Hidden Traps in Decision Making

We can learn to be alert to our biases and compensate for them by monitoring our decision making so that our thinking traps don’t cause judgment disasters.

Thinking Traps

Psychological traps that are particularly likely to undermine business decisions.

1. Anchoring: Giving disproportionate weight to the first information you receive. A past decision or trend are common types of anchors in business. The consultants could have been much more aggressive and creative in their counter- proposal—reducing the initial price to the low end of market rates, adjusting rates biennially rather than annually, putting a cap on the in- creases, defining different terms for extending the lease, and so forth—but their thinking was guided by the owners’ initial proposal.
2. Status quo: Favoring alternatives that perpetuate the existing situation. The current situation. The way things are now he’s content with the status quo and isn’t looking for change (affects innovation) Mountain man the fonder refused to bend to making a new line of beer because they have been set in their ways of making strong lager.
3. Sunk costs: Making choices in a way that justifies past, flawed choices. People don’t like to make a public admission of poor judgment. It seems psychologically safer to not. The new banker was able to take a fresh, unbiased look at the merit of offering more funds.
4. Confirming evidence: Seeking information that supports your existing point of view. We tend to seek advice from people we know will tell us wat we want to hear as oppose to people who are experts or neutral in the situation.
   • Check whether you’re examining all evidence with equal rigor.
   • Ask a respected colleague to argue against your potential decision.
5. Estimating and forecasting: Being overly influenced by vivid memories when estimating
   • The decisions we make can be affected by (the decision maker):
     • the alternatives not clearly defined,
     • the right information was not collected,
     • the costs and benefits were not accurately weighed.
   • the Best Defence is always awareness and our objective in every situation or decision is key because that will drive us from drifting or sticking with the norm or falling into the thinking traps.
6. 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.
   • Frames as gains versus losses: that people are risk averse when a problem is posed in terms of gains (barges saved) but risk seeking when a problem is posed in terms of avoiding losses (barges lost).
   • Frames with different reference points: The second frame, with its reference point of $2,000, puts things into perspective by emphasizing the real financial impact of the decision. It embraces different reference points.

Forewarned is forearmed

A dramatic first impression might anchor our thinking, and then we might selectively seek out confirming evidence to justify our initial inclination. We make a hasty decision, and that decision establishes a new status quo. As our sunk costs mount, we become trapped, un- able to find a propitious time to seek out a new.

In summary, the best protection against all psychological traps is being aware of your biases.