A psychological perspective does not start from the assumption that people are fundamentally irrational. Rather, it emphasises a different logic: a logic that meets the challenges we have evolved to face. For much of our evolution we have faced an environment with major differences from the modern business world. We have developed a range of cognitive mechanisms to cope with adverse environments in which resources are scarce.

These mechanisms include a range of simplifying and confidence-sustaining mental short cuts (heuristics) that help us to make quick decisions when pausing to undertake a full analysis would be unwise. While these ways of thinking are not the same as rigorous logic or formally rational reasoning, they are well suited to fast-paced intuitive judgements and actions. However, these evolved modes of thinking also create some major traps.

The use of heuristics
As decision makers, none of us has infinite resources or time to devote to gathering and analysing information. In addition, we all have significant limitations to the amount of complexity we can cope with. Thus, even where we make conscious efforts to make decisions according to a formally rational process, we often need to make simplifying assumptions and accept limits on the availability of information and the thoroughness of our analysis. As noted above, we constantly use heuristics as a way of reducing the complexity of decision making: for example, associating a particular brand with quality rather than engaging in a detailed evaluation of the merits of different breakfast cereals or clothing stores.

Many of these are entirely unconscious. They are often useful, but also lead to some significant biases in our decision making. Some of the most important are:

• framing the problem
• using information
• problems of judgement
• post-decision evaluation

Framing the problem
The way in which a problem is framed can have a significant effect on how you make decisions. Medical decisions can be affected by whether outcomes are framed as likelihood of deaths or of saving patients. Financial decisions can be affected by whether you see yourself in a position of loss or gain. In a position of gain we tend to become risk averse; in a position of loss we will tend to take risks to avoid or recover losses. You may know people who are good at using this to their advantage; they exert influence by framing choices so that others will choose the option they prefer.

Framing effects can be quite subtle and even affect our recall of events. For example, in one study, groups of students were shown a film of a car accident. Each group of students was shown the same film clip and then asked ‘How fast were the cars going when they ---- each other?’ where ‘----’ was a different word for each group, variously ‘smashed into’, ‘collided into’, ‘bumped into’, ‘hit’ and ‘contacted’. The table below shows the average speed estimated by each group.

Those who were asked the ‘smashed’ question were also more likely to believe they had seen broken glass in the film clip than those who were asked the ‘hit’ question. There was no broken glass.