In making decisions, your own mind may be your worst enemy.
from the 1998 HBR article The Hidden Traps in Decision Making
From the article, there are well-documented psychological traps that undermine our decision making. They are as follows:
Just click on the psychological trap you want to explore further.
The anchoring trap
“When considering a decision, the mind gives disproportionate weight to the first information it receives. Initial impressions, estimates, or data anchor subsequent thoughts and judgments.”
“Because anchors can establish the terms on which a decision will be made, they are often used as a bargaining tactic by savvy negotiators.”
From the article, here’s what you can do about it:
- Always view a problem from different perspectives. Try using alternative starting points and approaches rather than sticking with the first line of thought that occurs to you.
- Think about the problem on your own before consulting others in order to avoid becoming anchored by their ideas.
- Be open minded. Seek information and opinions from variety of people to widen you frame of reference and to push your mind in fresh directions.
- Be careful to avoid anchoring your advisers, consultants, and others from whom you solicit information and counsel. Tell them as little as possible about your own ideas, estimates, and tentative decisions. If you reveal too much, your own pre-conceptions may simply come back to you.
- Be particularly weary of anchors in negotiations. Think through your position before any negotiation begins in order to avoid being anchored by the other party’s initial proposal. At the same time, look for opportunities to use anchors to your own advantage — if you’re the seller, for example, suggest a high, but defensible, price as an opening gambit.
The status-quo trap
“We all like to believe that we make decisions rationally and objectively. But the fact is, we all carry biases, and those biases influence the choices we make.”
“The source of the status-quo trap lies deep within our psyches, in our desire to protect our egos from damage. Breaking from the status quo means taking action, and when we take action, we take responsibility, thus opening ourselves to criticism and to regret. Not surprisingly, we naturally look for reasons to do nothing. Sticking with the status quo represents, in most cases, the safer course because it puts us at less psychological risk.”
From the article, here’s what you can do about it:
- Always remind yourself of your objectives and examine how they would be served by the status quo. You may find that elements of the current situation act as barriers to your goals.
- Never think of the status quo as your only alternative. Identify other options and use them as counter-balances, carefully evaluation all the pluses and minuses.
- Ask yourself whether you would choose the status-quo alternative if, in fact, it weren’t the status quo.
- Avoid exaggerating the effort of cost involved in switching from the status quo.
- Remember that the desirability of the status quo will change over time. When comparing alternatives, always evaluate them in terms of the future as well as the present.
- If you have several alternatives that are superior to the status quo, don’t default to the status quo just because you’re having a hard time picking the best alternative. Force yourself to choose.
The sunk-cost trap
“Another of our deep-seated biases is to make choices in a way that justifies past choices, even when the past choices no longer seem valid.”
“Why can’t people free themselves from past decisions? Frequently, it’s because they are unwilling, consciously or not, to admit to a mistake.”
From the article, here’s what you can do about it:
- Seek out and listen carefully to the views of people who were uninvolved with the earlier decisions and who are hence unlikely to be committed to them.
- Examine why admitting to an earlier mistake distresses you. If the problem lies in you own wounded self-esteem, deal with it head-on. Remind yourself that even smart choices can have bad consequences, through no fault of the original decision maker, and that even the best and most experienced managers are not immune to errors in judgment. Remember the wise words of Warren Buffet: “When you find yourself in a hole, the best thing you can do is stop digging.”
- Be on the lookout for the influence of sunk-cost biases in the decisions and recommendations made by your subordinates. Reassign responsibilities when necessary.
- Don’t cultivate a failure-fearing culture that leads employees to perpetuate their mistakes. In rewarding people, look at the quality of their decision making (taking into account what was known at the time their decisions were made), not just the quality of the outcomes.
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.”
“The confirming-evidence bias not only affects where we go to collect evidence but also how we interpret the evidence we do receive, leading us to give too much weight to supporting information and too little to conflicting information.”
From the article, here’s what you can do about it:
- Always check to see whether you are examining all the evidence with equal rigor. Avoid the tendency to accept confirming evidence without question.
- Get someone you respect to play devil’s advocate, to argue against the decision you’re contemplating. Better yet, build the counterarguments yourself. What’s the strongest reason to do something else? The second strongest reason? The third? Consider the position with an open mind.
- Be honest with yourself about your motives. Are you really gathering information to help you make a smart choice, or are you just looking for evidence confirming what you think you’d like to do?
- In seeking the advice of others, don’t ask leading questions that invite confirming evidence. And if you find that an adviser always seems to support your point of view, find a new adviser. Don’t surround yourself with yes-men.
The framing trap
“The first step in making a decision is to frame the question. It’s also one of the most dangerous steps. The way a problem is framed can profoundly influence the choices you make.”
“A frame can establish the status quo or introduce an anchor. It can highlight sunk costs or lead you toward confirming evidence.”
Two types of frames that distort decision making with particular frequency:
- Frames as gains versus losses — “…people are risk averse when a problem is posed in terms of gains but risk seeking when a problem is posed in terms of avoiding losses. Furthermore, they tend to adopt the frame as it is presented to them rather than restating the problem in their own way.”
- Framing with different reference points
From the article, here’s what you can do about it:
- Don’t automatically accept the initial frame, whether it was formulated by you or by someone else. Always try to reframe the problem in various ways. Look for distortions caused by the frames.
- 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. At points throughout the process, particularly near the end, ask yourself how your thinking might change if the framing changed.
- When others recommend decisions, examine the way they framed the problem. Challenge them with different frames.
Estimating and Forecasting Traps
The overconfidence trap
“Even though most of us are not very good at making estimates or forecasts, we actually tend to be overconfident about our accuracy. That can lead to errors in judgment and, in turn, bad decisions.”
The prudence trap
“When faced with high-stakes decisions, we tend to adjust our estimates or forecasts “just to be on the safe side.”
“…too much prudence can sometimes be as dangerous as too little.”
The recallability trap
“Because 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.”
From the article, here’s what you can do about them:
- Take a very disciplined approach to making forecasts and judging probabilities.
- To reduce the effects of overconfidence in making estimates, always start by considering the extremes, the low and high ends of the possible range of values. This will help you avoid being anchored by an initial estimate. Then challenge your estimates of the extremes. Try to imagine circumstances where the actual figure would fall below your low or above your high, and adjust your range accordingly. Challenge the estimates of your subordinates and advisers in a similar fashion. They’re also susceptible to overconfidence.
- To avoid the prudence trap, always state your estimates honestly and explain to anyone who will be using them that they have not been adjusted. Emphasize the need for honest input to anyone who will be supplying you with estimates. Test estimates over a reasonable range to asses their impact. Take a second look at the more sensitive estimates.
- To minimize the distortion caused by variations in recallability, carefully examine all you assumptions to ensure they’re not unduly influenced by your memory. Get actual statistics whenever possible. Try not to be guided by impressions.
jessa 