Economics and Decisions March 5, 2014

1. Economics and DecisionsMarch 5, 2014

2. Decisions • In general our lives are about making one small decision after another • Abundance of choice is becoming a problem • You can only make a finite amount of choices in a given day • As the day goes on the mind becomes paralyzed to act or makes impulsive choices • View decisions as currency • Limited supply, used wisely • EVERY decision you make each day adds up

3. Decision Fatigue • Warps judgment of everyone • Helps explain why we • Get angry • Exceed our budget • Buy junk food • You can’t make decision after decision without paying a biological price • The drain of mental energy

4. Physiology • You are not consciously aware of becoming mentally tired • Become low on mental energy • The more choices you make, the harder the next choice becomes • Brain looks for short cuts • Reckless & impulsive • Do nothing – eases short term mental strain & resist change in the long run

5. Once you are fatigued  reluctant to make trade offs • Advanced & taxing form of decision making • Look for one dimension – ex. price • Leaves you vulnerable to marketers who know how to time their sales • When decision fatigue sets in you tend to take the advice of “experts” • Responds strongly to immediate rewards • Drink soda & eat candy • Pays less attention to long-term prospects • How will this affect me in 20 years?

6. Willpower • Weakens late in the day • The diet dilemma 1. In order not to eat, a dieter needs willpower. 2. In order to have willpower, a dieter needs to eat.

7. Fewer decisions  less decision fatigue • No outward sign of decision fatigue • Propensity to experience everything more intensely • Frustrations seem more irritating • Impulsive behavior becomes more powerful • Illogical shortcuts that favor short term gains & delayed costs • Take the safer, easier option even when there are extreme costs involved

8. Good Decision Making • State that fluctuates • People with the best self-control structure their lives to control willpower • Schedule (no back to back meetings) • Avoid temptations • Establish habits that eliminate the mental effort of making choices • Budget their decisions • Well rested & good nutrition

9. Reframing • Quick to dismiss small decisions as inconsequential (short run) • $4 latte each day • Look at their entirety (long run) • $1500 spent each year on coffee • Make certain decisions now in order to limit the need to make more choices later • Retirement savings

10. Self Control • Not the final defense against disaster • Conserved by developing effective habits and routines • Reduce stress • Avoid crisis • Effectively manage time • Make big decisions early in the day

11. The best decision makers are the ones who know when not to trust themselves.