Distortions in Decision Making
Introduction
Decision-making’s the cognitive process resulting in the selection of a course of action from alternative possibilities. It’s the study of identifying & choosing alternatives based on the values & preferences of the decision maker. It is the central activity of management & is a huge part of any process of implementation, (businessdictionary.com). This essay talks about decision making in financial terms. Distortions in making decisions lead us to make decisions that result in suboptimal outcomes & no wonder, this needs to be changed. There are several steps that need to be taken to improve these results & avoid such misjudgements. Looking into various academic sources, journals & a personal experience, …show more content…
The innate (inner instincts) or unconscious first thoughts or impulses are changed & adapted by norms, mores & what we have been taught to become different to conform, Power (1998). In decision making too, distortions play a really important role. One can easily lean towards a less productive decision because of distortions, Simon (1979). Cognitive distortion is an exaggerated or irrational thought pattern that’s believed to perpetuate the effects of psychological states, Goleman (1990). These distortions are thoughts that cause individuals to perceive reality inaccurately, these thinking patterns often reinforce negative thoughts or emotions. There are several types of cognitive distortions : polarized thinking, filtering, overgeneralisation, catastrophizing etc, (psychcentral.com). The proof that distortions lead to suboptimal decisions has been presented here using a personal …show more content…
Because of his logical rationality, i.e. reasoning a matter logically on the basis of prior evidence, irrespective of the fact if it’s correct or not, Webster’s New World Dictionary (1991), he chose borrowing money from a local lender rather than a bank to start a business. A friend’s opinion & a case of a famous business man being totally destroyed because of a huge bank loan & the conditions that a bank keeps forward while offering a loan, made him go for borrowings from a local lender instead of a bank. The phenomenon that was responsible was cognitive distortion & the mistake that the former committed was that he was filtering out (Filtering) all the advantageous elements of a loan from a bank & was focusing on the point that banks charge a higher interest per loan & demand property as a collateral. He was magnifying the negative part about collateral so much that he didn’t even look at the negative factors of borrowing money from the lender. The private lender was charging an interest rate that was lower than the bank & didn’t demand any collateral. Later, when the borrower was running short on money, he failed to pay the interest rate & the principle amount, this disappointed the lender. The borrower had no safety, the bank wouldn’t have become violent but the lender did. The borrower was beaten up & had to pay a lot of money to settle the loan from his account & had no money left to
Introduction
Decision-making’s the cognitive process resulting in the selection of a course of action from alternative possibilities. It’s the study of identifying & choosing alternatives based on the values & preferences of the decision maker. It is the central activity of management & is a huge part of any process of implementation, (businessdictionary.com). This essay talks about decision making in financial terms. Distortions in making decisions lead us to make decisions that result in suboptimal outcomes & no wonder, this needs to be changed. There are several steps that need to be taken to improve these results & avoid such misjudgements. Looking into various academic sources, journals & a personal experience, …show more content…
The innate (inner instincts) or unconscious first thoughts or impulses are changed & adapted by norms, mores & what we have been taught to become different to conform, Power (1998). In decision making too, distortions play a really important role. One can easily lean towards a less productive decision because of distortions, Simon (1979). Cognitive distortion is an exaggerated or irrational thought pattern that’s believed to perpetuate the effects of psychological states, Goleman (1990). These distortions are thoughts that cause individuals to perceive reality inaccurately, these thinking patterns often reinforce negative thoughts or emotions. There are several types of cognitive distortions : polarized thinking, filtering, overgeneralisation, catastrophizing etc, (psychcentral.com). The proof that distortions lead to suboptimal decisions has been presented here using a personal …show more content…
Because of his logical rationality, i.e. reasoning a matter logically on the basis of prior evidence, irrespective of the fact if it’s correct or not, Webster’s New World Dictionary (1991), he chose borrowing money from a local lender rather than a bank to start a business. A friend’s opinion & a case of a famous business man being totally destroyed because of a huge bank loan & the conditions that a bank keeps forward while offering a loan, made him go for borrowings from a local lender instead of a bank. The phenomenon that was responsible was cognitive distortion & the mistake that the former committed was that he was filtering out (Filtering) all the advantageous elements of a loan from a bank & was focusing on the point that banks charge a higher interest per loan & demand property as a collateral. He was magnifying the negative part about collateral so much that he didn’t even look at the negative factors of borrowing money from the lender. The private lender was charging an interest rate that was lower than the bank & didn’t demand any collateral. Later, when the borrower was running short on money, he failed to pay the interest rate & the principle amount, this disappointed the lender. The borrower had no safety, the bank wouldn’t have become violent but the lender did. The borrower was beaten up & had to pay a lot of money to settle the loan from his account & had no money left to