The Science of Decision Making
The average adult makes more than 35,000 decisions each day. Emory University's Goizueta Business School Professor Ryan Hamilton shares how a better understanding of the human mind can help you make the best decisions in your own life – and position your products, services, and teams for growth.
It's estimated that the average adult makes more than 35,000 decisions each day. They can be small like where to grab your next cup of coffee or big like who to pick for president. As individuals, how can we make better decisions for ourselves, families, and communities? As business leaders and managers, how can our understanding of the human mind and key motivators help us position our products, services, and teams for growth?
Ryan’s work centers on consumer psychology, pricing, branding, and effectively managing customer experiences. He has been featured in the Harvard Business Review, New York Times, Wall Street Journal, and CNN Headline News. He also cohosts the podcast – The Intuitive Customer.
Why Decision Making
All human behavior can be boiled down to decision making; the behaviors of customers, employees, and family are all just a series of decisions. When you model how others make decisions, that model is either informed by the science of decision making or it's not. Researchers who explore the human decision-making process are contributing to the body of knowledge around this complex topic and hoping to provide better insight so individuals can anticipate the actions of others and understand themselves better.
Ryan Hamilton developed the 4Rs framework after teaching decision making to students and business executives. With so much research on decision-making and new studies constantly being published, this framework gives people a starting point to approach decision making in our own lives and in business.
- Reference Points - People evaluate things by comparing them to a reference point. If you want to understand how people make decisions, you need to understand their options. These are not always direct competitors. In business, often, customers compare you to things in a completely different category.
- Resources– When talking about resources with decision making, we’re focused on cognitive resources – the amount of time and energy we have available to devote to a decision. In marketing, organizations often assume that customers are fully engaged, but in reality, they almost never care as much as the company. When customers are in a low-resource environment where they're distracted, overwhelmed, or just don't care, it affects how they make decisions.
- Reasons - Choice justification is a huge research topic. When people generate reasons to justify their decisions to themselves or others, it changes their choices and evaluations. Some reasons might be subconscious or difficult to articulate. From a business standpoint, do companies know the reasons why people choose their products and services and are they accidentally giving people a reason not to choose them?
- Replacements - Many times, people face evaluations that are too difficult for them to make. Instead of giving up, people often replace that decision with an easier one. For example, we may replace difficult questions like “Who should I vote for president?” with easier questions like “Which candidate is more likable?” These replacement evaluations guide our choices.
There's no question that, for many people, the pandemic has been cognitively exhausting. Stress, changes in routine, and multitasking/ switching between roles is cognitively depleting. We should expect to see more self-regulatory failures and less self-control when we have fewer resources. For example, many people exercised less frequently or didn’t adhere to diets during the COVID pandemic because they didn't feel like they had the cognitive resources to do so and because their habits were interrupted. We’ve also seen an uptick in emotional regulation failures, such as unexpectedly snapping at others. Hopefully, as we come out of the pandemic and return to some semblance of normalcy, we'll start to see improvements related to our mental load.
Importance of Reference Points for Businesses
The canonical example of reference points is when you have a reference price for something you buy frequently, like milk or gas. But many reference points are vague. In business, if you're trying to anticipate someone's decision making, try to figure out what reference points they're using. Marketers have some power to influence those reference points to their advantage. Sometimes, you can change a failure into a victory by doing nothing more than changing customers' expectations around it.
Halo Effects: Impact on Perceived Prices and Satisfaction Levels
The halo effect is the tendency for an impression created in one area to influence opinion in another area. For example, when people have a positive evaluation of one personality characteristic (“she seems really nice”), they draw additional judgments based on this one overarching evaluation (“she probably did well in school”, “she must be a good mom”.) This is true in the business world and in marketing, too. Part of what a brand does is create a halo so that consumers make more specific inferences about that offering based on the data. Ryan Hamilton’s recent research shows consumer decisions are influenced not only by the prices of individual items but also by a retailer's price image, which reflects a consumer's impression of the overall price level of a retailer.
Halo Effects: Impact on Satisfaction Levels
Satisfaction levels can be measured in different ways, from ratings on a scale to functional magnetic resonance imaging machines. In one study, experimenters had people taste test the same wine, but were told that it was either cheap or expensive. The subjects physically experienced the wine as being better when they were told that it was more expensive; the reward centers in their brain actually lit up.
Halo Effects: Impact on Individual Perception
The earliest research on the halo effect focused on person-to-person perception. Stereotypes, positive and negative, are a type of halo. We form an overall evaluation of a person partially based on the class or group they belong to, then make assessments influenced by that.
Does Hamilton’s Research Influence His Behavior?
Hamilton doesn’t consider himself to be a super savvy shopper, but he’s more aware of the biases that influence him. There are certain biases that we can overcome just through brute force effort, if we know about them and decide that we want to do better. However, Hamilton doesn’t know whether he is any less susceptible to biases as a result of his research. A lot of these biases are adaptive; from an evolutionary standpoint, they help us. The fact that we use halo effects as a mental shortcut to make things more efficient, on average, is a benefit. Occasionally, however, these mental shortcuts fail and can produce a lot of negative consequences.
To learn more about Goizueta Business School and how principled leaders are driving positive change in business and society, visit www.goizueta.emory.edu.
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