The role of reason and emotion in decision making

First of all, a quick note on logical fallacies and cognitive bias. It seems somewhat unbelievable (yet makes perfect sense) that given the same set of sensors (our taste, touch, sight, sense of smell and hearing), the way in which we perceive events and process the information that we are provided with can be radically different.

To summarise, cognitive biases are (and I quote from the text) “a thinking tendency … [slanting] our thinking to certain avenues and conclusions. I would liken cognitive biases to uneven terrain … we are all on different heights as we perceive the same strand of information in a different light and are equipped to process it in different ways. Once on that platform, our work from there is what may contain logical fallacies (errors in the actual processing itself). Another way that I like to think of it is as though it’s a pathway. We are all on different pathways due to cognitive biases, but while traveling down our individual roads, if we are then lead astray, that would be due to logical fallacies.

For instance, confirmation bias results in us placing different weights to the information that we might receive (changing this incredibly difficult because then we start trying to ascertain the true value of information, and can tend to undervalue or overvalue in an attempt compensate for our confirmation bias). From there, we can have perfectly logical thought processes, devoid of fallacies, and arrive at different conclusions.

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Moving on, referencing the Ted talk by Daniel Gilbert, we come across this idea of understanding the expected value of a particular decision by multiplying the expected value by the value of gain. Something that I want to comment on is the role that cognitive biases can play in the ‘error of odds’ and ‘errors of value’ that Gilbert reflects on. The clustering illusion is apt to talk about – the tendency to notice patterns in random events often causing us to misinterpret the odds of an event occurring (his example with the leashes on dogs versus pigs, where due to our past experiences of a dog appearing in a location, we establish a false pattern that causes an error in estimation of odds).

The confirmation bias where, especially if we are fearful of an activity such as flying in a plane, we tend to overvalue the news reporting plane crashes as opposed to considering the number planes that have landed safely (although the media does play a part in this … sensationalism). His idea of accurate estimation of value by comparing it with current opportunity cost (as opposed to past opportunity cost) is interesting and relevant. I am guilty of this irrationality (a consequence of injured pride perhaps?) where an objectively good offer is rejected solely due to a better offer in the past which was missed by myself. In that sense, emotion is something to be avoided when estimating value, which makes this process more difficult since the emotional payoff for certain events is the entirety of their value (ignore emotion or not, there needs to be a balance here where it is selectively used – a tool of sorts).

Personally, I think that the best way to handle a situation is to define prior is expectations that you have for the cost of a situation (this is me thinking specifically about the value in monetary terms). If you set tight budgets, the moment an event meets the threshold, you can participate in it (removes the idea of relying on past valuation to determine current value as now you have assigned an inherent value to the item/event based upon your current context … without any influencing external factors).

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Finally,  a conceptual understanding.

Personal influences tend to cause people to make biased decisions