Making a decision, especially in pressured situations, is often quite difficult. But it need not be: consider these three risk literacy strategies that will help you make better decisions in your life.
Everyday we are faced with a multitude of decisions that alter our lives in small or significant ways. How you weigh up the pros and cons of each decision and decide which direction to take isn’t always easy or foolproof. Psychologists will refer to risk literacy when determining the value of decision-making.
Risk literacy is your ability to perceive and process risk. To test your decision-making process and risk literacy, Associate Professor of Psychology Edward Cokely from the University of Oklahoma has devised the Berlin Numeracy Test. The online test asks a few questions that measures your capacity to make judgments and takes less than five minutes to complete.
For those who want to improve their risk literacy and decision-making process, especially for those of us who are mathematically challenged, experts recommend the following:
Eliminate overconfidence
Nobel-prize winning psychologist Daniel Kahneman says that overconfidence can damage good decision-making. It is this bias he says he would most like to eliminate if he had a magic wand. “Sometimes when people are too optimistic, they don’t realise how bad the odds are,” says Kahneman.
Sleep on it
When you have to make an important decision, Kahneman says you need thinking that requires attention, motivation and self-control and this is difficult when you are tired and stressed.
Take a broad view
When making a decision Kahneman recommends that you don’t view each problem in isolation. Kahneman explains it in terms of framing. “Narrow framing is when sequences of simple decisions are considered separately, whereas in broad framing the sequence of decisions is grouped into a single decision with several options. For example, when you have the opportunity to take a beach holiday, but you are afraid of the cost of the holiday is too expensive and it may rain, you should frame the decision in the context of all the other holidays you are likely to take in your life. If you aggregate all the decision, you can more easily accept a single loss (spending too much money on a rainy holiday) in the knowledge that you will likely experience gains in the future. Stepping back and framing decisions in terms of long-term considerations can help make decisions more consistent and logical.”
