Every day, we are faced with a multitude of decisions. Some are minor, like what to have for breakfast, while others can have significant impacts on our lives. These decisions involve taking risks, and how we navigate these risks can greatly influence the outcomes of our choices.
Common challenges in decision-making
When making decisions, we often encounter several common challenges. One such challenge is narrow framing, where we limit the options we consider. This can lead us to overlook potential solutions or make decisions based on a limited set of choices.
Another challenge is confirmation bias, where we seek out information that supports our existing beliefs. This can lead us to ignore or dismiss information that contradicts our assumptions, increasing the risk of making decisions based on incomplete or inaccurate information.
Short-term emotion can also sway our decisions. Decisions made in the heat of the moment can often lead to regret later on.
Lastly, overconfidence can lead us to have too much faith in our predictions, leading to decisions that do not adequately consider potential risks or unexpected outcomes.
Limitations of traditional decision-making approaches
Traditional decision-making approaches, such as the pros-and-cons list, often fail to address these challenges. They do not encourage us to widen our options, test our assumptions, attain emotional distance, or prepare for unexpected outcomes. This can lead to a skewed risk-reward trade-off, where the potential rewards of a decision are not adequately weighed against the potential risks.
A better risk-based approach to decision-making
To combat these challenges and manage risks more effectively in our day-to-day decisions, we can use a risk-based decision-making approach. This simple approach involves widening our options to avoid narrow framing, reality-testing our assumptions to avoid confirmation bias, attaining distance before deciding to manage short-term emotions, and preparing to be wrong to manage overconfidence.
Reality-testing assumptions, for instance, is a risk management technique used by the CIA and risk managers worldwide. Known as the ‘assumptions check,’ it involves actively seeking out information that challenges our assumptions, helping us to avoid the confirmation bias and make more informed decisions. Once done, we often realise that many assumptions are not set in stone and multiple scenarios are plausible. Calculating few scenarios instead of one and thinking the course of action under multiple scenarios is a great first step to better risk informed decision making.
This risk-based approach to decision-making can help us make better, more risk-aware decisions in our everyday lives. It encourages us to consider a wider range of options, seek out diverse information, manage our emotions, and prepare for unexpected outcomes.
So, are you ready to take a new approach to your everyday decision-making? How will you apply these techniques to make better, more risk-aware decisions? Share your thoughts and let’s start a conversation that could change the way we all make decisions.