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Evolution has prepared human beings very poorly for making decisions in an uncertain business environment.  Humans – and some other primates – are frequently illogical when comparing economic alternatives.  How a problem is framed can make a huge difference in the decisions people make, even when the economic outcomes are identical.  Most people are risk-averse when considering potential gains, but risk-seeking when faced with potential losses (the “double-or-nothing” effect), leading to sub-optimal portfolios of assets and projects. 

 

Decisions often set off a conflict between the region of one’s brain that deals with logical reasoning and a more visceral, emotional region – but when the emotional part is incapcitated, we become horribly indecisive.    There is no magic formula for overcoming these weaknesses, but being aware of them is a necessary first step.  This presentation is a brief tour of human psychological weaknesses when making decisions in the face of uncertainty – and the implications for managers and employees.