19 Jan

Making Good Decisions: The controversy over reason versus emotion.

Perhaps because we live in a capitalist society, the heaviest focus on our ability to make good decisions, lies in the realm of economics. Nobel laureates ponder not just the basis for individual economic decisions, but also for those made societally—like those leading to the recent great recession. Robert Shiller, Sterling Professor of Economics at Yale, and a recent Nobel winner, readily acknowledges that there are vastly different opinions on whether economic decisions are made “rationally”, “emotionally”, or some combination of both. The bottom line: nobody really knows. But Shiller favors an approach that addresses the complexity of human behavior and motivation. I was glad to see he cites recent neuroscience evidence that both reason and emotion are utilized during the decision-making process. His conclusion: More work needs to be done. And he advocates involving other disciplines, including the social sciences.

If the finest minds in the world, working for decades, cannot understand how economic decisions are made, even when made by experts and large groups, what does this mean for the average person trying to live life contentedly and responsibly? The research confirms seemingly contradictory processes. One, most decisions are made unconsciously (intuition) and thinking too much about a problem usually leads to a worse outcome, including blatantly wrong conclusions. Author Malcolm Gladwell documented the research demonstrating the speed and accuracy of unconscious processing in his best-selling book, Blink. But if you read far enough into Gladwell’s book you will discover what Prof. Shiller talks about—that we have blind spots and distortions that occur, also mostly unconsciously, generating poor outcomes rather than positive ones. And this is the complexity Shiller addresses and Gladwell only glosses over. We basically can trust our intuition—except when we can’t. And we don’t know why.

Certainly greed and the desire for power are prime motivators for distortion and irrationality. But let’s set aside the hedge fund managers and investment bankers and concentrate on the everyday person in an everyday situation. Why does someone consistently do well at work, for example, and make excellent decisions, then choose to enter relationships that are consistently unsatisfying or even disastrous? Why does a talented leader do well in every aspect of management except for hiring new employees who appear great at first but almost always end up being fired? This is the type of complexity Shiller is talking about. Even people who do extremely well in most aspects of their lives and are highly intelligent and educated, will make bad decisions. Some make few, others make many. Why is this the case? And what is the potential for maximizing our good decisions and minimizing our not-so-good ones?

I believe the answer lies in understanding the values, emotional attachments, and personal preferences we learned early in life that remain with us. My next few blog posts will be devoted to exploring this subject in greater depth.

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