Research and Analysis of Business Problems

BA 301

Research & Analysis of Business Problems

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Problem Solving Framework 2

Context & Background

Problem Analysis & Description

Solution Development

Evaluation & Decision- Making

Communication & Implementation

Problem Solving Framework 3

Context & Background

Problem Analysis & Description

Solution Development

Evaluation & Decision- Making

Communication & Implementation

Understanding Decision Making 4

Two Different Styles

 Rational thinking

 Using knowledge, skills and experience

 Applying logic to reach conclusions

 Analyzing issues to understand the whole picture

 Intuitive thinking

 Conclusions by hunch

 Being led by emotion and sensitivity

 Using imagination to create new ideas

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Rational or Intuitive 6

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Are You Right Brained Or Left?

It Can Be Good To Trust Your Instincts 8

It Might Be Simple

 Programmed Decisions

 Things that have occurred often enough such that you

can have rules and guidelines.

 Examples?

 Non-programmed Decisions

 Situations that are unique, poorly defined, unstructured,

have important consequences, or all of the above.

 Examples?

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Organizational

Problem

Low Possibility of failure High

Certainty Risk Uncertainty Ambiguity

Programmed Vs. Non-Programmed

Programmed Nonprogrammed

Decisions Decisions

Problem

Solution

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Obstacles to Problem Solving

 the order and the way in which information is

presented;

 the nature of the task;

 the fact that the information is presented in

probabilistic terms;

 the fact that the probabilities refer to single events

or to sequences of events

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Heuristic vs Bias

 A heuristic is a mental shortcut used to solve a particular problem; it is a

quick, informal, and intuitive algorithm your brain uses to generate an

approximate answer to a reasoning question. For the most part, heuristics

are helpful, because they allow us to quickly make sense of a complex

environment, but there are times when they fail at making a correct

assessment of the world.



When our heuristics fail to produce a correct judgment, it can sometimes

result in a cognitive bias, which is the tendency to draw an incorrect

conclusion in a certain circumstance based on cognitive factors.

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Cognitive Bias 13

 Cognition is the process of thought.

 To become acquainted with…

 Cognitive Bias is our tendency to make errors in

judgment based on cognitive factors – things we

know or understand, or think we know or

understand.

 Cognitive Bias might distort the way we perceive

reality.

Cognitive Bias 14

 Cognitive Bias

can lead to

errors in

judgment.

What Can We Do To Avoid it? 15

 Recognize how easy it is to make simple mistakes by

using intuition alone.

 Learn to spot the most common decision-making

biases.

 Learn simple methods for combating these biases in

judgment.

Judgment Error #1

 The odds of dying in your lifetime from air travel is 1 in 7,178. The odds of dying in a traffic accident is 1 in 98.

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Or

Availability Bias

Judgment Error #2

 I only paid $22,500. Wow, I made a great deal!

 You paid $80,000 less for your home than the initial price offering. Were you a great negotiator, or was this an example of anchoring bias?

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Anchoring Bias

Judgment Error #3

 Look at this series of numbers. It conforms to a rule. What is the rule for this set of numbers?

 The rule – any three ascending numbers.

 The tendency to collect evidence that supports rather than negates intuition.

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Confirmation Bias

4, 62,

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Judgment Error #4

 80% of students believed they were in the top 30% of safe drivers.

 A survey asked 829,000 high school students to rate

their own ability to “get along with others,” 60 percent

rated themselves in the top 10%, and 25% rated

themselves in the top 1%.

 In spelling – people were correct 80% of the time, but

were 100% confident of their answers.

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Overconfidence Bias

Judgment Error #5

 What is the probability of tossing “tails”?

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50%

Judgment Error #5

 What is the probability of tossing ten in a row?

 0.5x0.5x0.5x0.5x0.5x0.5x0.5x0.5x0.5x0.5

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0.09%

Judgment Error #5

 After 5 straight tails, what is the probability of

tossing another “tails”?

 A form of Representativeness bias, also called

“Gambler’s Fallacy”.

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50%

Probability Bias

Judgment Error #6 24

Hyperbolic Discounting

Now!

1 Year!

Avoiding Bias

1. Do not jump to conclusions.

2. Do not assume a relationship is a cause; record and test your decision outcomes.

3. Do not base your conclusion only on your experience.

4. Do not just look to support your case; look for non-supporting evidence too.

5. Do not fall prey to overconfidence; get confidence evidence and ranges.

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Some Other Biases

 Selective search for evidence

 A tendency to gather facts that support certain conclusions but disregard others that support other conclusions.

 Selective perception

 We tend to screen out evidence that we do not think is relevant.

 Wishful thinking (optimism)

 We tend to see things positively – this distorts our thinking and perception.

 Groupthink

 Peer pressure to conform to the opinions of the group.

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http://en.wikipedia.org/wiki/List_of_cognitive_biases

 anchoring - the tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions.

 bandwagon effect - the tendency to do (or believe) things because many other people do (or believe) the same.

 belief bias - the tendency to base assessments on personal beliefs (see also belief perseverance and Experimenter's regress)

 bias blind spot - the tendency not to compensate for one's own cognitive biases.

 confirmation bias - the tendency to search for or interpret information in a way that confirms one's preconceptions.

 contrast effect - the enhancement or diminishment of a weight or other measurement when compared with recently observed contrasting object.

 disconfirmation bias - the tendency for people to extend critical scrutiny to information which contradicts their prior beliefs and accept uncritically information that is congruent with their prior beliefs.

 endowment effect - the tendency for people to value something more as soon as they own it.

 hyperbolic discounting - the tendency for people to have a stronger preference for more immediate payoffs relative to later payoffs, the closer to the present both payoffs are.

 illusion of control - the tendency for human beings to believe they can control or at least influence outcomes which they clearly cannot.

 impact bias - the tendency for people to overestimate the length or the intensity of the impact of future feeling states.

 just-world phenomenon - the tendency for people to believe the world is "just" and so therefore people "get what they deserve."

 loss aversion - the tendency for people to strongly prefer avoiding losses than acquiring gains (see also sunk cost effects)

 mere exposure effect - the tendency to express undue liking for things merely because they are familiar with them.

 color psychology - the tendency for cultural symbolism of certain colors to affect affective reasoning.

 planning fallacy - the tendency to underestimate task-completion times.

 pseudocertainty effect - the tendency to make risk-averse choices if the expected outcome is positive, but risk-seeking choices to avoid negative outcomes.

 rosy retrospection - the tendency to rate past events more positively than they had actually rated them when the event occurred.

 selective perception - the tendency for expectations to affect perception.

 status quo bias - the tendency for people to like things to stay relatively the same.

 Von Restorff effect - the tendency for an item that "stands out like a sore thumb" to be more likely to be remembered than other items.

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