The Hidden Traps in Decision Making

The Hidden Traps in Decision Making

1. Making decisions is the most important job of any executive.

   • We use unconscious routines in most decisions (heuristics)

2. Traps, flaws inthe way we think , anomalies in our thinking.

   • For executives, the psychological traps are especially dangerous

3. The Anchoring Trap

   • When considering a decision, the mind gives disproportionate weight to the first information it receives.
   • Past event or trend
     • Ex. In Sales, the voulne for past years become anchors
   • What can you do about it?
     • No one can avoid their influence, but can reduce their impact by using the following techniques
       • Always view a problem from different perspectives
       • Think about the problem on your own before consulting others
       • Be open-minded
       • Be careful to avoid anchoring your advisers
       • Be particularly wary of anchors in negotiations

4. The Status-Quo Trap

   • We all carry biases, and those biases influence the choices we make.
     • we can see this tendency whenever a radically new product is introduced
       • The source of the status-quo trap lies, in our desire to protect our egos from damage.
   • More choices you are given, the more pull the status quo has.
     • Where sins of commission tend to be punished much more severely than sins of omission, the status quo holds a particularly strong attraction
   • What can you do about it?
     • Always remind yourself of your objectives and examine how they would be served by the status quo
     • Never think of the status quo as your only alternative
     • Ask yourself whether you would choose the status-quo alternative if, in fact, it weren’t the status quo
     • Avoid exaggerating the effort or cost involved in switching from the status quo.
     • Remember that the desirability of the status quo will change over time
     • Force yourself to choose.

5. The Sunk-Cost Trap

   • Make choices in a way that justifies past choices, even when the past choices no longer seem valid
     • it’s because they are unwilling, consciously or not, to admit to a mistake.
       • Sometimes a corporate culture reinforces the sunk-cost trap
     • What can you do about it?
       • Seek out and listen carefully to the views of people who were uninvolved with the earlier decisions
       • Examine why admitting to an earlier mistake distresses you
       • Be on the lookout for the influence of sunk-cost biases in the decisions and recommendations made by your subordinates.
       • Don’t cultivate a failure-fearing culture that leads employees to perpetuate their mistakes

6. The Confirming-Evidence Trap

   • This bias leads us to seek out information that supports our existing instinct or point of view while avoiding information that contradicts it
     • Psychological forces at work here
       • Our tendency to subconsciously decide what we want to do before we figure out why we want to do it.
       • Our inclination to be more engaged by things we like than by things we dislike
   • What can you do about it?
     • Always check to see whether you are examining all the evidence with equal rigor.
     • Get someone you respect to play devil’s advocate, to argue against the decision you’re contemplating.
     • Be honest with yourself about your motives.
     • Don’t ask leading questions that invite confirming evidence

7. The Framing Trap

   • The way a problem is framed can profoundly influence the choices you make
     • Two types of frames
       • Frames as gains versus losses
       • Framing with different reference points
   • What can you do about it?
     • Don’t automatically accept the initial frame, whether it was formulated by you or by someone else.
     • Try posing problems in a neutral, redundant way that combines gains and losses or embraces different reference points
     • Think hard throughout your decision-making process about the framing of the problem
     • When others recommend decisions, examine the way they framed the problem

8. The Estimating and Forecasting Traps

   • The overconfidence trap
     • We actually tend to be overconfident about our accuracy
     • In picking the top number of the range, they were asked to choose a high estimate they thought had only a 1% chance of being exceeded by the closing value
   • The prudence trap
     • When faced with high-stakes decisions, we tend to adjust our estimates or forecasts “just to be on the safe side.”
   • The recallability trap.
     • We frequently base our predictions about future events on our memory of past events, we can be overly influenced by dramatic events – those that leave a strong impression on our memory
   • What can you do about it?
     • Always start by considering the extremes, the low and high ends of the possible range of values
     • always state your estimates honestly and explain to anyone who will be using them that they have not been adjusted.
     • examine all your assumptions to ensure they’re not unduly influenced by your memory