6 Sure Signs You Make Smarter Decisions Than Most People, Backed by Science

Unfortunately, we all regret certain decisions. We do our best to make smart choices, but still. One problem is that we are all, to borrow the title from one of Dan Ariely's books, predictably irrational. We're human. That's why we aren't always rational.

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 convertible makes them attractive to younger women.)

Here are some of the most common reasons why some people make poor decisions--and how you can make smarter decisions.

1. Loss avoidance.
   We all tend to strongly prefer to avoid a loss rather than to acquire a gain. (Put more simply, we're much more likely to want to avoid losing $100 than to want 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.)

That bias is understandable. A loss means giving up something I actually have. Not acquiring a gain means giving up something theoretical rather than actual. If I have a chance to make $100 but don't, that sucks, but if I have $100 and lose it, that really sucks.

The problem with loss avoidance is that it typically defaults to the status quo. Say you decide not to attend a networking event because you don't want to give up an hour of your time. Fine, but what if you might have met the perfect partner for a joint venture if you'd gone? Or say you decide you don't want to invest $20,000 in your business because you hate the thought of losing it. Fine, but what if you might have created a product line that would open up a great new revenue stream?
The key is to properly value the potential loss. Often, what we might lose isn't as valuable as we may think.

And think of it this way: You can recover from almost any loss, but will you someday recover from not having done everything possible to achieve your dreams?

1. Recall bias.
   Scientists call recall bias "availability heuristic" (which is a mouthful, and 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.

Part of the problem lies in our extraordinary access to information. Unlike in years past, when something happens, we know about it. So you read about one robbery in Ibiza and assume the island is unsafe--and you cancel your trip. Or you read one bad review about a caterer and decide that caterer is not worthy of your business--and you go with what is actually a poorer quality option.

And here's a further problem: The more inflammatory or sensational the event, the more you're likely to remember it, and the more weight you're likely to give it when you make a decision.

Recall bias says, "Well, I remember that...so this must be true."

But that doesn't mean this is the whole truth--or in any way indicative of a larger truth.

Always use what you recall as a springboard for doing more research to make sure you know everything you need to know, not just what you remember.

1. 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.

The same is true for Steve Jobs, who dropped out of Reed College so he could "drop in" on classes that interested him. It worked for him, but what about the thousands who don't finish college? Did they all become billionaires? Nope--but you never hear about them.

Michael Sheerer talks about how advice about commercial success distorts perceptions by ignoring all the businesses and college dropouts who failed. University of Waterloo professor Larry Smith says, referring to Jobs, "And what about 'John Henry' and the 420,000 other people who tried ventures and failed? It's a classic case of survivor bias. We make judgments about what we should do based on the people who survived, totally ignoring all the guidance from the people who failed."

The problem with survivor bias is that it doesn't really indicate whether a strategy, or a technique, or a plan will work--and especially whether or not it will work for you. Train like Usain Bolt and you probably won't become the fastest man in the world. Be as outspoken as Charles Barkley and you probably won't manage to be as widely liked.

Never base your plans solely on a blueprint that worked for an outlier. Work hard to know yourself: your strengths, your weaknesses, and what will make you happy.

Then you can determine the best path for you to take.

1. 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.

Anchors matter everywhere else, too. If six packs of Diet Mt. Dew are on sale but the limit is four six-packs per customer, research shows you're more likely to buy two or three six-packs even if you only came in the store wanting one. Or take pricing schemes: Many businesses offer a high-priced "premium" service simply to make a less expensive level of service seem like more of a bargain. "I won't spend $250 a month for that," you think, "but $175 looks like a deal for this."
Anchors are widely used because they're extremely influential. The key is to know what you're willing to pay, to know what you're willing to do, to know what you really want, and then stick to that. Forget any other cues intended to influence your decision.

After all, a Lexus IS at $38,000 isn't a better bargain just because an LFA costs $400,000. Every item, every service, every thing has an intrinsic value--especially to you.

Know that value before you start.

1. Not invented here.

This 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 every new idea...unless we found a way to make them think it was their idea. And sometimes we're guilty of it, too.

That's because NIH can infect anyone--especially leaders and business owners--since the root of all NIH evil is ego. The higher you rise, especially in your own estimation, the greater the risk of NIH infection.

If you or your business has a chronic case of NIH, here are a few antidotes.

Don't be distracted by the source. Employees at every level have good ideas. Assuming an entry-level employee's input is worthless is just as foolish as assuming your VP of sales always has great ideas. The same is true for friends, family, people you've just met.

The value always lies in the idea and the implementation of that idea--not where the idea comes from.

Don't be distracted by the industry. I learned more about increasing manufacturing efficiency from spending 30 minutes in a poultry processing plant than I learned from any formal process improvement program. (And I've been through, and led, a bunch of programs.)

Sometimes the best ideas are the ones you borrow from seemingly unrelated places.

Don't be distracted by your ego. Being in charge doesn't make you smarter, savvier, or more creative. Being in charge just makes you the person in charge. Leaders aren't granted a monopoly on great ideas.

Never hesitate to let others shine. The more they shine, the brighter they'll want to shine. Then everyone benefits--especially you.
So try holding an "invented elsewhere" session. Reinventing the wheel is time consuming, plus there's no guarantee of success. The next time you meet to brainstorm, tell your staff members they can only suggest ideas they've actually seen succeed somewhere else. That automatically removes NIH from the equation because any suggestions must have been invented elsewhere.

Never forget that great people, and great companies, adopt outstanding strategies and practices--no matter where they find them.

1. My side 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.

I think our product is great, so I'll look for data that supports my point and I'll ignore any data that doesn't.
Myside bias starts with forming a hypothesis--shark attacks are up, customers love your product, employees don't care--and then seeking out data to support that hypothesis. Even worse, the more strongly you feel about your hypothesis, the more likely you are to fall prey to myside bias.

The best way to avoid myside bias is to draw conclusions after you review data. Instead of assuming customers love your product, go into it with an open mind and see what all of your customers have said.

Then you won't be biased. Then you'll know--and then you can make a smart decision on what to do about what you know.

from Inc