How the decision gurus choose

Eight academics who are experts in effective decision-making techniques discuss whether they deploy the same strategies at work and at home.

Dan Ariely, professor of psychology and behavioural economics, Duke University

When it comes to small decisions in life, Prof Ariely makes “the same mistakes that most people do”. The author of the best-selling book Predictably Irrational says it is very hard to be conscious of bias and stop it from influencing choices.

So even though he knows that a bottle of wine might look less expensive if placed next to a pricey one on a restaurant menu, the behavioural economics expert admits to being no less likely to pick it than anyone else.

In a deliberate effort to strip out bias and reduce the complexity of decision-making in his life, he says he has tried to set rules for his behaviour. One is that he can only eat dessert at the weekends. Yet even that is no guarantee of self-control. He travels a lot and could extend his weekend by several hours according to his timezone.

Faced with big decisions, Prof Ariely aims to think imaginatively.

When he bought a house he tried not to be governed only by financial considerations. Instead he decided on an area with a minimal commute because research told him that “people never get used to it” and if the journey is unpredictable it can cause real stress.

The house he bought needed a great deal of work done to it. Prof Ariely and his partner decided that rather than conduct a full overhaul before moving in they would make a change every six months.

“We wanted to see what we’d get used to,” he says.

The family have now lived there six years and have made two changes. One was among the alterations that they had predicted would be necessary, the other was not.

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Richard Thaler, professor of behavioural science and economics at the University of Chicago Booth School of Business

Nudge, the book Prof Thaler co-authored with Harvard Law School’s Cass Sunstein, has had a big impact on politicians. His work examines individuals’ choices, unpicking how in real life decision-making is not always rational and rarely follows economic models.

A good example, he says, is what economists call the “sunk cost fallacy”, which involves previous expenditure that cannot be undone, such as the purchase of a non-refundable airline ticket. Economic theory says that when making decisions, sunk costs should be ignored. If you bought a plane ticket for a weekend getaway and fell ill, you should decide on whether or not to make the trip according to whether the pleasure will exceed the incremental costs, not because the ticket has been paid for.

He says: “We build better economic models by realising that many people commit the sunk cost fallacy, but we should strive to avoid that mistake ourselves.” So even if he has paid for a fancy 10-course dinner he tries to stop eating when he is full.

The decision to become a “behavioural economist”, a field that did not exist at the time, was not based on a careful consideration of the expected returns, he says. He did it because he was intrigued and found it fun. “I was also bored with traditional economics so would probably have not been a success had I pursued that path.”

As for mistakes? “Not all research ideas are keepers,” he says, adding that ignoring sunk costs can help. “No matter how many years I have been working on some project, if it turns out to be boring, I drop it. But Daniel Kahneman [the Nobel laureate] claims that this is just because I am lazy.”

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Anil Gaba, professor of risk management and of decision sciences at Insead

Prof Gaba’s academic approach to decision-making blends the rational (economics and maths) with realism (based on psychology). This is something he applies to his own life.

As he has grown older, he says, he has become more sanguine about uncertainty and has a more realistic take on the role luck plays: doing well may be down to fortune rather than purely his own skills. Today he describes himself as a risk-taker.

“Uncertainty connotes negative things in people’s minds but it can be very positive. It would be very boring to map out with certainty the next 20 years of your life.”

After graduating, all he knew about his career was that he “did not want to work in the corporate world”. So he applied to Duke University only because his friend had a spare application form. Such a decision may be considered rash, he says, but it turned out well.

Gambling is an activity he enjoys both at the casino and stock market. “Someone studying risk sciences might put their money in a basket of stocks – it makes sense but it’s boring. I speculate knowing I could lose it all but could also do well.”

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Francesca Gino, professor at Harvard Business School, where she teaches decision-making and negotiation

At 18, Prof Gino wanted to become an architect. To do so she needed an engineering degree. But while rushing to take a test at the University of Trento’s engineering department she met an enthusiastic student who handed her a brochure for the economics and management programme. She enrolled for that course instead and her architecture career was over.

