Why We Make Bad Decisions?


You hear people tell you and, a lot of times, you tell yourself when you realise you have made a horrible decision. But as the famous quote says, “Hindsight is always 20/20.”
If Dick Rowe only knew. He could have been the fifth Beatle instead of Sir George Martin, the producer who signed up The Beatles three months after Dick Rowe rejected them in February 1962.

And Thomas Cadell, the publisher who will forever be known to be the man who committed the greatest literary folly of rejecting Jane Austen’s Pride & Prejudice manuscript.
What about this, at least two decades ago, Google offered to sell the company to Yahoo for US$1 million, but Yahoo refused. In 2002, Yahoo had a change of heart, so they offered to buy Google for US$ 3 billion. Google countered at US$ 5 billion, but Yahoo refused. Again. What’s Google’s worth now? US$1440 billion as of May 2022.

So what were these people thinking? But hey, let’s not be quick to judge. Whoever is without sin, cast the first stone.
We all have made bad decisions – from choosing to wear trousers with your suit for your important zoom meeting with a client, not knowing you will accidentally stand up during the meeting, to grabbing a job offer when you will be promoted at your current job two days after.
One of the top 50 living influential psychologists today, Harvard psychologist Dan Gilbert, explained why we make bad decisions every now and then. He stated two errors we commit in gauging situations. Knowing these two errors will allow us to judiciously arrive at a better choice for a given situation.

What are the Two Errors We Commit in Decision–making?
In Dan Gilbert’s words, “there are two kinds of errors people make in trying to decide what the right thing is to do. One is estimating the odds that they are going to succeed and estimating the value of their own success.”

Odds of the gain x Value of the gain = Expected value


This point starts with how people figure the odds of a potential gain. What are the odds that your decision will give you what you want?
People estimate probability by thinking about what is familiar to them or what they know. 
In a survey where Americans were asked what are the odds that they will die in a variety of ways, the answers were tornadoes, fireworks, asthma and drowning.

You see from the estimates versus the actual numbers that the top two scenarios were highly overestimated, while the next two scenarios were significantly underestimated.
The reason for this is that asthma and drowning do not get front-page coverage. These causes do not come to people’s minds as easily as tornadoes.
When you ask Americans today about their guesstimate of the top cause of death in 2020, it will be very easy for people to say Covid-19. But according to the CDC (Centers for Disease Control and Prevention), the leading cause of deaths in the U.S. in 2020 are heart disease, next is cancer and Covid at third.

Simple #decision-making. You want to get a new iPhone. Nine out of 14 years, Apple has released a new phone model in September. What is the probability that you will have the latest iPhone this September?
Another practical application. Based on records, you closed a new account for every five client calls you made. What are the odds you will get ten new accounts if you decide to book 50 client calls for the month?
The last scenario given by Gilbert is the lottery. These are the scenarios,
There are 10 tickets at US$ 1 each ticket. All nine tickets were sold. The winner will get US$ 20. Based on the formula, it is a good play. The expected value of the lottery is US$ 2. Will you play? People said they will play.

Second scenario has a little twist. The same values except the nine tickets were bought by one person. Will you play? Many surveyed people said they will not play. How come? The expected value of the lottery is still US$ 2, and you still have the same number of chances to win.
How do you estimate the odds that a decision or an action will make you succeed or allow you to gain something?


Decision-makers should not only focus on probability, but also the expected value of the result of the decision. Although, estimating the odds is easier than estimating the value of something. How much happiness or satisfaction will something give us?
If you have numbers to calculate the odds, how do you calculate for value? Because people tend to compare the past with the present to estimate the value of something, Gilbert suggests two questions we ask ourselves to calculate the value of something:

Does yesterday really matter today?
Will today really matter tomorrow?

To illustrate, Gilbert used a McDonald’s burger which costs $25 in an airport. You have US$25, but you didn’t buy it because you found the price excessive. But in your flight, some passenger opened up his pack of McDonald’s burger meal, and the amazing aroma of fries and burger drifted to your seat in a not-so-swift and faint way. The 6-hour flight you had to endure with your stomach contracting with hunger, the US$25 didn’t seem excessive anymore. And you say, “What was I thinking?”
And what will make things worse? When you realise you need to take your medicine with a full stomach.


Dan Gilbert was asked, “How can you do the right thing all the time?” He said, “You probably can’t. The best thing you can do is to catch yourself making these errors and know to watch out for them.”
And may I add, deciding is different from doing. There is this story of five people in a room. It was time for lunch. Three people decide to have lunch at the nearby cafe. How many are left in the room? You say, two? Correct answer is five. Deciding is not acting on your decision. Actually doing it, is.
It is just the same as pledging and donating. The two words are not the same, no matter how you twist them. Pledging is pure talk, donating is the action word. And what a bad decision not to act on your word.