What Influences Your Decision Making?

Imagine you are in a mall looking to purchase a shirt for your birthday. It would be practically impossible to research each brand of apparel and compare their information, right? Comparing clothes between just two brands is tiring enough, especially when you are trying to compare hundreds of them. You just don't have the time. Instead, you'd probably associate 'soft' with cotton, find a  shirt that says '100% cotton' and purchase it as soon as possible. You found something that met the criteria for 'soft' in your mind, selected it and moved along without even knowing whether the commodity you purchased was even the best choice or not. 

All consumers present in the market are on an information overload. We are constantly subjected to advertisements on phones, radios, televisions and all sorts of electronic devices. We are always being told what to buy, when to buy, what's on sale, current fashion trends, stock prices etc. So whenever it comes to take simple decisions such as what to purchase in a grocery store or a super market, we don't intend on spending a lot of time on these decisions and so we simply go for something that fulfils the criteria of being 'good enough'. And this is what Bounded Rationality is. According to Herbert Simon, Bounded Rationality means that people are not inclined to gather all of the information required to make a decision. This happens due to the fact that people are incapable of getting all the information available out there and even if they somehow mange to gather this information, they are incapable of grasping it completely. As a result people are more likely to pick something that barely meets one or two of their criteria's. 

UNDERSTANDING WHAT INFLUENCES DECISION MAKING

There are several factors that influence decision making, few of them include past experiences, a variety of cognitive biases, an escalation of commitment and sunk outcomes etc.

Past experiences tend to impact future decision making. It stands to the reason that when something positive results due to a previously taken decision, people are more likely to decide in a similar way given a similar situation. On the other hand people also tend to make sure that they don't repeat the mistakes done in past. This is significant to the fact that the future decisions taken based on past experiences might not be the best decisions. 

In addition to these past experiences several cognitive biases also affect human psychology and decision making. Cognitive biases are basically thinking patterns based on certain observations and generalisations that may lead to memory errors, faulty logic or inaccurate judgements. Some of these biases are belief bias; the over dependance on prior knowledge in arriving at a decision, hindsight bias; people sometimes explain an event as inevitable once it has happened, omission bias; people have a propensity to omit information perceived as risky, confirmation bias; people tend to observe what they expect in an observation. In decision making, cognitive bias influence people by causing them to over rely or lend for credence to expected observations and previous knowledge, while dismissing observations that are perceived as uncertain, without even looking at the bigger picture.

Peoples decision making might also be influenced by an escalation of commitment and sunk outcomes(unrecoverable costs). People sometimes make decisions based on irrational escalation of commitment meaning investing large amounts of time, money and efforts into events they are committed to. Then people also continue to take risky decisions when they feel responsible for sunk costs, time, money etc spent on a project. 

CONCLUSION

We are living in an ever changing environment with a lot going on around us. Due to this we often find ourselves short of time and try to do things in the most time conserving way possible. If one wants to buy a new refrigerator, he/she will simply go with a refrigerator that is simply 'good enough' for him/her. But remember this 'good enough' is not necessarily the best option at hand but rather the quickest one available. These facts make it a necessity to study the concepts of Bounded Rationality to understand what is affecting your decision making and to have a clear distinction between what is rational or irrational.