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planninganddecisionmakingch12class18.pptxJudgment in Managerial Decision Making 8e Chapter 12 Improving Decision Making
Copyright 2013 John Wiley & Sons
1
Acquire Expertise
Presumably, experience should allow people to overcome biases, as it allows them to learn from feedback of past decisions
Yet, there is a great deal of evidence indicating that people experience difficulty in learning from past experience
Difficulties in learning from feedback
Accurate and immediate feedback rare
(i) outcomes are commonly delayed and not easily attributable to a particular action; (ii) variability in the environment degrades the reliability of feedback ; (iii) there is often no information about what the outcome would have been if another decision had been taken; and (iv) most important decisions are unique and therefore provide little opportunity for learning
people misremember their forecasts because they anchor to current states of the world and fail to accurately recall their prior predictions
One issue with much of what we have covered throughout this course is that much of the evidence supporting it was derived from experiments conducted on undergraduate students with little to no experience in the tasks that they were being asked to conduct.
Presumably, experience should allow people to overcome biases, as it allows them to learn from feedback.
Though this seems like a reasonable assumption, there is a great deal of evidence that people experience difficulty in learning from past experience.
People who play the “Acquire a Company” problem that we discussed earlier (the one where a rational decision-maker would realize that because a hypothetical target company will have more information about the outcome of an oil exploration project than the acquiring company, the acquiring company should not make an offer to acquire the target company) exhibited no learning after playing the game 20 times and receiving outcome feedback immediately after each game. They continued to make bids in the range of $50-$75 even though not making a bid is the optimal decision.
Negotiators reduce the tendency to overestimate the size of the bargaining zone in their negotiations, but there is no evidence that experience reduces other errors or leads to improved performance.
There are several reasons that are responsible for these difficulties in learning through experience:
Feedback is rarely accurate, immediate, and unambiguous.
Even when feedback does meet these criteria, evidence suggests that people misremember their forecasts because they anchor to current states of the world and fail to accurately recall their prior predictions. This prevents the process of learning to make more accurate forecasts, as people fail to underestimate the extent to which they erred in the first place.
Given that experience alone does not necessarily improve the quality of one’s future decisions, people should focus on acquiring “expertise” rather than experience.
Expertise involves the development of a strategic concept for what constitutes rational decision making in a given situation and for learning to overcome the potential biases that may arise in the situation.
It involves constant monitoring of our decision-making processes.
It also can be taught to others, unlike experience.
2
Acquire Expertise
Given that experience alone does not necessarily improve the quality of one’s future decisions, people should focus on acquiring “expertise” rather than experience.
Expertise involves the development of a strategic concept for what constitutes rational decision making in a given situation and for learning to overcome the potential biases that may arise in the situation.
It involves constant monitoring of our decision-making processes.
It also can be taught to others, unlike experience.
One issue with much of what we have covered throughout this course is that much of the evidence supporting it was derived from experiments conducted on undergraduate students with little to no experience in the tasks that they were being asked to conduct.
Presumably, experience should allow people to overcome biases, as it allows them to learn from feedback.
Though this seems like a reasonable assumption, there is a great deal of evidence that people experience difficulty in learning from past experience.
People who play the “Acquire a Company” problem that we discussed earlier (the one where a rational decision-maker would realize that because a hypothetical target company will have more information about the outcome of an oil exploration project than the acquiring company, the acquiring company should not make an offer to acquire the target company) exhibited no learning after playing the game 20 times and receiving outcome feedback immediately after each game. They continued to make bids in the range of $50-$75 even though not making a bid is the optimal decision.
Negotiators reduce the tendency to overestimate the size of the bargaining zone in their negotiations, but there is no evidence that experience reduces other errors or leads to improved performance.
There are several reasons that are responsible for these difficulties in learning through experience:
Feedback is rarely accurate, immediate, and unambiguous.
Even when feedback does meet these criteria, evidence suggests that people misremember their forecasts because they anchor to current states of the world and fail to accurately recall their prior predictions. This prevents the process of learning to make more accurate forecasts, as people fail to underestimate the extent to which they erred in the first place.
Given that experience alone does not necessarily improve the quality of one’s future decisions, people should focus on acquiring “expertise” rather than experience.
