For the last two years, I have spent part of my time in reading about how humans make decisions. I have bought books like Predictably Irrational by Dan Ariely, Thinking Fast and Slow by Daniel Kahneman, The Art of Thinking Clearly by Rolf Dobelli, Nudge by Richard Thaler and Cass Sunstien, Misbehaving by Richard Thaler and Decisive by Chip and Dan Heath. I’m yet to read Misbehaving and Decisive. I just thought to share what I have learned from the books.

Humans are thinking that they are taking rational decision in their life. Rationality is actually questioned by the books that I have mentioned above. Given a choice (imagine you are dieting), would you like to consume chocolate cake (your favorite one) or raw vegetables. You can pick only one out that. What will you choose? Both are available at free of cost. Will you pick up veggies or will you prefer chocolate cake?. Think about it. I don’t really know what you are going to pick up. Yet this is what you really face everyday, you want to work hard and reduce your weight and get fit.

What happens in reality is “You are tempted to eat that sugary juicy chocolate cake”, “You are not hitting the gym instead you hit that snooze button comfortably”. Your temptation and lack of self-control played its role and your behavior is not consistent with what you aimed for. This is called irrationality. Professor Dan Ariely says that we are “Predictably Irrational”. Even after understanding that our behavior is not benefiting us, we consistently behave irrational.

Is it just related to reducing weight?. No, it is seen in your everyday purchase, organ donation, stealing pencils from your office, picking up the college for your son/daughter, watching a boring movie and so on.

A simple example for your irrationality. Try to figure out the answer for this question.

In a lake, there is a patch of lily pads. Every day the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake?

What is your answer? Is it 24? If you got it as 24 then you are wrong, it is actually 47. The error that you made here is called SIMPLE LOGIC error. We do have two kinds of system in our brain, one is called SYSTEM 1 and another is called SYSTEM 2. The system 1 takes decisions really fast and it relies on intuition. System 2 takes decisions slow, it puts efforts in making a decision. What happened when you answered in this question? Your system 1 took over the charge and made a wrong decision. Like what you have done in case of consuming that chocolate cake even after knowing that you are dieting.

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People buy more when they pay by credit cards compared to hard cash. Because when you pay by hard cash you realize the money is going away from your hand but your won’t feel the same when you pay via credit card. How can you control this behavior?. Dan Ariely asks you put your decision on hold for sometime, think twice before you make a purchase. Yet another solid idea to Nudge you is put your credit card in a tumbler filled with water .  Now freeze it.

What will happen when you freeze it, if you want to make any purchase by credit card you will have to pull it out before you go to the shop. You will have to wait for sometime to get your card out, this process will make you to think and take a decision. Likewise any decision are to be taken slowly not soon.

Can I make all the decisions slowly? Is System 1 is always flawed? No, not at all. Have you seen rapid fire chess, how do they play it? It requires immediate decisions to be made. So you can’t wait for your System 2 to respond. If you want System 1 to take right decisions you need to train them. Chess players practice everyday, that experience will train their System 1. Now if they need to decide on the next move they need not to rely on System 2. There are some factors that hinders our decision like lack of time, more choices, influence from friends, family, marketers, and so on. Let me give you one example on choices here for you to read.

Sheena Iyengar did a classical study on how choices affect our decision. 24 varieties of jams were kept for tasting in a store, what people have done is that everyone tasted jams kept in the display but the sales was low. Then she kept only 6 varieties of jams in the display for tasting. What happened? Sales improved dramatically. This says that when we are overloaded with choices we are getting a choice conflict. At this moment we are paralyzed to take any decision.

This choice conflict hampers our decisions. For customer less is actually more ( from the business perspective).When you are given with “n” number of choices your System 1 will help in taking a decision, you will see what was the brand you bought last time, your experience, your family and friends choice will help in taking a decision. Yet by relying on the System 1 you may lose a valuable product in the store. A new product with cheap price will also be available we will not take risk in buying it. Why? Because we are actually risk averse. Most of the times we tend to take a decision that is safe to us.

There are so many studies done on how we take decisions in real life and in business situations too. Experts have written books to account all these biases. Rolf dobelli has accounted around 99 biases in his book. If you are a beginner and want to learn about the mistakes you make in your daily life, I would suggest you to read that book first. You may start reading other books later on. Want to learn harder? I would suggest you to take up the course run by Dilip Soman in Edx titled “Behavioral Economics in Action”.

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