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Want to Make Better Decisions? Beware Too Much Information

Research from Princeton and Stanford psychologists shows how more information can lead to worse decisions
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When you have to make an important decision for your business, your natural instinct is probably to gather as much information about the situation and options as is humanely possible. But that sensible seeming impulse might actually be leading you to make worse choices, according to fascinating research from Stanford and Princeton Psychologists.

The classic study from Anthony Bastardi of Stanford and Eldar Shafir of Princeton presented research subjects with scenarios in which they needed to choose between two alternatives. However, sometimes all the relevant information was given upfront and sometimes a key detail--which professor was teaching a course the students were thinking of taking or how much credit card debt an otherwise exceptional applicant for a loan had outstanding--was held back but then later revealed. In the end both groups received the same information, but some participants simply had to wait a short time in uncertainty and then make a request to get that information.

Did the two groups furnished with identical information make identical decisions? Not at all. Those who were forced to wait for details said no to the course or the loan at much higher rates. What's going on here and what does it mean for you as an entrepreneur?

In short, if we're made to wait for or pursue information, we deem it to be valuable, even if it isn't particularly important and weigh it more heavily. And this distortion in our thinking is particularly dangerous in today's wired world, according to the Fast Company article, because with our trusty smartphones continuously at hand, we can always search out more information. The article notes:

Generally… curiosity is useful. In our evolutionary past, knowing whether that rustling in the bushes belonged to a tiger or a mouse could have meant the difference between life and death. We're wired to reduce uncertainty because our minds were adapted for another, more hazardous, time.

Seeking out information comes with a downside, however, which accounts for the intriguing difference between the two groups. When data is missing, we overestimate its value. Our mind assumes that since we are expending resource locating information, it must be useful. Participants… couldn't help but ask for additional data. The mind, after all, hates information gaps. And because their attention was focused on whether the debt was $5,000 or $25,000, their thinking about the loan had shifted. They no longer saw the big picture--that the applicant had a history of defaulting. They were simply too fixated on a relatively minor detail, the size of the debt.

In business, "there's always one more report, one more analysis, and one more perspective that's a click or two away," but searching out that additional data may actually cloud the picture rather than arm you with key information.

What's the takeaway? Next time you need to make a decision, spend some time thinking about how much and what type of information you really need before getting carried away by your research and tripping yourself up by focusing on irrelevant data.

How do you separate the essential information from all the tech-enabled noise when making an important decision?

 

Last updated: Aug 30, 2012

JESSICA STILLMAN

Jessica Stillman is a freelance writer based in London with interests in unconventional career paths, generational differences, and the future of work. She has blogged for CBS MoneyWatch, GigaOM, and Brazen Careerist.




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