Expertise involves the development of a strategic concept for what constitutes rational decision making in a given situation and for learning to overcome the potential biases that may arise in the situation.
It involves constant monitoring of our decision-making processes.
It also can be taught to others, unlike experience.
3
Acquire Expertise
In the words of Confucius:
“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third, by experience, which is the bitterest.”
One issue with much of what we have covered throughout this course is that much of the evidence supporting it was derived from experiments conducted on undergraduate students with little to no experience in the tasks that they were being asked to conduct.
Presumably, experience should allow people to overcome biases, as it allows them to learn from feedback.
Though this seems like a reasonable assumption, there is a great deal of evidence that people experience difficulty in learning from past experience.
People who play the “Acquire a Company” problem that we discussed earlier (the one where a rational decision-maker would realize that because a hypothetical target company will have more information about the outcome of an oil exploration project than the acquiring company, the acquiring company should not make an offer to acquire the target company) exhibited no learning after playing the game 20 times and receiving outcome feedback immediately after each game. They continued to make bids in the range of $50-$75 even though not making a bid is the optimal decision.
Negotiators reduce the tendency to overestimate the size of the bargaining zone in their negotiations, but there is no evidence that experience reduces other errors or leads to improved performance.
There are several reasons that are responsible for these difficulties in learning through experience:
Feedback is rarely accurate, immediate, and unambiguous.
Even when feedback does meet these criteria, evidence suggests that people misremember their forecasts because they anchor to current states of the world and fail to accurately recall their prior predictions. This prevents the process of learning to make more accurate forecasts, as people fail to underestimate the extent to which they erred in the first place.
Given that experience alone does not necessarily improve the quality of one’s future decisions, people should focus on acquiring “expertise” rather than experience.
Expertise involves the development of a strategic concept for what constitutes rational decision making in a given situation and for learning to overcome the potential biases that may arise in the situation.
It involves constant monitoring of our decision-making processes.
It also can be taught to others, unlike experience.
4
Debias Your Judgment
Debiasing refers to a procedure for reducing or eliminating biases from the cognitive strategies of the decision maker
To eliminate cognitive biases, people should be:
warned about the possibility of bias,
understand the direction of the bias,
be provided with feedback about their biased decisions,
and undergo an extensive training program oriented at eliminating the bias
In order to eliminate their cognitive biases, people ideally should be warned about the possibility of bias, understand the direction of the bias, be provided with feedback about their biased decisions, and undergo an extensive training program oriented at eliminating the bias.
Though this seems like a reasonable plan, it is often difficult to implement an effective training program.
Research also suggests that training and testing must be closely linked and in close temporal proximity for effective learning to occur. In reality, people typically have to make conceptually similar decisions in different domains and feedback is often distant and ambiguous. This makes learning through training difficult.
Some strategies that reduce bias are:
Considering the opposite of what you are thinking of deciding at a given moment. This has been demonstrated to reduce overconfidence, hindsight bias, and anchoring effects.
Make decisions in groups.
Train in statistical reasoning so you are less subject to errors in probability perception.
Making people accountable for their decisions also tends to eliminate certain biases.
In order to eliminate biases, people must first “unfreeze” their biased behaviors that they have learned over time. This is a difficult task because:
Admitting that a strategy you have been using for years is flawed can be disconcerting.
People who have been successful have likely received positive feedback for using particular decision-making strategies that may actually be flawed. This makes them resistant to negative feedback about their decision-making strategies.
Successful individuals often believe that they are effective decision-makers. Receiving feedback that they are not clashes with their self-concept and may lead to them rejecting the notion that their decision-making is flawed.
The goal of presenting you with problems and examples of real-world behavior throughout this course was to provide you with unambiguous feedback about your own biases. Hopefully this made you more likely to reconsider your decision-making strategies and to become receptive to alternative ways of thinking.
Once you have unfrozen your past strategies, you must change them.
First, you should abstract from examples to adopt a more conceptual view of these biases that is not limited to specific contexts. Your decisions are rarely within the same specific context and without a strong concrete representation of the general pattern of cognitive biases, it will be difficult for you to recognize when you should adopt certain decision-making strategies.
