The Psychology of Decision Making

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This cover story was featured in the July/Aug 2016 issue of Austin REALTOR®. Read the full article here.

The “American Dream” as people have known it, revolves around one factor: homeownership. Studies have shown the strength and stability that a consistent community provides a family. Building this stable community remains one of the main motivations for REALTORS® and the rest of the industry, and buying or selling a home is one of the most monumental transactions of a person’s life. If you’re a real estate professional, then you know the important role you play in the process beyond finding homes and completing contracts—you’re support for one of the most stressful times a person will experience.

Despite our previous experiences, the thoughts and ideas throughout the transaction don’t always make the most sense. Some days, we will feel one way and then feel the opposite. We may never be certain why we think the way we do, but there are some interesting theories that attempt to unwrap our minds.

  • Heuristics and Biases - Beyond the financial side of the equation, we experience a wide range of emotions. As we move towards completing a transaction, we have to make many decisions. The complex decisions are the ones that tend to weigh on us the most and give us vast amounts of information to consider. With all of this potentially overwhelming information at hand, humans may end up using heuristics—mental tricks and shortcuts—to form judgments and make decisions.
  • The Benefit of “Emotional Ambivalence”  - When we’re ready to negotiate a home transaction, we’ll naturally experience some conflict and tension from feeling both positive and negative thoughts regarding our future. “Emotional ambivalence”—the simultaneous experience of positive and negative emotions—may actually improve judgment accuracy and lead to a more satisfied choice in the end of a negotiation.
  • The Power of the Unconscious Mind - The unconscious mind plays an important role in making a complex decision, such as buying or selling a home. Unconscious thought theory, proposed by Ap Dijksterhuis and Logan Nordgren, suggests that complex tasks are better solved when our mind is focused on something other than the decision at hand. To combat this restricting feeling, we may be best suited giving our minds a mental vacation and letting the choice come from within us. The idea with this theory, though, is that sometimes if you have a gut feeling about a choice, it may be best to follow where your heart takes you.
  • After the Transaction: Dissonance After Making a Big Dream - Upon first making our choice, we focus on the negatives and disadvantages of it, while also highlighting the benefits of the option we overlooked. This thought process is known as “cognitive dissonance” and can worry us that we made the wrong choice. According to Psychologist, Leon Festinger that level of dissonance related to a major choice depends on two factors: 1) the net desirability of the chosen and unchosen options and 2) the importance of the decision. A dissonant feeling after the purchase could naturally occur.

At the end of the day...listen to yourself and your clients. 

These theories are just a drop in the pool of the research psychologists have conducted on why humans act the way we do. The important takeaway is that every consumer will go through thoughts, feelings, and motivations while trying to make big decisions, and we must be aware of what we’re thinking and feeling. And if a real estate professional is more aware of what humans experience throughout this stressful process, we could all end up more satisfied with the results.

 

 

 

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