Making better decisions, part II

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3 min readNov 29, 2024

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Issue #218: Prospect theory, goal maps, and bad ideas

Last week, we wrote about making imperfect decisions; consider this sort of a sequel. When faced with two choices, you might be tempted to look at it through the lens of risk: Which one seems like the most sure thing? Often, tough decisions in our lives have that shape: Should you take the job in another city, should you ask the boss for a raise?

However much we might like to think differently, our brains are hardwired to react in certain ways. And there are two things human brains dislike in particular: Risk and loss.

Prospect theory, which helped its discoverers win the Nobel Prize in Economics in 2002, says that there’s a counterintuitive relationship between risk and loss when we make decisions, depending on which of those two we’re focused on. At a basic level, prospect theory says:

  • We tend to value avoiding loss higher than an equivalent gain
  • We choose options with “safe” outcomes
  • But if the “safe” option feels like a loss, we’re happy to take big risks

As Mark Shrime, MD, PhD, writes on Medium, the seemingly “safe choice” can be misleading: “When we’re offered a choice between a risky thing (like a mystery box) and a sure thing (like a boat), we humans avoid risk only when the sure thing is good.” So much hinges on your personal perspective and frame of reference (and is part of the reason that making “imperfect” decisions is better than making no decisions at all).

To help whenever you’re in the midst of trying to make such a decision, Shrime recommends a short exercise: For 3 minutes, sit and visualize taking the risky choice, and all that comes with it. Then for another 3 minutes, sit and visualize everything you stand to lose by not taking it. This will help clarify which part of the decision for you is about risk, and which is about loss.

Scott Lamb

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