By: Morgan International Staff Writers
Decision, decisions; every day we make hundreds of decisions, many of them totally subconsciously but some being more demanding and requiring more concentration and attention. But how do people make these decisions and what factors come into play?
Whether we are involved ourselves in the decision making process or we are subjected to this in our line of business, it is an unavoidable part of life. If we are involved in sales of any type then working with the client to reach the right decision can be complex and taxing. As financial professionals we also find ourselves involved in this process when customers make use of our services and by understanding how decisions are reached we are better able to advise our clients.
How are decisions made?
Whether people are making financial decisions or those related to something else such as career or family, judgments have to be made. If the choices are complex then using a multi-step process to break down the path towards the conclusion can be very helpful. Here we are going to look at some of the factors that can impact upon decision making.
• Past experiences
Events that have occurred in the past can impact greatly upon decisions made going forward. Much depends on whether the results in the past were negative or positive as those involved are more likely to use the same methods if the outcome a good one. The problem here is that decisions made now based upon past experiences do not always result in the best result.
• Cognitive biases
These are patterns of thinking based upon generalizations that can result in judgments that are faulty and inaccurate. Things such as prior knowledge, omission and hindsight may kick in with people being so affected by the influx of this information that the decision reached is not the right one.
• Escalation of commitment and sunk outcomes
People may make a decision based upon how much money, effort and time they have sunk into it. This can play out by people ending up making a risky decision purely because they have invested so much they do not want to go back i.e. they are now so far down the line, it seems like the only way to go is forward – right or wrong.
• Individual differences
Particular differences such as age, cognitive ability and even status socioeconomically can all impact upon the way in which decisions are made. As we get older, our ability to make a decision can become harder as cognitive ability diminishes whilst younger people may be over-confident with the arrogance that comes from youth. It is definitely worth noting that the older we are, the fewer decisions we like to make.
• Belief in personal relevance
When people feel that what they decide really matters, they are much more likely to come to a decision. For example, constituents are far more likely to vote if they think that their support will change things.
• Decision Making Heuristics
Heuristics are strategies used based to make a decision based upon a small amount of precise information. Think of it as a mental short cut; a judgment can be made by focusing upon just one or two aspects of a very complex problem, ignoring others.
As financial professionals we can see that decision making is a very important area to understand and by having knowledge of the process, we are able to develop a greater comprehension of not only our own decisions but those of others.
Check out some of our training programs now and get yourself fully equipped with a thorough and detailed understanding of decision making, enabling you to interact far more effectively with clients, professionally and competently.