Business Decision-Making: Fears, Cognition, Social Factors, Game Theory, and LEGO® SERIOUS PLAY®..

When making (business) decisions, it is assumed that we enter this process as conscious, rational, and logical individuals who do what they believe is best. The following example will show how an individual's pursuit of what seems rational can lead to a collectively detrimental outcome. Each person in this example does what they consider best, but the final outcome is bad for all participants. Although the logic of 'our' participants is correct, attempts to make sound decisions negatively impact everyone, specifically the profitability of the decisions themselves.

An example of this is found in the so-called Prisoner's Dilemma. A hypothetical case can be found in the book by Hargraves and Varoufakis.

The Prisoner's Dilemma is, among other things, a classic problem in game theory used to illustrate the concept of cooperation and competition. The problem is often used in psychology, economics, and philosophy to explore the dynamics of decision-making.

According to the Prisoner's Dilemma, two prisoners are arrested and placed in separate cells. The prosecutor has enough evidence to charge both with a crime but not enough to convict them. The prosecutor therefore approaches each prisoner individually and offers them a reduced sentence if they confess to the crime and implicate their accomplice. If both confess, the sentences will be lighter than if both remain silent. If only one confesses and the other does not, the confessor will receive an even lighter sentence, while the other will receive the harshest penalty. If both remain silent, the prosecutor will only have enough evidence for a minor charge, and both will receive a shorter sentence.

The Prisoner's Dilemma demonstrates that, although the best solution for both prisoners would be to remain silent and not implicate each other, each individual is motivated to betray the other to secure a better outcome for themselves. However, if both cooperate and stay silent, they can achieve the best possible outcome for both.

The Prisoner's Dilemma is a clear example of decision-making processes. It is often used as a model for researching human decision-making in situations where players face uncertainty and risk.

When playing the Prisoner's Dilemma, players must consider several factors when making a decision, such as the likelihood of the other player betraying them, the likelihood of the other player choosing to cooperate, and the rewards and penalties associated with different decisions.

Similarly, in the decision-making process, an individual must also consider various factors, such as the probability of something happening, potential outcomes, and the risks associated with different decisions. In both cases, the decision made by the player or individual depends on a range of complex factors, including emotional, cognitive, and social elements.

Studies have shown that people often make decisions that can be described by the Prisoner's Dilemma in situations of uncertainty and risk. It has also been shown that people often choose 'betrayal' in such situations, even though it is ultimately less beneficial for everyone involved.

In this sense, the Prisoner's Dilemma can help us better understand how people make decisions in complex situations and how their decisions reflect on their rewards and penalties.

Business Experience

Business experience plays an important role in the decision-making process in the business world. Experienced managers and leaders are more likely to make good decisions in complex situations because they have developed the ability to assess risks and opportunities, as well as the ability to evaluate the importance and priorities of various factors.

Business experience also allows managers to more easily recognize patterns and trends in business, as well as to predict possible future events and impacts on operations. In addition, experience can help managers better understand the market, competition, and other external factors that can affect business.

However, experience can also have its limitations. Managers who rely solely on their experience may miss new ideas and perspectives and may find it difficult to adapt to rapid changes in the business environment.

Therefore, it is important to combine experience with critical thinking, an open mind, and a capacity for learning to make the best decisions.

In addition to the aforementioned experience, as one of the 'resources,' and critical thinking, we will later focus on the emotional, cognitive, and social factors mentioned.

Structured Approaches to Decision-Making

Decision-making is a complex process where an individual or group needs to choose the best option from multiple possibilities. This process includes various steps, including problem identification, data and information gathering and analysis, evaluation of alternatives, and making the final decision.

Decision-making is present in all aspects of life, from personal decisions, such as choosing a career or a partner, to business decisions, such as selecting products to sell or choosing a growth strategy for a company. Effective decision-making is crucial for the success and satisfaction of an individual or organization.

There are various techniques and methods that can be used in the decision-making process, including SWOT analysis, Decision Trees, priority matrices, and Cost-Benefit Analysis. Effective decision-makers often combine these techniques to create a comprehensive picture of the problem and, above all, make informed decisions.

The following outlines structured approaches that can be used in the decision-making process.

• SWOT analysis: Involves analyzing strengths, weaknesses, opportunities, and threats, which helps the decision-maker assess the situation and identify key factors that will influence their decision.
• Decision Tree: Involves creating a diagram that illustrates each possible decision and its consequences, which helps the decision-maker visualize possibilities and assess their (potential) consequences.
• Priority Matrix: Used to rank options by importance and impact on objectives, helping the decision-maker focus on the most important options.
• Cost-Benefit Analysis: Involves assessing the costs and benefits of each option, helping the decision-maker evaluate how much each option will cost and how much benefit it will bring.
• Game Theory: Used for decision-making in situations where one party's decision affects others, helping the decision-maker predict the behavior of other parties and make the best decision for all.
• Critical Thinking: While some might call this a technique, critical thinking is a human skill (soft skill) and involves analyzing arguments and information to assess their credibility and validity. This helps the decision-maker make an informed decision based on facts.