If you can successfully abstract from situational examples of bias, you can better understand the root causes of various judgmental biases.
A final crucial step to change is recognizing that everybody is subject to biases. This should help you from being threatened by the possibility that you are biased. Once you are willing to change, the following procedures can help you successfully implement changes into your decision-making strategies:
Play Devil’s advocate with yourself and consider how your decisions may be flawed. This can help you notice any potential biases that are influencing your decisions. It also can debias your information processing.
Think of ways to test whether alternative viewpoints may be more valid than your own. For example, if you are thinking of investing in a startup that looks like a sure success, the fact that nobody else has invested in the firm yet may be a signal that something you cannot observe is flawed about the company.
Once you have successfully abandoned your current decision-making strategies in favor of ones that are unbiased, you then must make sure that this change persists and that you don’t revert to your old strategies that are flawed.
Continuous practice in implementing new strategies will help make them second-nature.
Reexamining your decision-making at various points in time can also help you make sure that you have not relapsed to your old habits.
5
Debias Your Judgment
Though this seems like a reasonable plan, it is often difficult to implement an effective training program.
Research suggests that training and testing must be closely linked and in close chronological proximity for effective learning to occur.
In reality, people typically have to make conceptually similar decisions in different domains and feedback is often distant and ambiguous. This makes learning through training difficult
In order to eliminate their cognitive biases, people ideally should be warned about the possibility of bias, understand the direction of the bias, be provided with feedback about their biased decisions, and undergo an extensive training program oriented at eliminating the bias.
Though this seems like a reasonable plan, it is often difficult to implement an effective training program.
Research also suggests that training and testing must be closely linked and in close temporal proximity for effective learning to occur. In reality, people typically have to make conceptually similar decisions in different domains and feedback is often distant and ambiguous. This makes learning through training difficult.
Some strategies that reduce bias are:
Considering the opposite of what you are thinking of deciding at a given moment. This has been demonstrated to reduce overconfidence, hindsight bias, and anchoring effects.
Make decisions in groups.
Train in statistical reasoning so you are less subject to errors in probability perception.
Making people accountable for their decisions also tends to eliminate certain biases.
In order to eliminate biases, people must first “unfreeze” their biased behaviors that they have learned over time. This is a difficult task because:
Admitting that a strategy you have been using for years is flawed can be disconcerting.
People who have been successful have likely received positive feedback for using particular decision-making strategies that may actually be flawed. This makes them resistant to negative feedback about their decision-making strategies.
Successful individuals often believe that they are effective decision-makers. Receiving feedback that they are not clashes with their self-concept and may lead to them rejecting the notion that their decision-making is flawed.
The goal of presenting you with problems and examples of real-world behavior throughout this course was to provide you with unambiguous feedback about your own biases. Hopefully this made you more likely to reconsider your decision-making strategies and to become receptive to alternative ways of thinking.
Once you have unfrozen your past strategies, you must change them.
First, you should abstract from examples to adopt a more conceptual view of these biases that is not limited to specific contexts. Your decisions are rarely within the same specific context and without a strong concrete representation of the general pattern of cognitive biases, it will be difficult for you to recognize when you should adopt certain decision-making strategies.
If you can successfully abstract from situational examples of bias, you can better understand the root causes of various judgmental biases.
A final crucial step to change is recognizing that everybody is subject to biases. This should help you from being threatened by the possibility that you are biased. Once you are willing to change, the following procedures can help you successfully implement changes into your decision-making strategies:
Play Devil’s advocate with yourself and consider how your decisions may be flawed. This can help you notice any potential biases that are influencing your decisions. It also can debias your information processing.
Think of ways to test whether alternative viewpoints may be more valid than your own. For example, if you are thinking of investing in a startup that looks like a sure success, the fact that nobody else has invested in the firm yet may be a signal that something you cannot observe is flawed about the company.
Once you have successfully abandoned your current decision-making strategies in favor of ones that are unbiased, you then must make sure that this change persists and that you don’t revert to your old strategies that are flawed.
Continuous practice in implementing new strategies will help make them second-nature.
