Decision-making is the essential duty of an executive. It is not unusual to hear reports claim to be responsible for the organisation’s success because they are involved in the activities that produce the result. The organisation’s salesperson thinks there won’t be revenue without him, or he needs to be paid higher than everyone else. The factory boys also have the same ideas. Sometimes, even the cleaners or the loading and offloading boys also think they should earn more. Someone said, “What do they do in that office rather than drinking tea- and they earn a lot of money.”
An executive role is significant and justifies his pay because his decision impacts the company’s overall success. He is the one that determines where the organization goes and how they get to its destination. Making that kind of decision does not fall on people’s lap- it is borne out of an analytical mind of weighing many options and deciding on one of them. Many managers with good motives still fall under the traps of biases. I want to discuss one of those traps.
The Anchoring Trap
This is the trap of deciding based on the first information you have received. It means we anchor our decision on the previous decision. Past events or trends might serve as the anchor. For instance, if you want to forecast the following season, you will likely use what had happened previously and make adjustments based on that information. Last year, diesel was about 300 naira, and when we were making our projection- we made a 15% adjustment, hoping that the price would not be higher than that. Six months later, the diesel price had jumped to 800 naira per litre. It was similar to the price of fertilizer this year- historically, fertilizer prices are lowest in December/January. Many buy in January to save costs or sell at a higher price. Unfortunately, this year, the price of fertilizer has been the highest in January, and it has been falling every month. If we had done some research to check global trends and the impact of the Russia/Ukraine war on fertilizer prices, our projection would have been better. Another good example happens in negotiation: The seller gives you a price triple the actual price, and you haggle with him and reduce about 50% from the actual price. You go home happy that you have made a good choice, and he also goes home delighted that he has fleeced you. If you had a pricing position in mind, this would have been slightly different. What can you do so as not to avoid falling into this trap?:
- Always view a problem from different perspectives: Use alternative points rather than sticking with the first line that occurs to you.
- Think independently about the problem before consulting others to avoid anchoring on their ideas. If you do not have a position beforehand, the role of the adviser will form the benchmark of your decision.
- Seek broad opinions and information. Tell them a little about your ideas so that your thoughts do not sway them.
UNDERSTANDING THE NATURE OF HUMANS