Over the past thirty years, oceans of ink have been spilled promoting the idea that, in effect, your clients are stupid. Or if not stupid, “irrational.” The academics will have us believe that people, clients, are hopelessly “biased” in their decision making.
I was at Stanford when I first encountered the claim that people are systematically biased decision makers. It was 1982. In the bookstore there I found a collection of academic papers titled Judgment Under Uncertainty: Heuristics and Biases, edited by Daniel Kahneman and Amos Tversky. Tversky was then at Stanford. Academia loves certain ideas, and this one caught on like wildfire. Kahneman won the Nobel Prize for it.
But the idea has gone way overboard.
I don’t know your clients (at least I don’t know most of them personally), but I know people like your clients, and they are not stupid (not most of them, anyway.)
But it is not fair, or helpful, to claim that merely because clients don’t make decisions exactly the way that academic theory says they should, your clients are “irrational.”
How the Academics Say Your Clients “Should” Decide
Please don’t feel like you need to understand the following. I’m including it here so you have an idea of what Nobel Prize-type academicians have in mind when they talk about “rational” decision making. The following is a long quotation from the Stanford Encyclopedia of Philosophy:[1]
Here is a different representation of how a rational person “should” decide:
I do not say the above is wrong. In fact, when I was at Stanford, I had the privilege of studying decision science with one of the giants in the field, a wonderful professor named Ron Howard. Professor Howard actually coined the term Decision Analysis. I have tremendous respect for him.
However, for most people, it is not realistic to expect that they will make the significant effort required to learn the technical tools required to make “rational” decisions according that
Only that it is quite a bit to expect. Most people, even very smart, very rational people, do not use such procedures.
Your clients are not stupid, and they are probably not really irrational. But, they can probably also (at least sometimes) use some help in making decisions.
What Makes Real World Decisions Hard
In our experience over the years, working with hundreds or thousands of people, including advisors and their clients, we have learned that it is not ignorance of the technical theories that make decisions hard.
Instead, there are about five distinct factors that can make decision hard for real people. These are:
- Conflicting Goals
- High Stakes
- Complexity
- Uncertainty about outcomes
- Small differences between outcomes
We will look at each of these in the remainder of this series on decision making. Stay tuned to our blog for more.
[1] https://plato.stanford.edu/entries/decision-theory/#WhaPreOvePro