I make decent decisions. Why do I need decision science?
It’s natural to feel comfortable with our decision-making, to where we assume we don’t need help making choices. We make tens of thousands of decisions each day, and we start making decisions at a very young age, so it’s not like we don’t have experience. And yet we make mistakes, so we know we’re not perfect at it. Some mistakes rock us, leaving us with incredible regret. Others we don’t linger on because if we did, we’d become paralyzed. Either way, we often want to be better off than we are, and better decisions can get us there. No matter how confident we are, we can still learn about decision-making. Besides, if you believe the science, humans aren’t naturally designed to make great decisions anyway, so why not given decision science a chance?
What is decision science?
Decision science is the study of human decision-making – how decisions go wrong and how to get them right. It draws from many disciplines, from behavioral economics to sociology, psychology, neuroscience, and physiology. It relies on insights that are draw from scientific research rather than personal experience or opinion. Not to knock personal experience: it can teach us a lot. But the experience of one person, or even a few people, can’t cover everything there is to consider when it comes to business success. And following opinion without evidence can leave you taking huge risks. Decision science is about removing as much noise as possible in your decision-making so you can reduce risk and get to where you want to go.
How is decision science relevant to business?
Decision-making impacts every aspect of life. The better your choices, the better your circumstances, and the better your outcomes. Business is no different. Make good decisions with your business, and you’ll take your business where you want it to be, no matter what your goals are. Decision science can help you make the right choices regarding budgeting and hiring. It can help you figure out how to tweak your product or service to best serve the market. It can tell you a lot about how to influence consumers. And it can give you the tools you need to keep pushing when things don’t work out. There isn’t an aspect of business that doesn’t involve decision-making, so everything you do in business could be informed by decision science.
How do you know if you’ve made a good business decision?
Too often, we judge decisions by their outcomes. If things turn out great, we tend to assume that our choices made it happen. But our choices are only one variable that impact our outcomes. Many other variables – from economic fluctuations, new competitors, and even global pandemics – can shape where our businesses end up. Not to mention that we can’t possibly know everything (we can’t predict the future). Even if we could, chances are that our brains – being efficient and limited in storage space – can’t contain or process all the relevant information. We’re just not designed to have perfect influence over how things turn out, so giving ourselves credit for good outcomes isn’t accurate, and blaming ourselves for poor outcomes isn’t fair. Instead of judging your choices by how things end up, judge your decision-making by how well you’ve maximized your chances of reaching your business objectives. Improving our odds is the best we can do, and good decisions give us the best odds possible.
I think I have a good business idea. Should I go for it?
A lot of business ideas are great, and a lot aren’t. Before you decide whether to go with it, it’s important to ask what it takes for a business idea to be good in the first place. Just because you like your idea doesn’t mean it will work. Experts and consultants could even weigh in, telling you that you’re onto something, but that still doesn’t mean you are. What consumers think is what really counts. A good business idea can get people to set aside whatever is going on in their busy lives long enough to care about what you’re selling – and then to pay for it. Are you solving a real problem with a solution that doesn’t exist? Are you offering a product or experience that’s legitimately desirable but unavailable? Or, are you selling something that exists, but doing so in a way that’s different, with a message or mission that’s unique and that resonates with enough people? If your business can give people a product or experience that is necessary, desired, and meaningful, then your idea has a good shot. But should you go for it? The answer depends on feasibility (do you have the time and resources to do what it takes?), drive (will your interest sustain you during hard times?), and a willingness to make solid decisions (rather than be impulsive or biased).
I want to start my own business. What should I be thinking about?
Other websites can help you get up and running when it comes to decisions around business formation, accounting best practices, or seeking loans and investors. There are so many resources out there on the nuts and bolts of starting a business that it would be redundant to comment on them here. Decision science offers something these resources can’t, which is guidance on how to make the various choices you need to make. As you start your business, and face each of the decisions in front of you, make sure to consistently ask this question: “What information does one need to know in order to make this decision well?” And then, “Of this information, what information do I not yet possess?” We’re naturally designed to decide more quickly that we should, relying on what we already know instead of gathering information that matters but that we don’t have. These two questions will help us make sure that our choices are well-informed. They will slow us down enough to think things through.
I’ve been trying hard to succeed with my business. Why am I failing?
You may not be failing. You may simply be making decisions in ways that come naturally, and because humans aren’t designed to make decisions well, you may not be setting yourself up for success. To succeed in business, we often need to override decision-making that feels natural. For example, moving quickly to a decision is something humans are inclined to do. We call this being “decisive,” and we believe this is a good trait, but there’s a difference between being decisive and being impulsive or too comfortable with risk. When we make risky decisions, we leave too much up to chance. Chance doesn’t care about our business success and it won’t protect us from “failure.” Another natural tendency is to be swayed by those around us, and to make decisions for no other reason than that other businesses are doing the same. But what’s right for other businesses may not be right for ours, so going along with the norm may involve too much risk. Success means getting clear on your particular objectives, then making choices that are specifically designed to ladder up to those. For your business to thrive, your decision-making can’t always involve what comes automatically. You have to do what will objectively give you the best shot possible.
When making business decisions, I often feel stuck. Why?