Reexamining your decision-making at various points in time can also help you make sure that you have not relapsed to your old habits.
6
Debias Your Judgment
Strategies for reducing bias
Consider the opposite
Make decisions in groups
Training in statistical reasoning
Make people accountable
In order to eliminate their cognitive biases, people ideally should be warned about the possibility of bias, understand the direction of the bias, be provided with feedback about their biased decisions, and undergo an extensive training program oriented at eliminating the bias.
Though this seems like a reasonable plan, it is often difficult to implement an effective training program.
Research also suggests that training and testing must be closely linked and in close temporal proximity for effective learning to occur. In reality, people typically have to make conceptually similar decisions in different domains and feedback is often distant and ambiguous. This makes learning through training difficult.
Some strategies that reduce bias are:
Considering the opposite of what you are thinking of deciding at a given moment. This has been demonstrated to reduce overconfidence, hindsight bias, and anchoring effects.
Make decisions in groups.
Train in statistical reasoning so you are less subject to errors in probability perception.
Making people accountable for their decisions also tends to eliminate certain biases.
In order to eliminate biases, people must first “unfreeze” their biased behaviors that they have learned over time. This is a difficult task because:
Admitting that a strategy you have been using for years is flawed can be disconcerting.
People who have been successful have likely received positive feedback for using particular decision-making strategies that may actually be flawed. This makes them resistant to negative feedback about their decision-making strategies.
Successful individuals often believe that they are effective decision-makers. Receiving feedback that they are not clashes with their self-concept and may lead to them rejecting the notion that their decision-making is flawed.
The goal of presenting you with problems and examples of real-world behavior throughout this course was to provide you with unambiguous feedback about your own biases. Hopefully this made you more likely to reconsider your decision-making strategies and to become receptive to alternative ways of thinking.
Once you have unfrozen your past strategies, you must change them.
First, you should abstract from examples to adopt a more conceptual view of these biases that is not limited to specific contexts. Your decisions are rarely within the same specific context and without a strong concrete representation of the general pattern of cognitive biases, it will be difficult for you to recognize when you should adopt certain decision-making strategies.
If you can successfully abstract from situational examples of bias, you can better understand the root causes of various judgmental biases.
A final crucial step to change is recognizing that everybody is subject to biases. This should help you from being threatened by the possibility that you are biased. Once you are willing to change, the following procedures can help you successfully implement changes into your decision-making strategies:
Play Devil’s advocate with yourself and consider how your decisions may be flawed. This can help you notice any potential biases that are influencing your decisions. It also can debias your information processing.
Think of ways to test whether alternative viewpoints may be more valid than your own. For example, if you are thinking of investing in a startup that looks like a sure success, the fact that nobody else has invested in the firm yet may be a signal that something you cannot observe is flawed about the company.
Once you have successfully abandoned your current decision-making strategies in favor of ones that are unbiased, you then must make sure that this change persists and that you don’t revert to your old strategies that are flawed.
Continuous practice in implementing new strategies will help make them second-nature.
Reexamining your decision-making at various points in time can also help you make sure that you have not relapsed to your old habits.
7
Debias Your Judgment; Unfreezing
Many behaviors are ingrained, or part of a standard repertoire, and are therefore quite difficult to change:
Admitting that a strategy you have been using for years is flawed can be disconcerting.
People who have been successful have likely received positive feedback for using particular decision-making strategies that may actually be flawed. People tend to continue behavior that are positively rewarded
Successful individuals often believe that they are effective decision-makers. Receiving feedback that they are not clashes with their self-concept
In order to eliminate biases, people must first “unfreeze” their biased behaviors that they have learned over time. This is a difficult task because:
Admitting that a strategy you have been using for years is flawed can be disconcerting.
People who have been successful have likely received positive feedback for using particular decision-making strategies that may actually be flawed. This makes them resistant to negative feedback about their decision-making strategies.
Successful individuals often believe that they are effective decision-makers. Receiving feedback that they are not clashes with their self-concept and may lead to them rejecting the notion that their decision-making is flawed.
The goal of presenting you with problems and examples of real-world behavior throughout this course was to provide you with unambiguous feedback about your own biases. Hopefully this made you more likely to reconsider your decision-making strategies and to become receptive to alternative ways of thinking.