Prof Gino, author of Sidetracked: Why Our Decisions Get Derailed and How We Can Stick to The Plan, says people expect their desires to guide their choices like a compass.

“But the decisions we need to make to reach our goals are often sidetracked by subtle, unanticipated factors. Perhaps even more important, we are often unaware of why we made a decision that sabotaged an important plan.”

She could attribute the career switch to gloomy weather on the day she took the exam, or the student’s selling skills. It produced a good outcome for her but she says that is atypical: “Getting sidetracked can lead to unethical behaviour, poor analyses of existing information, inaccurate decisions, biased evaluation of others and low motivation. Reflecting on the forces that derail your decisions can help you to stay on track.”

Today she tries to weigh up important decisions carefully: analysing the alternatives, pros and cons. Too often, when making a decision, “we identify what we want to do and then ask people we know will support us in that decision whether it is the right path”. Instead, she talks to those who will ask tough questions.

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Nigel Nicholson, professor of organisational behaviour at London Business School and author of ‘The “I” of Leadership’

Prof Nicholson had been preparing for a career in journalism – just like his parents – but decided to switch to psychology after a year-long trip to India, which had prompted him to consider alternatives to this plan.

This personal experience, he argues, illustrates how anyone contemplating a change should talk to people outside their circle and go to places they have never visited.

One of the pitfalls of decision-making is self-deception, he says, adding that he still falls into this trap in his own life.

“The mind is very good at shaping our perceptions through prejudices. I’m aware of this but still get caught out.” He says he is not a very humble person but adds that such errors “bring a kind of humility”.

He also suggests putting yourself in others’ shoes. “You can then anticipate other people’s reactions to decisions you make.”

Including others in decisions can smooth the process. “People want leaders to be decisive but they might also want them to consider others.”

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Maya Bar-Hillel, professor emeritus in the department of psychology at the Hebrew University of Jerusalem

Prof Bar-Hillel has made relatively few career decisions. Her career, she says, chose her rather than the other way around. A charismatic teacher (the late Amos Tversky, a psychologist who collaborated with Daniel Kahneman) introduced her to the subject. She teaches at the same school she attended.

Getting married and having children never felt, she says, like she was applying academic theory. “But that is because those decisions didn’t feel like decisions.”

The time one needs to apply a more rigorous approach to decision-making is when a choice involves “great conflict” (for example, undergoing a dangerous but potentially life-saving operation) or “great uncertainty”, such as a high-risk investment. “I haven’t had too many of those,” she says.

She relies “on science and evidence more than intuition and anecdotes” but admits she could be even more methodical.

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Phil Rosenzweig, professor of strategy and international business at IMD

There has been a lot of very good research, Prof Rosenzweig says, on how people make discrete, one-time decisions such as purchases. “A smart shopper will know how their options are framed, for example, by a retailer making something look affordable by placing it next to something that’s very expensive.”

Far less research has been done into how people make decisions where they can influence outcomes, such as in a career or marriage. For those, he says, it is often important to have a positive mindset – if you believe in your success even against the odds, you can often raise your chance of success.

He also suggests approaching decisions with an eye towards the consequences of errors as well as focusing on success. A type 1 error is the cost of taking action and being wrong, while a type 2 error is the cost of not taking action. He recommends weighing up which kind of error you would prefer to make.

As a young man in his twenties, for example, he worked in business. Over time he thought he might better enjoy academia. So he deliberated that the consequences of trying an academic career and not enjoying it (type 1) were likely to be less distressing than not doing anything and staying in business (type 2). “I knew if I didn’t make this change I would regret more not having given it a go than staying with a job I didn’t enjoy.”

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Robert Nau, professor of business administration, Duke University

Prof Nau hates to admit it but for someone who does research on the mathematics of decision-making, he is “a terrible decision-maker”. He does try to apply the fundamental principles that his centre teaches.

These tips include: attempting to create more and better alternatives than the ones that are first given to you; being aware of your own biases and ignorance; and consulting others for advice. But too frequently he says he falls into the “various decision traps that behavioural psychologists write about”.