Big Sky Thinking

In our previous post in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the final trap, the “The Estimating and Forecasting Trap”. Even though most of us are not very good at making estimates, we tend to be overconfident about our accuracy – which can lead to bad decisions. There are three different traps that can have a particularly distorting effect in uncertain situations because they cloud our ability to assess probabilities.

1. The Overconfidence Trap – Tend to be overconfident about our accuracy
   


2. The Prudence Trap – Over-cautiousness or prudence
   


3. The Recallability Trap – Base predictions of future events on the memory of past events.
   

Big Sky sees this trap in our clients especially when executives have strong domain or market experience. In addition, because very experienced people have excellent instincts, they can overlook trends that change the implicit assumptions in their mental decision-making process. For example, Clayton Christensen’s work on Innovation shows how the excellent customer-focused instincts of executives can actually crush the development of new, market-changing products. You can read more about Christensen’s “Innovator’s Dilemma” here.

1. Start by considering the extremes, the low and high ends of the possible range of values
   


2. Challenge estimates of your subordinates and advisers (overconfidence trap)
   


3. Always state your estimates honestly and explain to anyone if or not the estimates have been adjusted (prudence trap)
   


4. Carefully examine all your assumptions to ensure they’re not unduly influenced by your memory (recallability trap)
   

Closing thoughts on Decision-Making:

When it comes to business decisions, there’s rarely such a thing as a no-brainer. Our brains are always at work, sometimes, unfortunately, in ways that hinder rather than help us. At every stage of the decision-making process, misperceptions, biases, and other tricks of the mind can influence the choices we make.

The best protection against all psychological traps – in isolation or in combination – is awareness. Forewarned is forearmed. Even if you can’t eradicate the distortions ingrained into the way your mind works, you can build tests and disciplines into your decision-making process that can uncover errors in thinking before they become errors in judgment.

Labels: decision optimization

In our previous post in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the fifth trap, the “The Framing Trap” which states that the way a problem is framed can profoundly influence the choices one makes. Research proves that 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.

Big Sky sees this trap in our clients especially when executives consciously or unconsciously frame the problem such that their proposed solution seems to be the best answer. Also, executives might focus on highlighting their pain areas which might not be a pain area for somebody else.

Techniques to overcome:

1. Don’t automatically accept the initial frame, try posing problems in a neutral redundant way that combines the gains and losses or embraces different reference points
2. Think hard throughout your decision-making process about the framing of the problem, and when others recommend decisions, examine the way they framed the problem.

Labels: decision optimization