Poor Decision Making

When making decisions we are handicapped by loss aversion¹ and imperfect information. We often only get to see a single outcome of a decision we don’t get to run that decision out many times, therefore we do not get to see the influence of luck/chance².

Reasons for poor decision making include³:

1. Cognitive basis
2. Using the wrong mental models
3. Having the wrong information
4. Failing to learn
5. We are incentivized often to make the easy choice rather than the right choice.

Common patterns of poor decision making are often captured in fallacies:

• Gambler’s Fallacy
• Belief in the law of small numbers

1. Kahneman, D. Thinking, Fast and Slow. (Farrar, Straus and Giroux, New York, 2013).

2. Duke, A. Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts. (Portfolio, New York, 2019).

3. Parrish, S. How to Make Smart Decisions Without Getting Lucky. Farnam Street.