Easier and better decisions - how to deal with risk
There's no wrong time to make the right decision - Dalton McGuinty
Empirical research shows that individuals assess their loss and gain perspectives in an asymmetric manner
Hence, we tend to take a risk only if it's over-proportionally compensated, ...
... leading to rather irrational than economically optimal decisions.
Set yourself a deadline. If there's no deadline, we'll postpone our decisions further and further into the future
Second, contemplate and decide on clear decision-making criteria and research the required data
Third, evaluate the data, listen to your gut, and make a decision before the deadline is reached
This week, I had my eyes lasered. The LASIK surgery I underwent reshaped my cornea so that I can see clearly and sharply without glasses or contact lenses. It went really well, and after one night of recovery, I've already achieved above standard visual acuity.
But why did I expose myself to this risk and opt for this surgery? Many people with a vision impairment greatly fear this surgery even though it's relatively safe and they'd love to get rid of their glasses and lenses.
Unfortunately, we often tend to fear and thus avoid risky decisions. Instead of making a decision, we often postpone them into the future. In the best case, there's a deadline so that at least then we make a decision. Sometimes, however, there's no cut-off date, leading us to put off the decision for far too long.
In today's article, I will share with you why we often fail to make risky decisions, what helps me to make easier and better decisions, and how you can improve your decision-making, too.
The problem with risky decisions
Generally, we're risk-averse. We tend to take a risk only if it's over-proportionally compensated. Daniel Kahnemann - a renowned researcher in the field of psychology and Nobel-prize winner - developed the so-called Prospect Theory, which intends to explain this irrational behavior.
From a rational perspective, a gain of 100€ should lead to the same amount of pleasure as a loss of 100€ leads to an absolute amount of discomfort. Yet, empirical research shows that individuals assess their loss and gain perspectives in an asymmetric manner. For example, for some individuals, the pain from losing 100€ could only be compensated by the pleasure of earning 200€. People would choose rather a safe 90€ than a 10% lottery to win 1000€.
Once uncertainty is involved, we tend to make irrational rather than economically optimal decisions. Most often and even worse, though, we cannot even decide in the face of risk. This decision-making paralysis is what we often observe when we cannot decide on a job, university course, new hobby, etc.
Quantification of outcomes
What greatly helps me to make easier and better decisions is a quantification of the prospects. In the case of the LASIK surgery, I thought about the cost savings and the gain in quality of life versus the time and money for the surgery as well as the corresponding risks.
Regarding the cost and time, my LASIK surgery was ca. 2250€ in total and will take me about 10 hours of my lifetime (preliminary inspection, surgery, and three check-ups).
In contrast, I save about 3000€ for contacts (100€ per year), about 500€ for new glasses, and about 900 hours (5 minutes per day * 365 * 30 / 60) in the next 30 years.
From a cost and time perspective, this is a very clear decision.
With regard to qualitative aspects, LASIK has been in use for more than 30 years. Hence, there're practitioners with decades of experience and a track record of thousands of successful surgeries. Yet, there're post-surgical risks as in any procedure. For me, the gains in quality of life (no loss of contact lenses, no need to buy new glasses, no eye tickling in the evening, etc.) clearly outweigh these risks.
The quantification of outcomes and contrasting of risks and benefits greatly support decision-making and can be applied to various situations, particularly those involving risk.
Make easier and better decisions
To tackle risky decisions, the following approach has proved a great service to me in the past:
First, set yourself a deadline. If there's no deadline, we'll postpone our decisions further and further into the future. By setting a clear cut-off date, we can ourselves from procrastinating.
Second, contemplate and decide on clear decision-making criteria. What do you need to know in order to make a decision? And how are these factors weighted? For instance, for my LASIK surgery, I wanted to know the cost and time required as well as the associated risk.
Third, collect the necessary data. Based on your decision-making criteria, you make your research. Search on Google, ask your friends and family, etc. If there's no data available, try to estimate.
Finally, evaluate the data, listen to your gut, and make a decision before the deadline is reached. No matter how much data you collected and assessed, ultimately you should make a decision that feels right.