“If you decide something and it turns out to be a bad choice, you beat yourself up about it. What then happens psychologically is that people often say: why bother with it at all? I’m okay where I am. Maybe I’d be a little bit better off if I made this trade, but perhaps I will make myself unhappy, so I’ll simply avoid it.” He emphasizes again that it’s important to be cautious about savings. But to his mind, avoiding investments and trade isn’t the answer.
What are systematic mistakes in decision making?
Anxiety towards risk and avoiding, for example, “putting your eggs in different baskets” isn’t the only problematic aspect of making bad decisions that affect our entire lives. Political events in particular show a much wider perspective. “I think it’s reported that the main two Google searches in the days after the Brexit vote were, 1) What is Brexit? and 2) What is the EU?” says McFadden, pointing to systematic mistakes people make when processing information. “Concentrating too much on what’s going to come right now without looking into the future to see what the consequences will be, or paying too much attention to the things that are so easy to see, the shiny parts of the car and not the stuff that’s under the bonnet, all those things are systematic biases in the way people, in general, make decisions.”
Do we learn from making bad decisions?
In McFadden’s opinion, when making bad decisions, people are driven by fear on many levels. For example, fear of immigrants becomes an engine for populism and right wing-parties. When people make decisions, they don’t consider the long-term benefits. “When you have immigrants coming into a nation,” he says, “they bring economic activity, which generates income. In most cases, these immigrants end up adding to the economy and even employing other people.”