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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.
SEE ALSO: 7 ways to reshape your brain and learn anything
1. Loss avoidance.
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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?
2. 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.
3. Survivor bias.
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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.
See the rest of the story at Business Insider
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