A Note on Decision-Making

Abstract

Our lives are defined by the decisions we make. Important decisions are generally made in the face of great uncertainty, with incomplete information and often under time pressure. This note aims to present briefly a model of how we make decisions and the associated heuristics and biases. It provides a description of the two systems involved in decision making: intuition (referred to as System 1) and reasoning (System 2). System 1 is associated with perceptions and intuitions and works using the processes of associative coherence and attribute substitution of our associative memory. System 2 is the organized, slow, methodical and deliberate part of our selves that is most closely related to reasoning and rationality. Intuitive judgements may also be highly skilled. Unless the intuition is adequately developed and skilled, the decision-maker must be aware of the various cognitive biases that may impact her decision-making. Only when we are aware of the biases, can we employ appropriate decision-making strategy. It is difficult to remove all the inherent cognitive biases completely but with the help of methods listed in this note one can certainly augment system 1 to a great extent and lessen the rate of decision-making errors.