How Does Our Brain Function in Decision-Making?

Several brain regions participate in decision-making. Those we 'really need' are involved, but also those that can make everything go wrong.

The three main regions involved in decision-making are, as mentioned several times in our previous blog posts, the prefrontal cortex, which is most associated with decision-making and planning. But alongside the prefrontal cortex, the amygdala also participates, a part of the brain linked to fear and anxiety. There's also the hypothalamus, which regulates various physiological processes like sleep, reproduction, and appetite, but also plays an important role in regulating emotions.

Naturally, if a decision is, for example, related to food choices, the amygdala will activate. The amygdala is also linked to intuitive decision-making. Rational and logical thinking involves the activation of the prefrontal cortex. But are things, especially in decision-making, always black and white? Are we always free of emotions when deciding?

Fears

Decision-making is often associated with fears. Fears can influence our decisions in various ways, such as:

• Fear of change: Sometimes we are afraid to make decisions that will change our lives or habits because we don't know what to expect or we fear we won't be able to cope with the consequences of that decision.
• Fear of failure: We are afraid to make a decision that could end in failure and lead to loss of money, reputation, or any other resources. This fear can make us refrain from making decisions or opt for safe but less effective options.
• Fear of rejection: Sometimes we are afraid of making a decision that will expose us to criticism or rejection from other people. This fear can make us refrain from making decisions or opt for less risky options that may not be best for us.
• Fear of the unknown: Sometimes we are afraid of making a decision that will expose us to unknown situations, people, or environments. This fear can make us refrain from making decisions or opt for familiar options that may not be best for us.

A further problem with fears is that they are mostly learned, meaning we are not born with fears but develop them throughout our lives and through our experiences. Fears can be learned in various ways, such as:

• Experiential fears: If we've had bad experiences in the past, we can develop a fear of repeating those experiences in the future (including fear of decision-making).
• Through modeling, we learn fears by observing other people who are afraid of certain things or situations. For example, if our friend was afraid of dogs in childhood, we will probably also be afraid.
• Fears can also be caused by verbal suggestion, where people may frighten us and potentially instill fears if they talk about them.

Cognition

Cognition and decision-making are closely related, as cognitive processes are crucial in decision-making. Cognition refers to how the brain arranges and processes information, including processes such as attention, perception, memory, thinking, and reasoning.

• Information arrangement is the cognitive ability to arrange information, things, or actions in a certain order or pattern according to specific rules.
• Attention can be divided into two categories: the ability to concentrate on a task without losing focus (selective attention) and the ability to switch between two or more activities or sources of information (divided attention).

These two cognitive abilities can today be reliably 'calculated' through psychometric assessments.

All these processes are important in decision-making, as the information a person gathers and how they process it have a great impact on the final decision.

There are different models of cognitive processes used in decision-making, including the cognitive hierarchy model, the cognitive load model, and the cognitive representation model. All these models are based on the assumption that people use different cognitive processes to process information and make decisions.

For example, the cognitive hierarchy model suggests that people use mental maps to organize information about a problem and then use heuristics to make decisions. Heuristics are quick and efficient ways to make decisions, but they can lead to errors in reasoning and decision-making. On the other hand, the cognitive load model emphasizes that people use attention and concentration to process information and then make decisions based on that information.

Cognitive Biases

Decision-making can also be influenced by cognitive biases, which are systematic patterns of erroneous thinking that can lead to making wrong decisions. Examples of cognitive biases include confirmation bias, availability heuristic, and loss aversion.

In addition, research has shown that stress and emotions can affect cognitive processes and decision-making. Stress can lead to a focus on short-term goals and cause hasty decisions, while emotions can affect the perception and evaluation of information and influence decision-making.

Furthermore, it is important to point out that cognitive processes do not operate independently of the decision-making context but are connected with the individual's context, goals, and values.

Social Factors

Social factors can significantly influence decision-making, where our perception of the environment and context will affect how we make decisions. Some of the social factors that can affect decision-making are:

• Group dynamics – pressure to conform to the majority opinion
• Conformity – where decision-making is related to adhering to norms and values accepted in our culture, community, or (business) group.
• Authority
• Group influence – where we adapt our behavior to fit in or align with society or the group of people we work with.
• Emotional factors

Prevention?

