The Cost of Decision Fatigue - Ideas for Leaders
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The Cost of Decision Fatigue

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Decision fatigue, a mental state that occurs after extended periods of making streams of decisions, influences decision makers to favour less-taxing “default” decisions. A new study, based on data from the banking sector, reveals the cost of such decisions, highlighting the importance of addressing decision fatigue. 


Repeatedly making decisions for extended periods of time is mentally taxing and leads to what psychologists call ‘decision fatigue’. As a result, the decision makers will revert to default decisions—decisions that require the least amount of mental work. For example, one study showed that judges tended to refuse parole at a greater rate during periods of fatigue that occur at the end of a long morning and at the end of a long day. In contrast, judges were more likely to grant parole during the periods of higher energy, such as first thing in the morning and right after lunch. Another study revealed the tendency of doctors, in periods of decision fatigue, to prescribe unnecessary antibiotics. 

The question remains, however: are the decisions made during periods of decision fatigue necessarily problematic? Perhaps it’s safer in the end to over-prescribe antibiotics, for example. 

A new study used the context of bank loans to determine—by calculating the costs of fatigue-influenced decisions by credit officers—if decisions made during periods of fatigue are problematic. 

The default decision in whether to approve or reject a loan application is the rejection of the loan—that is, mentally tired credit officers are more likely to reject than approve a loan. The question thus becomes: if credit officers had been less tired and had approved the loans they rejected, would the bank have made more money? In other words, did mental fatigue impact the quality of their decisions?

The researchers reviewed 26,501 loan restructuring decisions made by a large bank’s credit officers in March 2016. A time stamp indicated at which time of the day the decisions were made.

Loan restructuring decisions involve loans that the lender is having trouble paying. The lender thus makes a request to the bank to have the terms of the loans changed—that is, to restructure the loan. Because a bank makes less money on a restructured loan, it tries to minimize the number of restructurings. On the other hand, should the lender end up defaulting on the loan, the loss on the loan is even greater than the loss of a restructuring. 

On average, the credit officers processed 46 restructuring proposals per day, and rejected more than 60% of them. The default decision, therefore was rejection.

Analysing the decision outcomes (rejection or approval) with the time of the decisions, the researchers found that rejections increased toward the end of the morning, decreased after lunch, and increased after 5 p.m., as the day reached its end. The researchers determined, therefore, that the time of least fatigue was before 11 a.m. 

Through statistical modelling, they calculated the probability of a restructuring approval for the different times of the day. This probability figure allowed them to calculate how many restructurings rejected after 11 a.m. would have been approved had the decisions been made before 11 a.m. The answer: 569 additional restructured loans would have been approved had they been considered before 11 a.m.

Having identified exactly how many rejections could be linked to decision fatigue, the next question was to determine whether there was a cost to these rejections. 

Restructuring decisions have a measurable outcome: whether the lender repays the loan. In other words, if a credit officer rejects a restructuring proposal and the lender successfully repays the loan, the rejection was the right decision. If the lender defaults, a better decision would have been to approve the restructuring. This outcome measure allowed the researchers to quantify the quality of the credit officers decisions.

With further statistical analyses of the data—including calculating the probability of repayment of each of the loans under the two scenarios (rejection or approval)—the researchers determined that the 569 additional approvals lost to decision fatigue would have yielded $509,023 for the bank.

In short, the bank lost more than $500,000 in one month because of decisions negatively affected by decision fatigue.


The fact that energy levels are not constant throughout the day is well-known. For decision makers continuously making decisions, the mental fatigue that accumulates has a definite impact— an impact that this study reveals reduces the quality of those decisions. 

This study has important implications for banks in particular, but for all organizations in general. High-performance individuals are often admired for working long hours and taking on a higher work volume—doing more with less. This study quantifies what may be hidden in other contexts: that when our brain gets tired, our decision-making suffers. 

Companies should endeavour to mitigate the effect of mental fatigue, such as encouraging employees and managers to take short breaks rather than power through periods of fatigue. Skipping lunch or eating at your desk should also be discouraged. This apparent dedication of the employee may in fact be counterproductive—and costly.



  Tobias Baer’s website
  Simone Schnall’s profile at University of Cambridge


Quantifying the cost of decision fatigue: suboptimal risk decisions in finance. Tobias Baer & Simone Schnall. Royal Society Open Science (May 2021).

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Idea conceived

May 16, 2021

Idea posted

Sep 2021
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