Elements Consulting

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Am I Making Bad Decisions? (Part II)

Posted by elementsconsulting on May 27, 2016 at 12:55 AM

 

Last week we reviewed three of the seven hidden decision traps that can sink a leader while making decisions; the anchoring trap, the status-quo trap, and the sunk cost trap. This week we will continue with the remaining four.

 

The Confirming-Evidence Trap

This bias leads us to seek out information that supports our existing instinct or point of view while avoiding information that contradicts it. The confirming-evidence bias not only affects where we go to collect evidence but also how we interpret the evidence we do receive, leading us to give too much weight to supporting information and too little to conflicting information. There are two psychological forces at work here. The first is our tendency to subconsciously decide what we want to do before we figure out why we want to do it. The second is our inclination to be more engaged by things we like than by things we dislike—we are drawn to information that supports our subconscious leanings.

What can you do about it?

• Avoid the tendency to accept confirming evidence without question.

• Get someone you respect to play devil’s advocate, to argue against the decision you’re contemplating.

• Be honest with yourself about your motives. Are you really gathering information to help you make a smart choice, or are you just looking for evidence confirming what you think you’d like to do?

 

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. There are two types of frames that distort decision making: gains vs. losses frame and frame with different reference points. The gains vs. losses frame reveals that individuals 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. Also, they tend to adopt whatever frame, either gain or loss, that was presented to them rather than restate the problem. The frame with difference reference points suggests that when presented with information that poses losing over gaining triggers a negative response in many people and they do not opt for that choice.

What can you do about it?

• Don’t automatically accept the initial frame, whether it was formulated by you or by someone else. Always try to reframe the problem in various ways. Look for distortions caused by the frames.

• Think hard throughout your decision-making process about the framing of the problem.

• When others recommend decisions, examine the way they framed the problem.

 

The Estimating and Forecasting Traps

Many of us are adept at making estimates about time, distance and volume. This is due to the face that we are constantly making judgments bout these variable and getting quick feedback about the accuracy of those judgement. However, when we make estimates about uncertain events we rarely get clear feedback about our accuracy. As a result, our minds never become calibrated for making estimates in the face of uncertainty. There is a set of traps that can significantly impact our ability to make decisions in uncertain situations because they cloud our ability to assess probabilities and the three most common are:

The overconfidence trap

Even though most of us are not very good at making estimates or forecasts, we actually tend to be overconfident about our accuracy. That can lead to errors in judgment and, in turn, bad decisions. As a leader if we underestimate the high end or overestimate the low end of a crucial variable, we may miss attractive opportunities or expose ourselves to far greater risk than we realize.

The prudence trap

Another trap takes the form of overcautiousness, or prudence. When faced with high-stakes decisions, we tend to adjust our estimates or forecasts “just to be on the safe side.” This can also be seen in the s the methodology of “worst-case scenario,” which has been shown to add enormous costs to projects or ideas with no practical benefit.

The recallability trap

Because we frequently base our predictions about future events on our memory of past events, we can be overly influenced by dramatic events—those that leave a strong impression on our memory. In fact, anything that distorts your ability to recall events in a balanced way will distort your probability assessments.

What can you do about it?

• To reduce the effects of overconfidence in making estimates, always start by considering the extremes, the low and high ends of the possible range of values. This will help you avoid being anchored by an initial estimate. Then challenge your estimates of the extremes.

• To avoid the prudence trap, always state your estimates honestly and explain to anyone who will be using them that they have not been adjusted. Emphasize the need for honest input to anyone who will be supplying you with estimates.

• To minimize the distortion caused by variations in recallability, carefully examine all your assumptions to ensure they’re not unduly influenced by your memory. Get actual statistics whenever possible.

 

When it comes to decisions as a leader, there is rarely such a thing as a no-brainer. Our brains are always at work and sometimes in ways that actual hinder rather than help us. The best protection against these traps is awareness. Even if we cannot eradicate the distortions that have been ingrained in our brains, we can build tests and new routines that can uncover errors in our thinking before they become errors in our judgement.

 

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