Psychology can help us understand the factors that contribute to poor decision-making. For example, research has shown that people are more prone to making decisions based on emotional factors rather than facts and rational thinking. Also, people are prone to falling into the trap of confirmation bias, which refers to the tendency of people to seek information that supports their already adopted opinions and ignore information that could lead them to a different conclusion. Understanding these factors can help in developing protocols and strategies that will help prevent bad business decision-making.

Also, psychology can help in developing learning and development programs for employees that will teach them to make better decisions. For example, developing critical thinking, as one of the wonderful human skills, can help employees confront confirmation bias and improve their ability to assess risks and rewards.

Third, psychology can help in developing decision-making processes that will reduce the possibility of poor decision-making. For instance, using various analytical tools, such as statistical models, cost-benefit analysis, and the like, can help in better understanding and assessing risks and rewards.

Critical Thinking

From a business perspective, employees with developed critical thinking skills are capable of solving complex problems, making informed decisions, and, what is very important today, adapting to increasingly changing circumstances. After all, we have all decided to operate and behave agilely.

The critical thinking process itself includes several steps:

• identifying the problem,
• gathering information and data related to a specific problem or situation,
• evaluating the accuracy, relevance, and reliability of information, and
• analyzing that same information,
• consequently, we should know/have/generate possible solutions or have arguments for or against, and finally,
• look at everything from different perspectives and be aware of our biases.

The complete process will conclude with:

• making a (well-explained) decision or conclusion based on the analysis, and
• assessing the effectiveness of the decision itself.

Ultimately, everyone should be open enough to revise everything if necessary.

Critical thinking requires openness, skepticism, and a commitment to making decisions based, above all, on evidence. In this whole 'story,' it is very important to remain impartial and consider all relevant information before reaching a conclusion.

Why Is It Difficult to Remain Impartial, or Rational?

In life generally, it's difficult to remain impartial and rational, especially as humans tend to be irrational. The propensity for irrationality in people is a complex phenomenon influenced by numerous factors, including cognitive biases, emotions, and what is called 'motivated reasoning.' It is not limited to a specific part of the brain but is a result of the interaction between different regions and processes in the brain.

For example, the amygdala, a key part of the 'emotional brain,' can influence our decisions and behavior by creating feelings of fear or pleasure in response to certain stimuli. When we experience strong emotions, they can overpower our rational thought processes and lead us to act irrationally. The prefrontal cortex, which is responsible for 'executive functions' such as decision-making and emotion regulation, can also play a role in irrationality.

Biases and heuristics that contribute to irrational thinking are also influenced by how our brain processes information, such as using cognitive shortcuts or relying on past experiences and expectations. In addition, motivated reasoning, or the tendency to reach a preconceived conclusion, can also contribute to irrational thinking. Motivated reasoning is a type of cognitive bias that refers to individuals' tendency to arrive at conclusions driven by their emotional or personal interests rather than objective evidence. In other words, in situations where we can recognize 'our problem' and rely on that, we have a good chance of judging very motivationally.

Why Is It Difficult for Some People to Make Decisions?

Some possible reasons include lack of information, fear of failure, lack of self-confidence, lack of decision-making skills, and emotional involvement.

An additional problem can be too many options and/or a lack of time.

Learning as an Aid in Decision-Making

Earlier, we mentioned how psychology, or a psychological approach, can help employees in learning and development within the context of decision-making. Through learning, we gain the opportunity to better understand our capabilities and limitations and to make informed choices. Also, learning enables us to develop critical thinking skills, which are crucial for making informed decisions. Critical thinking allows us to evaluate arguments and evidence related to different options and to make a decision based on facts. It is also important to understand the consequences of different options available to us in a given situation, which allows us to more easily assess the risks and benefits of each option and make a decision with the greatest benefit or lowest risk. Finally, experience can be very useful to us in the decision-making process. When we face a situation, we can recall similar situations we have already gone through and apply the knowledge we gained then to make a better decision.

Game Theory and LEGO® SERIOUS PLAY®

Although game theory and LEGO® SERIOUS PLAY® are different methods, they can be connected in the context of learning about decision-making. While game theory deals with studying decision-making in situations where players have different goals and interests, LEGO® SERIOUS PLAY® can be used to create physical models that represent different scenarios and situations.

For example, LEGO® SERIOUS PLAY® can be used to create physical models that represent various scenarios in which participants need to make a decision. Using physical models with Lego bricks can help participants visualize their ideas and consider different scenarios and options for decision-making.

Game theory can be taught in the context of LEGO® SERIOUS PLAY®, where participants can encounter games based on different decision-making scenarios. For example, participants can play games that simulate various situations where decisions must be made, with the aim of gaining an understanding of different strategies and behaviors in those situations.

Combining game theory and LEGO® SERIOUS PLAY® helps employees develop their decision-making skills, develop problem-solving strategies, and understand how other participants in decision-making situations think and act.