to strongly prefer to avoid a loss than to acquire a gain. (Put more simply, we're much more likely to want to avoid losing $100 than to make $100.)
How much more do we want to avoid a loss than acquire a gain? Research by Daniel Kahneman, author of the great book Thinking, Fast and Slow, indicates that losses are twice as psychologically powerful as gains. (I suppose that means a bird in the hand really is worth two in the bush.)
4. Anchor setting.
Anchors are often used in negotiations because the value of an offer is highly influenced by the first relevant number an anchor that starts the negotiation.
Research shows that when a seller makes the first offer, the final price is typically higher than if the buyer makes the first offer. Why? The buyer's first offer will usually be low and that sets a lower anchor. In negotiations, anchors matter.
5. Myside bias.
Myside bias is also called confirmation bias, but should be called "I'm really smart and let me show you why" bias. Myside bias is our tendency to look for and favor data that confirms what we already believe and to avoid or look poorly on data that goes against what we already believe.
So if I think customers love my new product, I'll pay close attention to feedback from customers who enjoy their experience and I'll ignore any data that shows customers are less than satisfied.
6. Not invented here.
This last one is based on a simple premise: "If I (or we) didn't think of it, it must be worthless." (A close cousin to NIH is AIBHLRIA!: Already Invented But Hey, Let's Reinvent It Anyway!)
We've all worked with people who hated any idea unless we found ways to make them think it was theirs. And we've all fallen prey to the same problem.
JEFF HADEN
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