Interview with Don Moore on Decision Making

In much of his published research, Dr. Moore examines overconfidence in decision-making, negotiation, and ethical choice. His psychological approach to people thinking too highly of themselves gives insight into how people make decisions, and what overconfidence means for businesses and markets. In this Q&A interview, he discusses the psychological influences that bias good decision-making skills in both our personal and professional lives.

What do people fear most when making decisions? 

Many people fear regret when making important risky decisions. What if it turns out badly? They worry that they would feel terrible, and, lacking the proper tools to assess risk, they exacerbate these fears. The EDM program provides participants with the tools to think wisely about risk and choose the option with the highest expected value. 

That is no guarantee that things will always turn out as you hoped, but it does maximize the value of the outcome, on average. If you do it right, it also insulates you from feelings of regret for having chosen incorrectly. 

If you choose the course of action with the highest expected value but get unlucky, you can be sorry for your bad luck but there is no reason to feel regret. You chose wisely given the information available to you at the time. This knowledge ought to increase your confidence in making high-stakes risky decisions.

How does decision making differ in business and in life?

The principles of decision making apply to all sorts of decisions, personal as well as professional. Leaders are often making decisions with high stakes for their organizations, but all of us make decisions with high stakes for our personal lives: whom to marry, what job to take, or where to live are decisions of enormous consequence for our well-being.

How do you decide between a set of options?

First, it is essential to define the set of possible options. From this set, narrowing the choice to the very best alternatives simplifies the process. Then it is worth comparing them systematically. That usually means identifying the dimensions on which they differ. 

For example, two houses you’re considering buying might differ with respect to price, location, size, and so on. Then you need to score each option on each dimension. If the dimensions vary in their importance to you, then you also need to weigh the dimensions. 

Multiply the weightings by each option’s score, add them up, and you have your decision. In the program, we review this multi-attribute decision process and also discuss how to handle the situation in which the result of this analysis seems to clash with what your heart is telling you about which one you really want to pick.

What biases affect decision making?

Because humans are not perfectly rational, we are vulnerable to a variety of biases. One of these arises from the limitations on human memory and data collection. The availability bias leads us to overestimate the frequency or likelihood of events that are more memorable or salient. 

This helps explain, for instance, why the fear of flying is so much more common than fear of driving. It also helps explain why people so dramatically overestimate the risk of being injured or killed in a terrorist attack.

Why are people blinded by their biases?

Our biases arise naturally from the heuristics we rely on to make sense of the world. For instance, the availability bias arises from the simple heuristic that if it’s easy to call to mind, then it must be more common or likely. Often, that’s a good rule of thumb, but not always. 

The problem with these biases is that they are part of the intuitive judgment, and so it can just feel natural and right to indulge our biases. We fear terrorism, not because it’s rational to do so but because our biases activate those fears.

What’s a trap to avoid when making a decision?

One tempting trap is to follow the herd. This can be the safe option since if you’re all making a bad choice at least you’ll have company. But copying the decisions of others, even if you’re “benchmarking” other successful firms or individuals, is no guarantee of good decisions.

Is there an advantage to team-based decisions? 

Teams have a greater mental horsepower. They can gather and process more information. They are also likely to include a greater diversity of thought, which increases the probability that at someone has the right answer. But teams also come with dangers, including groupthink, group polarization, and free riding. Effectively managing team decision making capitalizes on a team’s strengths while minimizing its dangers.

What data is needed to make good decisions?

As a decision maker, you need to pause and reflect on this question rather than simply relying on the information most readily at your disposal. Don’t assume that the report you happened to get today has the information you need to make the decision. 

Ask yourself what information would most help you choose between the available options—what would help distinguish them? Then go track that information down.

How do you use data to make decisions?

Several ways. You can use data to compute expected value, build decision trees, and structure your decisions. Data makes it possible to conduct quantitative analyses on a decision problem. This does not mean that qualitative inputs are irrelevant, but they ought to be considered in conjunction with systematic quantitative analysis.

What’s the difference between short-term and long-term thinking?

The optimal decision process considers both short-term and long-term concerns. The dilemma of intertemporal choice is how to appropriately weigh future gains and losses. The trap many people fall into is being too present-biased in their preferences, which means that they allow short-term motives to swamp long-term interests. 

Bringing the present self into dialog with the more future-oriented self and finding a way to balance their competing concerns can help come to decisions more compatible with one’s overall interests.

How does forecasting help make better decisions?

Because decisions depend on a future state of the world, forecasting is essential to making wise decisions. Whether I buy a stock depends fundamentally on whether it will go up or down in the future. If you could forecast the future with certainty, you always choose the option that would turn out best. Since it's impossible to predict the future, well-reasoned forecasting is a good alternative.

What is the best way to make decisions quickly?

That’s a tough problem because many of the principles of good decision making take time. If you anticipate encountering such a situation—needing to make a decision under time pressure with multiple stakeholders—then the best advice is to consider the problem in the abstract well before there is time pressure. What key considerations ought to drive a decision? 

Ideally, the group can provide clear enough instructions that allow one key decision maker to use those guidelines to choose quickly without further consulting the team.