Indecision, or analysis paralysis, can be a real problem. Sometimes, we get stuck because we fear making the wrong choice. We fear regret. Anticipated regret can become more palpable when decisions have high stakes. If you’re deciding on a coffee drink at Starbucks, the anticipated regret isn’t that big of a deal; it’s just a cup of coffee. But business decisions often involve hefty resources, and if you mess up, the consequences can be big. Other reasons why we get stuck might involve not really knowing what we’re trying to achieve or having too many options with too many trade-offs. Decision science research tells us a lot about how to break through the paralysis. Check out my guide in the “for people” section on “How to Decide Already.”
I'm experienced at business. Why use decision science when I can rely on that?
A lot of business owners and entrepreneurs rely on their experience to make decisions. The thinking is that experience teaches us plenty, and if we have a lot of it, then we have all we need. But all we possess are our own experiences in only the specific situations we’ve been in. There’s so much more to making good business decisions than any one person could ever learn in a lifetime from experience alone. Besides, consumers change, markets change, technology advances, and competitors come and go. The future of your business may not hinge on how well you've learned from past experiences. Good decisions involve awareness of many things you don’t know, and if you don't pay attention to them, your choices could be poorly informed. And you’d never know it.
What are some of the biggest mistakes businesspeople make?
Businesspeople can make a whole host of mistakes, for no other reason than that they’re people, and people aren’t designed to always get it right. But it’s hard to see your mistakes, and harder to avoid them, if you’re influenced by overconfidence bias. Overconfidence bias is the human tendency to believe that we know more than is actually the case or can do more than the evidence suggests. We’re all susceptible to it, and when it happens, we aren’t aware of it (that’s how biases work). So, though people (businesspeople included) make a lot of mistakes, overconfidence bias makes all of them more likely. If you want to focus on improving your overall decision-making, start with doubting yourself, even if just a little bit. A little self-doubt can open your eyes to potential pitfalls you’d otherwise never see. Aside from this, you can check out my guide on “Making the Right Decisions for your Business” to get more guidance.
How can behavioral economics help me run my business?
Behavioral economics tells us a lot about how we use mental shortcuts that compromise the quality of our choices. For instance, when faced with options, it’s important to estimate the likelihood that each option will lead to the outcome we want. According to behavioral economics research, we don't make these types of estimates well because rather than relying on the right evidence, we rely on information we can easily remember - and we assume that because it’s memorable, it’s much more important than information that’s forgettable but equally valuable. Our estimates then end up being way off, and even a bit out of touch with reality. For example, if you’re deciding whether to spend money on social media marketing, whatever information about social media marketing most easily comes to mind will shape your decision, even if that information is false or based on a fluke situation. We use many other shortcuts too, automatically and without awareness. The more we learn about them, the better we can get at overriding them, and the better our decisions can become.
What does sociology tell us about making business decisions?
A lot of research in sociology focuses on how other people influence our behavior and our choices. We’re social creatures, so even if we want to believe we’re independent thinkers, it’s just not possible. On some level, and in some way, other people are influencing our choices whether we’re aware of it or not. For example, it’s common for business owners to make decisions that they see other businesses making. In other words, they follow the bandwagon. It’s understandable why: going along with the majority feels safe. But other business’ decisions aren’t always right for our business. There are other ways in which “social forces” push and pull us into various decisions, and the more we know about them, the better positioned we are to make choices that truly benefit our business.
What does personal wellness have to do with business success?
The quality of our decision-making is influenced by our personal wellness. Poor sleep makes us less able to slow down and properly analyze choices. So does mental fatigue. Making decisions while hungry can be a bad move; for example, research has shown that our decisions can be significantly different before and after lunch. In fact, what we eat might even matter. One study suggests that high-protein meals are more likely than high-carb meals to lead to collaborative decision-making. Stress makes it hard to process new information, which may be crucial to making the right choice. Anxiety, depression, OCD… all of these can influence our decisions in various ways. We can’t necessarily expect to address our wellness challenges overnight, but at a minimum, we should prioritize getting regular sleep, eating nutritious meals, and exercising to manage stress and depression, so our decisions aren’t compromised.
How can decision science help me understand my customers?
The success of your business doesn’t only depend on your decisions; it also depends on the decisions of consumers. Consumers employ the same mental shortcuts when making purchase choices as we do when running our business. They also employ biases and get swayed by social influences. For example, people often choose to buy a product because they know everyone else is buying it. Or, they’ll buy a product because owning it will signal a desirable identity to other people (designer clothing is an example). Given that your goal is for consumers to choose your product or service, you need to know how their decisions get made. Otherwise, whatever you do to win them over could be a shot in the dark.
I have a great product/service, but no one’s buying it. Why?
There are a number of reasons why people may not buy what you’re selling. Your offering may not be appealing to enough people, or, if it is, it may not be relevant: many products and services are desirable in theory but don’t really fit in people’s lives or don’t meet people’s needs. It might also be the case that your offering may seem to you to address a real consumer need, but consumers may not see it that way – either because what you’ve got isn’t quite right or because the way you present it doesn’t resonate. It could be that what you’re offering doesn’t seem unique; if other companies are already selling what you are, then why should people choose your product or service over what’s already available and proven? Or your offering might be relevant, unique, and solving a real consumer need, but just not worth the money, either because your pricing is off or because people may not think what you’re selling is worth spending any amount of money on. The bottom line is this: just because you know deep down that you’re onto something doesn’t mean consumers agree, and what they think is what counts. The best way to know what decision to make is to do research.