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1已有 244 次阅读  2011-06-13 14:22
The Hidden Traps in Decision Making

1.       Anchoring

a. When considering a decision, the mind gives preference to the information it had first received – initial impressions, estimates or data anchor subsequent thoughts and judgements.  So we use past events, such as previous year’s sales figures for sales forecasting, etc

What can we do about it?

a)        View a problem from different perspectives to gain clarity

b)        Think about the problem on your own before consulting others

c)         Be open minded – seek information and opinion from others

d)        Be careful and avoid passing your anchoring (biases, etc) to your advisers and consultants  - to get a better input from them

e)        In negotiations à think through your position and avoid being anchored by other parties initial offer


2.       Status Quo Trap

a. We normally stick to the option we have because we don’t want to “rock the boat”. Breaking from the status quo means that we will need to take action, we take responsibility this opening ourselves to criticism or regret.  Sticking with it on the other hand is a safer course because it puts us at less psychological risk.

What can we do about it?

f)         Become aware of the status quo trap – review your objective and examine how they would be served by the status quo

g)        Never think of status quo as the only alternative – consider your options, weigh it out, challenge the status quo

3.       The Sunk Cost Trap

a. These are old investments of time and money that are now irrecoverable.  We know rationally that sunk costs are irrelevant to the present decision but we normally stick to our previous decisions / actions and don’t admit mistakes.  This then lead to inappropriate decisions in the future.

b.      If the penalties for making a decision that leads to an unfavourable outcome are severe, managers will be motivated to drag on endlessly.

What can we do about it?

h)        Examine why admitting to an earlier mistake distresses you à admit your mistake and move on rather than dwell on it.

i)          Warren Buffet ->> “when you find yourself in a hole, stop digging”.

j)          Stop cultivating a failure fearing culture that leads to employees perpetuating their mistakes. 

4.       The Confirming Evidence Trap

a. It’s a bias that leads us to seek information that supports our existing instinct or point of view while avoiding information that contradicts it. 

What can we do about it?

k)        Examine all evidence with equal rigor

l)          Get someone to play devil’s advocate -> argue against the decision you are contemplating

5.       The Framing Trap

a. The way we frame a question can influence the way you make decisions.

b.      Two types of alternatives that we often use

                                                              i.    Gain vs loss

                                                            ii.    Difference reference point

What can we do about it?

m)      Always try to reframe the problem in various way – use similar approach as anchoring

n)        When others recommend decisions, examine the way they framed the problem


6.       Estimating and Forecasting Trap

a. These include

                                                              i.    The over confidence trap – even though most of us are not very good at estimates  we tend to be overconfident about our accuracy

                                                            ii.    The prudence trap – we try to be overcautious ->> “just to be on the safe side”

                                                          iii.    The recall ability trap - we frequently base our predictions about future events  on our memory of past events – esp those that leave a strong impression on our memory

What can we do about it?

o)        To reduce the effect of overconfidence, always start by considering the two extremes (lower end and higher end) -> then challenge your estimates of the extremes

p)        To reduce the prudence trap, test estimates over a reasonable range to assess their impact

q)        And to minimise distortion cause by recollection of memories, examine your assumptions to help identify the anchoring

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