Wk12 Lecture Pt2 Decision Making (Loss Aversion Losses have a much…
Wk12 Lecture Pt2
Self Interest Bias
Check the vested interests of recomendations although the trick is to calculate whether it affects the outcome
Group could display sham unity. Resolve by soliciting dissenting opinion
Feelings of positives and negatives from feelings, ie emotional effect. QUality check
Heuristics - the tendency to emphasis a memorable success. Resolve by asking for more analysis and rigourously check the similarity
Similar to a lawyer or prosecution, confirmation bias will incline towards selectivity towards evidence that corresponds with our opinion. Resolve by asking if credible alternatives have been considered. Request additional options in addition
Assuming that what is seen is all that there is. If we had to make this decision in a years time would we want more information.
Is tendency to rely heavily on the first piece of information offered. Resolve by understanding where the numbers or info came from, which are facts and which are estimates. Who issued them? Understand that estimates are set on historical events which are anchors
The assumption that a highly regarded company or managers turn everything they touch into gold, despite evidence. Resolve for asking for comparable evidence or examples. Assess the relevance of the comparison and if a company or manager were effective in one, then another?
Sunk Cost Fallacy
Mistake in reasoning when past costs which cannot be recovered are included in decisions to the ignoring of current and or future costs. "Throwing good money after bad".
Concorde is a good example
This can be countered by taking the original decision maker out and introducing a fresh pair of eyes. Consider it as if you were new to the job.
Disregard unrecoverable costs which no longer affect revenues.
An overly optimistic judgement of the outcome despite evidence.
Resolve by asking "Is the base case overly optimistic?" and look from an outsider's perspective. Groups with a successful streak are more prone to this. Another aspect is failing to consider the competitor's reaction and the knock-ons.
Check if the worst case scenario is bad enough and perform an imaginary post mortem to identify where it went wrong
Losses have a much larger psychological impact than gain.
Counter by asking if the team is overly cautious. Realign incentives to share the risk.
Why are we deciding or not deciding anything at all? Scan for problems opportunities and threats
Who makes the decisions and how? Understand the various methods, advantages and disadvantages
What resources will be included? Weigh material and emotional resources and costs needed - ensure that the outcome/benefit outweighs the costs
What could happen as a result of a particular course of action.
Which of the things that could happen, would happen?
What are the potential responses to the prob or opportunity? Evaluate, looking for evidence etc to find 'ideal'
How much would stakeholders care if a particular outcome was realised?
How would we evaluate trade offs?
Use formal trade off tools
How can we get stakeholders to agree?
Search for objections, identify the likely objectors, anticipate the objections and refine the decision or persuasion
How do we ensure that the decision will be carried out?
Allocate adequate resources. Ensure management attention
Bias checking Recommendations
Kahneman's 12 step checklist
The 12 Cardinal Issues