Once you have unfrozen your past strategies, you must change them.
First, you should abstract from examples to adopt a more conceptual view of these biases that is not limited to specific contexts. Your decisions are rarely within the same specific context and without a strong concrete representation of the general pattern of cognitive biases, it will be difficult for you to recognize when you should adopt certain decision-making strategies.
If you can successfully abstract from situational examples of bias, you can better understand the root causes of various judgmental biases.
A final crucial step to change is recognizing that everybody is subject to biases. This should help you from being threatened by the possibility that you are biased. Once you are willing to change, the following procedures can help you successfully implement changes into your decision-making strategies:
Play Devil’s advocate with yourself and consider how your decisions may be flawed. This can help you notice any potential biases that are influencing your decisions. It also can debias your information processing.
Think of ways to test whether alternative viewpoints may be more valid than your own. For example, if you are thinking of investing in a startup that looks like a sure success, the fact that nobody else has invested in the firm yet may be a signal that something you cannot observe is flawed about the company.
Once you have successfully abandoned your current decision-making strategies in favor of ones that are unbiased, you then must make sure that this change persists and that you don’t revert to your old strategies that are flawed.
Continuous practice in implementing new strategies will help make them second-nature.
Reexamining your decision-making at various points in time can also help you make sure that you have not relapsed to your old habits.
8
Debias Your Judgment; Change
Once you have unfrozen your past strategies, you must change them.
There are three critical steps to changing your decision-making process:
(1) clarification of the existence of specific judgmental deficiencies,
(2) explanation of the roots of these deficiencies, and
(3) reassurance that these deficiencies should not be taken as a threat to your self-esteem
Once you are willing to change, the following procedures can help you successfully implement changes into your decision-making strategies:
Play Devil’s advocate with yourself and consider how your decisions may be flawed. This can help you notice any potential biases that are influencing your decisions. It also can debias your information processing.
Think of ways to test whether alternative viewpoints may be more valid than your own.
For example, if you are thinking of investing in a startup that looks like a sure success, the fact that nobody else has invested in the firm yet may be a signal that something you cannot observe is flawed about the company
Once you have unfrozen your past strategies, you must change them.
First, you should abstract from examples to adopt a more conceptual view of these biases that is not limited to specific contexts. Your decisions are rarely within the same specific context and without a strong concrete representation of the general pattern of cognitive biases, it will be difficult for you to recognize when you should adopt certain decision-making strategies.
If you can successfully abstract from situational examples of bias, you can better understand the root causes of various judgmental biases.
A final crucial step to change is recognizing that everybody is subject to biases. This should help you from being threatened by the possibility that you are biased. Once you are willing to change, the following procedures can help you successfully implement changes into your decision-making strategies:
Play Devil’s advocate with yourself and consider how your decisions may be flawed. This can help you notice any potential biases that are influencing your decisions. It also can debias your information processing.
Think of ways to test whether alternative viewpoints may be more valid than your own. For example, if you are thinking of investing in a startup that looks like a sure success, the fact that nobody else has invested in the firm yet may be a signal that something you cannot observe is flawed about the company.
Once you have successfully abandoned your current decision-making strategies in favor of ones that are unbiased, you then must make sure that this change persists and that you don’t revert to your old strategies that are flawed.
Continuous practice in implementing new strategies will help make them second-nature.
Reexamining your decision-making at various points in time can also help you make sure that you have not relapsed to your old habits.
9
Debias Your Judgment; Refreezing
Once you have successfully abandoned your current decision-making strategies in favor of ones that are unbiased, you then must make sure that this change persists and that you don’t revert to your old strategies that are flawed.
Continuous practice in implementing new strategies will help make them second-nature.
Reexamining your decision-making at various points in time can also help you make sure that you have not relapsed to your old habits.
Once you have successfully abandoned your current decision-making strategies in favor of ones that are unbiased, you then must make sure that this change persists and that you don’t revert to your old strategies that are flawed.
Continuous practice in implementing new strategies will help make them second-nature.
Reexamining your decision-making at various points in time can also help you make sure that you have not relapsed to your old habits.
10
