How People Make Bad Decisions

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The pseudocertainty effect.

  • We take less risks if we expect a positive outcome.
  • We take WAY more risks if we think we have to avoid a negative outcome.

If a business is headed toward the dumps (or even experiences a hint of failure), and the managers are running around like MAAADDDDD, they'll take more risks to try to 'save' the business.

"SAVE!"

That could mean:

  • Launching random new products.
  • Redoing X, which already took months/years.
  • Firing people randomly.
  • Throwing everything into one basket.

It's like a gambler betting conservatively when he wins something, but then BAM SON: when he starts losing, he bets larger and larger to avoid loss.

When you're down and out and see yourself making larger risks, SLAP YOSELF -- and tell yourself:

  • "HEY! I'm experiencing a psychological condition that makes me want to take more risks because I'm afraid of loss; I should stop right here and make decisions more rationally."

WIN.

Stop. Slap. Think. Decide.

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Posted on January 19

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