Economic decision-making assumes humans act in their rational self-interest when given sufficient data. There is just one problem: over 85% of human decisions are emotion-based, not rational. And no amount of spreadsheets will change that.
The Two Fundamental Problems
As David Maples explains on The Buck Stops Here podcast, rational economic decision-making fails for two reasons:
- You can never have complete data. Perfect information is a myth. Every decision involves uncertainty.
- Biology trumps logic. Your limbic system—evolved over millions of years for survival—overpowers your cerebral cortex in virtually every decision.
The limbic system operates on autopilot. The cerebral cortex requires substantial energy. When you are tired, stressed, or depleted, the rational brain simply cannot compete.
Here is a telling detail: proper hydration improves brain efficiency by 3-6%. Your decision-making literally depends on whether you drank enough water today.
The Easy Level: Sales
Consider buying a car. Why would someone spend 4-5 hours negotiating to save $300? If they value their time at $100/hour, the math says take the first reasonable offer.
But people do not make this calculation. They respond to gut feelings about the salesperson, the atmosphere of the dealership, how they felt when they sat in the driver seat. The “rational” price comparison is often just post-hoc justification for an emotional decision.
This is why sales training emphasizes “sizzle, not steak”—benefits and emotional appeal alongside features. People work with those they know, like, and trust. Only “trust” is even remotely economic.
The Medium Level: Hiring
Companies focus obsessively on salary and benefits because they are quantifiable. But candidates weigh factors that never appear in compensation packages:
- What will this company look like on my resume?
- Will I learn new skills or stagnate?
- Can I work remotely when I need to?
- Will my contributions be recognized?
Here is a statistic that should change how you think about compensation: 30% of employees prefer compliments over pay raises. Recognition is not a soft skill—it is a retention strategy.
And remember: people quit bosses, not jobs. A bad manager review on Glassdoor damages recruitment regardless of how competitive your compensation package is.
The Hard Level: Expansion and Opportunity
When pursuing new ventures, leaders need a decision rubric that goes beyond financial projections:
- Immediate calculable costs: The easy part—what shows up in spreadsheets
- Non-economic impacts: Effects on people, processes, and existing client relationships
- Values alignment: Does this fit who we are as a company?
- Messaging implications: How will this be perceived internally and externally?
Stephen Covey is advice applies: move quickly on problems, slowly on opportunities. The best deals are rarely the ones that require immediate decisions.
The Human Cost You Cannot Ignore
Claiming decisions are “just business” ignores human consequences—and those consequences affect your business whether you acknowledge them or not.
Warren Buffett said it takes a lifetime to build a reputation and five minutes to ruin it. When implementing changes that affect employees, you must explain your reasoning clearly. Transparent communication preserves company culture. Opacity destroys trust.
Three Takeaways for Better Decisions
1. Look Below the Waterline
Every decision is an iceberg. The visible factors—price, features, specifications—are the tip. The hidden factors below the surface often matter more.
2. Acknowledge Your Patterns
Accept that 80% of your choices are not purely economic. This is not a flaw to fix—it is human nature to work with. Understanding your emotional triggers makes you a better decision-maker, not a worse one.
3. Trust Experience (Sometimes)
Intuition based on accumulated wisdom has value. When something feels wrong despite looking right on paper, pay attention. Alternatively, when you are too close to a situation, seek outside perspectives.
Embrace Imperfect Information
Perfect data will never arrive. Analysis paralysis kills more opportunities than bad decisions do.
Business owners must become comfortable deciding with incomplete information. The alternative—waiting for certainty—is not actually an option.
This article is based on Season 2, Episode 4 of The Buck Stops Here podcast: “Economic Decision-Making is a Lie.”