Making complex decisions is one of the most important and challenging aspects of being a business executive. Whether it is launching a new product, entering a new market, acquiring a competitor, or restructuring the organization, business executives face many situations that require them to weigh multiple factors, consider various scenarios, and choose the best course of action.

But how do they do it? How do they process the information, evaluate the alternatives, and form the preferences that guide their decisions? And how do they balance the rational and intuitive aspects of decision making, the science and the art? Part one, today’s article is on the science of decision making. Part two, tomorrow’s article is on the art.

In this article, we will explore how successful executives use their decision making system to be better, more disciplined and dependable leaders.

The Science of Decision Making

The science of decision making is a multidisciplinary field that draws from psychology, neuroscience, economics, and computer science, among others. It aims to understand how the human brain processes information, evaluates alternatives, and forms preferences, and how these processes affect the quality and outcomes of decisions.

One of the key concepts in the science of decision making is reinforcement learning, which is a type of machine learning that mimics how the brain learns from rewards and punishments. Reinforcement learning models how the brain assigns values to different actions, and how it updates these values based on feedback. For example, if a business executive decides to invest in a risky project, and the project succeeds, the brain will increase the value of taking risks in the future. On the other hand, if the project fails, the brain will decrease the value of taking risks.

Another key concept is somatic markers, which are emotional signals that the brain generates when faced with a decision. Somatic markers help the brain to filter out irrelevant or harmful options, and to focus on the most promising ones. For example, if a business executive feels anxious about a certain option, the brain will interpret this as a negative somatic marker, and will avoid that option. Conversely, if the executive feels excited about another option, the brain will interpret this as a positive somatic marker, and will favor that option.

A third key concept is fast and slow thinking, which are two modes of thinking that the brain uses for different types of decisions. Fast thinking is quick, intuitive, and automatic, and it relies on heuristics, or mental shortcuts, to make decisions. Slow thinking is deliberate, analytical, and controlled, and it relies on logic, rules, and calculations to make decisions. For example, if a business executive has to decide whether to trust a new partner, the brain will use fast thinking, based on the first impression, the gut feeling, or the similarity to previous partners. However, if the executive has to decide how to allocate the budget, the brain will use slow thinking, based on the data, the criteria, or the formulas.

The science of decision making also reveals the factors that influence decision making, such as biases, emotions, information overload, and uncertainty. Biases are systematic errors or deviations from rationality that affect how the brain perceives, interprets, and remembers information. For example, confirmation bias is the tendency to seek, favor, and recall information that confirms one’s beliefs or hypotheses, and to ignore or discount information that contradicts them. Emotions are affective states that influence how the brain values and responds to different options. For example, fear can make the brain more risk-averse, while anger can make it more risk-seeking. Information overload is the situation where the brain receives more information than it can process, which can impair its ability to make decisions. For example, too many options can cause the brain to experience choice overload, which can lead to indecision, regret, or dissatisfaction. Uncertainty is the lack of complete or reliable information about the situation, the options, or the consequences, which can make the brain more hesitant, doubtful, or anxious.

The science of decision making also highlights the benefits and limitations of rational and intuitive approaches to decision making. Rational decision making is based on objective, factual, and logical information, and it aims to maximize the expected value or utility of the decision. Intuitive decision making is based on subjective, experiential, and emotional information, and it aims to satisfy the personal or situational needs or goals of the decision maker. Both approaches have their advantages and disadvantages, depending on the context, the complexity, and the urgency of the decision. For example, rational decision making can be more accurate, consistent, and transparent, but it can also be more time-consuming, effortful, and rigid. Intuitive decision making can be more fast, effortless, and flexible, but it can also be more prone to errors, biases, and inconsistencies.

Join us tomorrow for part two of our series on decision making, to explore the art behind smart choices.