The latest Harvard Business Review (subs only) is a special issue on Decision Making. Found a gem which I summarized and quoted lavishly from.
The Hidden Traps in Decision Making explores troubling heuristics – "unconscious routines to cope with the complexity inherent in most decisions" – that can screw up good decision making processes. Mental shortcuts and biases are essential in some cases, but it behooves every life entrepreneur to avoid the psychological traps that can undermine day-to-day decisions.
The Anchoring Trap
How would you answer these two questions?
Is the population of Turkey greater than 35 million?
What’s your best estimate of Turkey’s population?
"Because anchors can establish the terms on which a decision will be made, they are often used as a bargaining tactic by savvy negotiators."
So…"Be careful to avoid anchoring your advisers, consultants, and others from whom you solicit information and counsel. Tell them as little as possible about your own ideas, estimates, and tentative decisions. If you reveal too much, your own preconceptions may simply come back to you."
The Status Quo Trap
Decision makers display, for example, a strong bias toward alternatives that perpetuate the status quo….The source of the status-quo trap lies deep within our psyches, in our desire to protect our egos from damage. Breaking from the status quo means taking action, and when we take action, we take responsibility, thus opening ourselves to criticism and to regret. Not surprisingly, we naturally look for reasons to do nothing. Sticking with the status quo represents, in most cases, the safer course because it puts us at less psychological risk."
Of course, one of the golden rules for life entrepreneurs is to challenge the status quo every step of the way!
Sunk Cost Trap
"Another of our deep-seated biases is to make choices in a way that justifies past choices, even when the past choices no longer seem valid…Why can’t people free themselves from past decisions? Frequently, it’s because they are unwilling, consciously or not, to admit to a mistake.
The Confirming-Evidence Trap
"There are two fundamental 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—a tendency well documented even in babies. Naturally, then, we are drawn to information that supports our subconscious leanings."
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.The framing trap can take many forms, and as the insurance example shows, it is often closely related to other psychological traps. A frame can establish the status quo or introduce an anchor. It can highlight sunk costs or lead you toward confirming evidence. Decision researchers have documented two types of frames that distort decision making with particular frequency:
Frames as gains versus losses.
Framing with different reference points
The Estimating and Forecasting Traps
"Most of us are adept at making estimates about time, distance, weight, and volume. That’s because we’re constantly making judgments about these variables and getting quick feedback about the accuracy of those judgments. Through daily practice, our minds become finely calibrated.
Making estimates or forecasts about uncertain events, however, is a different matter.
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.
The prudence trap. Another trap for forecasters 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.”
The 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, we can be overly influenced by dramatic events—those that leave a strong impression on our memory. We all, for example, exaggerate the probability of rare but catastrophic occurrences such as plane crashes because they get disproportionate attention in the media."
Concluding Thought: "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."