How to make better decisions in an economic downturn
If You’re looking how to make better decisions in an economic downturn, the first thing to consider is clear communication this is vital for any business plan, and while I typically shy away from jargon, there’s one term I can’t ignore for its value: “Fundamental Attribution Error.” This piece of psychology terminology could be crucial for your decision-making, especially during economic challenges. Let me explain what it means in simple terms:
The Importance of Decision-Making
Understanding Fundamental Attribution Error
We make choices based on our understanding of a problem or opportunity. But that understanding comes from limited information – what we see, hear, imagine, and remember.
For instance, right now, your conscious awareness is likely engaged with the text on your screen, interpreting patterns of letters and numbers into meaningful information. Our brains filter that data through emotions, beliefs, and past experiences. This can distort the facts, leading to flawed choices.
Decisions and Errors
Fundamental attribution error happens when our interpretation of a situation is so far off that our resulting decision is clearly wrong in hindsight. Here’s an example:
I asked Joe to write down what had actually changed about his situation. He rated each item’s importance and likelihood. This made the decision more objective. It turned out that only one minor contract change was needed to launch the product.
A Procedure for Sound Decisions
- List the changes that could impact your situation
- Rate each item’s importance from 1 (low) to 10 (high)
- Rate each item’s likelihood from 0 (very unlikely) to 10 (very likely)
- Multiply the importance and likelihood of getting a weighted score
- Ask others to review if it’s a critical choice
This method still has flaws, but it reduces the risk of fundamental attribution error. With better information, you can make decisions with confidence even in tough times.
