Free will in decision making – does such a thing exist?

Eyes staring at you. Time is running out. You need to make a decision. Who hasn’t been in such a situation? The average person is estimated to make a staggering 35,000 choices each day. Cornell University have estimated that we make over 200 decisions each day on food alone. But as your level of decision involvement and importance increases, so will the number of decisions you have to make, writes Peter Fritz, Senior Business Leader in Digital, Marketing & Sales.

We consider ourselves to be rational beings, right? Wrong! We’re not.

How many of these 35,000 choices are really made through rational thinking and how many are based on gut-feeling, instinct or other factors that are without any logic?

Bounded Rationality

The term ‘Bounded Rationality’ was coined by Nobel Prize winning economist and psychologist Herbert A Simon who suggested that there are three factors limiting our rational decision making process:

1. Tractability / Complexity of the problem
2. Cognitive limitations of the mind
3. Time available

So let’s take a step back,…. can we really make 35k conscious choices a day. Clearly not, it is simply not possible to go through a considered decision making process in the time available to us. Instead we deploy an evolutionary advantage which allows us to make 95% of our decisions through rules of thumb and shortcuts based on past experiences (heuristics) as well as our natural prejudices (cognitive biases), or what most would describe as gut-feeling.

Behavioural Economics

Behavioural Economics is the exciting field of study where economics, psychology and experimental analysis meet. While the economic theory assumes that people are rational and predictable when incentives are provided or removed, this may be broadly right on a larger scale, but a lot of unpredictable behaviour (noise) remains. Behavioural Economics focuses on what influences the choices people make and why, and researches the noise to understand it better.

Why is this important?

While the application of this understanding may be difficult to the wider economy, it helps to understand why people make certain decisions. And, the better we understand the motives and influences going into a decision making process, the better we can influence the outcome.

In his 2011 book “Thinking, Fast and Slow“, Daniel Kahnemann describes the duality of our thinking allowing us to cope with the multitude of daily choices:

1. System 1 – fast, instinctive and emotional
2. System 2 – slow, more deliberative, and more logical.

“The rational mind thinks of itself as the Oval Office when actually it’s the press office” – Jonathan Haidt

Experiments such as The Effect of Background Music on the Taste of Wine by Dr Adrian C. North have not only shown that our choices can be subconsciously influenced, but also that we’re capable of post-rationalising our behaviours without full awareness of our biases.

When it comes to research, you can also say: actions speak louder than words

So what?

At a time where industries and organisations consider Customer Experience or even Human Experience of strategic importance for business differentiation, innovation and sustained growth, it is essential to understand the human nature and what really drives our actions to be able to affect desired results within an organisation or through the ecosystem generating value.

Some of my favourite bias examples!

There are too many biases to list in this article (I’ ve done this in the deck below), but here are some I’m sure you’ve encountered for yourself:

• Recency Bias – Tendency to overemphasise recent data and experiences

You’re given a list of objects or numbers to remember and you happen to recall the options at the end of the list more clearly. Or you believe that the most recent valuation of bitcoin is a stronger indicator of future performance than other factors. Now on a more practical level, try it for yourself… Over the next few weeks take note of the responses to simple A/B questions; the results might surprise you!

• Paradox of Choice – Difficulty making a decision when faced with too many options

At large, the more options we have the less satisfied we are with our decision. This is the phenomenon where people in general find it easier, even more satisfying, to get the one plain flour from the Aldi shelf as opposed to deciding between the 12 options at Woolworths. This also explains why people in general are more satisfied selecting a piece of clothing from a lean selection of attire while others struggle to find one piece out of an overflowing walk-in wardrobe. Again, look at your own environment and monitor your behaviour and level of satisfaction. Now is a good time to rationalise options!

• Peak-end Rule – Tendency remember the peak/troughs and end as opposed the average of an experience

The basic principle is to not spread yourself too thinly and trying to be perfect at all times. Chances are that people remember experiences based on their most remarkable and final moments. If you have an average meal at a restaurant, yet end with a delicious dessert, your memory of the meal is likely to be more favorable. Another example is the second-best hotel in Los Angeles as ranked by Trip Advisor – the ‘The Magic Castle‘. An impressive 74% of the 3,413 reviews (at time of writing) rate it as ‘excellent’. What’s the secret of this basic, yet far from cheap hotel with dated décor, spartan suites and a small swimming pool? It focuses on creating a few outstanding experiences, such as the popsicle helpline. You can pick up the red phone by the pool at any time, day or night, and a man in white gloves turns up to present you with a selection of free ice popsicles.

Behavioural Economics helps to understand why people make decisions

In short, Behavioural Economics can be applied within the context of marketing to solve problems, brand positioning or even at copywriting and design. It can help to provide insights into what campaigns or approaches might work, but not whether a strategy is correct.

As behavioural scientists don’t make their arguments through logic alone, so should we all set up experiments, even small ones, to give proof.

• First, set up a hypothesis / theory about how particular behaviours work in relation to your objective.
• Test your hypothesis, observe the actual behaviours and discover the effect of a particular bias
• Adjust and iterate the experiment to improve your results

Behavioural Economics is a broad topic and is based on over 120 years of academic research. The above has only just scraped the surface and there’s lots more to learn and explore.

About the Author

Peter Fritz

Senior Business Leader – Marketing & Sales | Digital | eCommerce | Attribution | CRM | Transformation

Peter Fritz is an intrapreneurial Senior Business and Marketing Leader with over 16 years’ experience in Industry Body, Media, Consumer Electronics and Telco categories from leading local and global organisations including ADMA, Dyson, News Corp, LG Electronics, Nokia and Hewlett-Packard with speciality in growing business performance by providing analytical strategic planning and executional leadership.