Understanding Decision Fatigue in Investment Professionals: A Case Study on Mandla

Introduction

Decision fatigue is a cognitive condition where the quality of decisions deteriorates due to mental exhaustion from prolonged decision-making. This phenomenon is particularly prevalent in high-stakes industries like investment management, where professionals are required to make critical financial decisions daily. The case of Mandla, a portfolio manager at an investment firm, illustrates how decision fatigue can impact professional performance and lead to costly mistakes. To better understand his struggles, we can analyze his experience through the lenses of Ego Depletion Theory, Hick’s Law, and Prospect Theory.

Ego Depletion Theory

The Mental Energy Drain Ego Depletion Theory, introduced by Baumeister et al. (1998), posits that self-control and decision-making draw from a finite pool of mental resources. Each decision Mandla makes throughout the day—whether adjusting portfolios, assessing risk, or strategizing with clients—gradually drains his cognitive energy. By the time he reaches the crucial client meeting, his mental reserves are depleted, making it difficult to think critically and assertively. This depletion explains why he hesitated in front of the client, appearing uncertain and indecisive despite his expertise.

Hick’s Law

The Paralysis of Too Many Choices Hick’s Law (Hick & Hyman, 1952) states that as the number of choices increases, decision-making slows down. Investment professionals like Mandla must process vast amounts of financial data, economic indicators, and market fluctuations. Each portfolio decision involves multiple variables, from asset diversification to risk assessments. As these choices accumulate, Mandla's cognitive load increases, making it harder for him to process information efficiently. This overload contributes to his procrastination and second-guessing, preventing him from making timely and confident investment decisions.

Prospect Theory

The Risk-Aversion Bias Under Fatigue Prospect Theory, developed by Kahneman and Tversky (1979), explains how people assess risk and uncertainty with inherent biases. When suffering from decision fatigue, individuals tend to become more risk-averse, fearing potential losses more than they value potential gains. Mandla's hesitation during the client meeting aligns with this theory—his mental exhaustion made him overly cautious, preventing him from making decisive portfolio adjustments. Instead of taking a balanced approach to risk, he delayed his decision, leading to client dissatisfaction and a loss of confidence in his abilities.

Conclusion

Mandla’s case highlights the detrimental effects of decision fatigue on investment professionals. His struggles align with Ego Depletion Theory, which explains his diminishing mental energy; Hick’s Law, which reveals how too many choices slow decision-making; and Prospect Theory, which demonstrates how fatigue amplifies risk aversion. Recognizing these psychological and behavioral patterns is essential for firms and professionals to implement strategies that reduce decision fatigue, ensuring better judgment and sustained performance in high-pressure environments.