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Tough Decision Checklist - Top 10

Tough Decision Checklist - Top 10

| March 18, 2020
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1. Am I being critical enough of my “gut” instinct? (Availability/Confirmation Bias)

Questioning your intuition will help avoid overestimating the perceived skill from other.

 

2. What can I control about this situation? What are my choices? (Illusion of Control)

Knowing what you can control will help find useful choices.

 

3. How much thought have I put into being wrong? (Overconfidence Bias)

Applying logic is hard, but without it, suggests we are conditioned to believe it is true.

 

4. Am I thinking too short-term, influenced by recent events or news headlines? (Myopia)

Use caution when watching “financial news” by applying the correct perspective to your situation.

 

5. Are you allowing market forecasters to influence your thinking? Do we live in a predicable or unpredictable world? (Illusion of Certainty)

The majority of forecasters are wrong and will never admit it or they change narratives after the fact to justify the different outcome. Don’t allow them to be some authority exercising too much control.

 6. Am I under the influence of lost motivation? What outside forces are likely causing me to feel uncomfortable? (Ego Depletion)

Recognizing when one is in a high-stress state of mind is critical. Steep market selloffs are the #1 instigator of overloading investors’ short-term memory with pointless, anxious thoughts that could lead to poor decisions.

7. Am I assessing the quality of a decision by the merit of its process or by whether the outcome was good or bad? (Hindsight Bias)

Hindsight truly is 20/20. You can only know what is both true and knowable.  An investor who finds themselves surprised by an event likely did not understand the range of outcomes one could expect.  The crux is an investor will be lead to access the quality of their decision not by whether the process was sound, but by the quality of the outcome.

 

8. What type of loss am I experiencing? Temporary or Permanent?  (Loss Perception)

Knowing the type of loss you are experiencing helps reduce harmful impulsive selling.

9. Am I believing that someone is smarter than the market? (Illusion of Skill/Representativeness)

Financial experts want you to believe they somehow are privileged to information, that they are extremely insightful. Investors need to remember that the markets are unpredictable, no matter how certain one would like for you to believe them.

 

10. Is a decision being avoided due to the complexity of the decision? (Choice Paralysis)

Sometimes we falter when given too many choices. Such is true with retirement planning.  Investors planning for retirement could either try to limit the number of data points and/or options to try to remove the perceived complexity or seek the advice from professionals who can help summarize the “preferred options” to choose from.

 

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