Traps are certain psychological elements that may influence our mind potentially impacting the quality of decisions. Knowingly or unknowingly our mind responds to these traps that plays by itself or even in concert with other traps complicating the decisions. Higher the stakes more complicating the decision making process will be, consequently there is a likelihood of multiple decision making traps playing in tandem. Traps form a irrational anomaly in our thinking process that we tend to ignore or fail to realize, we fail to recognize even when we fall right into it.
Anchoring Traps: Anchors take many guises, it can as simple as a comment from a friend or a statistic appeared in the newspaper. In business one of the most common types of anchor is past data, for example sales people try to predict future sales based on previous trend in which the old data becomes the anchor. This approach, while lead to reasonably accurate estimate, tends to give too much weight to past events and not enough weight to other factors. In situations characterized by rapid changes in the market place, anchors can lead to poor forecasts and in turn misguided choices. This is how you avoid anchor traps.
• View the problem from different perspectives.
• Think the problem by your own before consulting with others to avoid becoming anchored by their ideas.
• If you are seeking advice from your consultants or employees don’t give them too much information to avoid anchoring them on your ideas.
Status-Quo Trap: Decision makers seem to show strong bias towards alternatives that perpetuate status quo. We can see this tendency whenever a radically new product is introduced; latest example is the iPad, a contraption for someone with fat fingers and no friends to call. Age-old example, the first cars introduced called “horseless carriages”, looked very much like the buggies they replaced. The source of status quo trap lies deep in our minds, in our desire to protect our egos. Breaking from status quo means taking action, taking action means exposing our self to criticism and regret. Not surprisingly we look reasons to do nothing.
• Never think status quo as your only alternative. Identify other options to counterbalance.
• Avoid exaggerating the effort or cost involved in deviating from status quo.
• Desirability of status quo will change overtime, think comparatively always evaluate them in future and present terms.
Sunk cost Trap: Making choices in a way to justify past choices. Sunk cost economists term – old investments of time and money that cannot be recovered. We may have poured enormous effort and time into improving the performance of an employee whom we knew we shouldn’t have hired in the first place. It is because we are unwilling consciously or not to admit the mistake. Because if you fire a poor performer whom you hired, you’re making a public admission of poor judgment. It seems psychologically safe to let him stay on, even though the choice only compounds to error. In business terms it is like throwing good money after bad.
• Don’t cultivate a failure fearing culture to perpetuate mistakes. If you realize you screwed up, fixed it immediately before you move on.
• Examine why admitting to a previous mistake bothers you. If you think the problem lies within your wounded self-esteem deal with it head on, remember even smart choices can yield undesirable consequences.
Confirming evidence Trap: This bias leads us to seek information inclined towards the idea or point of view while avoiding the information contradicting it, leading us to give a lot of weight for supporting information and too little to contradicting information. This is because of our tendency to subconsciously decide what we want to do before figuring out why we want to do it.
• Examine all options with equal rigor.
• Consult with someone who is willing to play the role of a devils advocate.
Framing Trap: The way a problem is framed profoundly influences our choices. In a case involving automobile insurance, for example, framing made $200 million difference. To reduce insurance costs, two neighboring states, New Jersey and Pennsylvania made similar changes in their laws. Each state gave drivers a new option: By accepting a limited right to sue, they could lower premium rates. But the two states framed the choices in different ways. In New Jersey you automatically got the limited right to sue unless you specified otherwise; in Pennsylvania, you got the full right to sue unless you specified otherwise. As a result in New Jersey 80% chose limited right to sue, but in Pennsylvania only 25% did. Because the way Pennsylvania framed the choice, they failed to realize the savings.
• Try to reframe the problems in various ways.
• When others recommend decisions, examine the way they framed the problem. Challenge them with different frames.
Estimating and Forecasting Traps: Most of us are adept in making estimates of volume, size and distance under broad daylight. Our ability to estimate gets hazy when there is a lack of adequate visibility. Following traps fall under this category.
Overconfidence Trap: Overly confident about the accuracy of the predictions, most of us set too narrow a range of possibilities. As a result underestimating lower edge of possibilities and overestimating the higher edge.
Prudence Trap: When faced with high-stakes decisions, we tend to adjust our estimates or forecasts “Just to be on the safe side” due to over cautiousness.
Recallability Trap: Even if we are neither overly confident nor unduly prudent, we can still fall into a trap when making estimates or forecasts. Because we frequently base our predictions about future events on our memory of past events. For example, you’ll assign a higher probability to traffic accidents if you happen to pass through one. This trap distorts your ability to recall events in a balanced way distorting probability assessments.
• Take disciplined approach to make forecasts and probabilities.
• Forewarned is forearmed.
Subscribe to:
Post Comments (Atom)
I agree 100%
ReplyDelete