4 A psychological perspective

4.1 Introduction

A psychological perspective does not start from the assumption that people are fundamentally irrational. Rather, it emphasises a different logic: a logic that meets the challenges we have evolved to face (Calne, 1999). For much of our evolution we have faced an environment with major differences from the modern business world. We have developed a range of cognitive mechanisms to cope with adverse environments in which resources are scarce. These include a range of simplifying and confidence-sustaining mental short cuts (heuristics) that help us to make quick decisions when pausing to undertake a full analysis would be unwise (Gigerenzer et al., 1999). While these ways of thinking do not accord with rigorous logic or formally rational reasoning, they are well suited to fast-paced intuitive judgements and actions (Nicholson, 2000). However, these evolved modes of thinking also create some major traps.