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Tool: Avoiding Hidden Decision-Making Traps, Key Points................................................2 Tool: Decision Making Example and Worksheet, Key Points..............................................4 Tool: Strengthening Your Managerial Intuition, Key Points................................................6 Scenario Summary...................................................................................................................7
Ask if you’d choose the status quo if it weren’t the status quo. and Howard Raiffa as presented in “The Hidden Traps in Decision Making” Harvard Business Review. September—October 1998. Harvard Business Publishing is an affiliate of Harvard Business School. Ask a respected colleague to argue against your potential decision.” Sunk costs: Making choices in a way that justifies past. flawed choices An investor refuses to sell a stock or mutual fund at a loss. .Harvard Business Publishing. Keeney. you receive product based on a statistic in a journal article Status quo: Favoring choices that perpetuate current conditions An electronic-newspaper publisher makes the paper look very much like its print precursor Ask if the status quo really serves your objectives. Don’t encourage fear of failure. Hammond. Keeney. and Raiffa’s Decision-Making Traps The Trap Example Avoiding the Trap Anchoring: Giving A product developer Pursue multiple lines of thought. more attractive investments Confirming evidence: Seeking information that supports your point of view An entrepreneur leaning toward starting up a new engineering-consulting company seeks advice from a friend who made a similar decision in the same way (continued on next page) Program Concepts Page 2 © Copyright 2010 by Harvard Business School Publishing. Avoid “yes-men. Check whether you’re examining all evidence with equal rigor. All rights reserved. Remind yourself that everyone makes mistakes. Hammond. eLearning: Decision Making Tool: Avoiding Hidden Decision-Making Traps Key Points The Key Points for this Tool are based on the research and writings of John S. disproportionate weight decides which features Think through the problem on to the first information to add to a consumer your own before seeking advice. Get advice from people who weren’t involved in the earlier decision. Downplay the cost of switching from the status quo. forgoing other. Ralph L.
Harvard Business Publishing. prudence. and Raiffa’s Decision-Making Traps Example Avoiding the Trap An executive frames an Don’t automatically accept the acquisitions decision decision’s initial frame—whether solely in terms of gains you or someone else formulated and losses—then shies it. Get actual statistics. Harvard Business Publishing is an affiliate of Harvard Business School. The owner of a new start-up assigns a higher chance of her own business failing after she learns that a close friend’s new business has failed Reduce overconfidence in your probability assessment: Set extreme high and low ends for the possible outcomes. . away from the Pose problems in a neutral way acquisition to avoid the that deemphasizes rather than losses highlights gains and losses. All rights reserved. Avoid overprudence: State estimates honestly and revise overly conservative ones. Estimating and forecasting: Assessing probabilities with too much confidence. eLearning: Decision Making Tool: Avoiding Hidden Decision-Making Traps Key Points (Continued) The Trap Framing: Posing a decision in a way that distorts your judgment Hammond. or influence from past events Program Concepts Page 3 © Copyright 2010 by Harvard Business School Publishing. Keeney. Reduce the impact of recallability: Ensure that your assumptions aren’t unduly influenced by memories.
and so on. . and Raiffa’s “Even-Swaps” Method of Decision-Making What Makes You’re usually pursuing many different objectives (or criteria) in making a Complex Decisions decision. All rights reserved. you want a low fare. thus letting you focus all your mental energy on deciding the real value—to you—of various courses of action.Harvard Business Publishing. Harvard Business Publishing is an affiliate of Harvard Business School. a convenient departure time. an aisle seat.” and “blue. For example. yet others with purely descriptive terms such as “yellow. if you want to fly from New York to San Difficult Francisco. It forces you to think about the value of one objective in terms of another. Hammond. across a range of alternatives. Hammond. others with broad relational judgments such as “high.” Harvard Business Review. For example. eLearning: Decision Making Tool: Decision-Making Example and Worksheet Key Points The Key Points for this Tool are based on the research and writings of John S.” Why the Even-Swaps Method Works It lets you make trade-offs among any set of objectives. It simplifies and codifies the trade-off process. To further complicate matters. you might compare some alternatives using percentages.” “low.” and “medium”. and Howard Raiffa as presented in “Even Swaps: A Rational Method for Trade-offs. Keeney. each objective in your alternatives has its own basis of comparison. March—April 1998. Ralph L. Keeney. (continued on next page) Program Concepts Page 4 © Copyright 2010 by Harvard Business School Publishing. You thus have to make trade-offs among these various objectives. a direct flight.” “orange.
Method Rank all the alternatives relative to one another on each objective. If you’ve got just one alternative remaining. and Raiffa’s “Even-Swaps” Method of Decision-Making How to Use the Make a consequences table showing the various alternatives Even-Swaps you’re considering. Harvard Business Publishing is an affiliate of Harvard Business School. If not. . Eliminate that dominated alternative. eliminate the dominated alternative. and the various objectives that your decision entails. Use these steps to follow the even-swap process: Step 1: Redraw your consequences table. showing only the data for any remaining alternatives. one at a time. Keep making even swaps and eliminating objective rows and then alternatives until you have just one alternative left—and that’s your decision. that’s your decision. Step 3: Make the even swap in your consequences table. Make even swaps to eliminate objectives until an alternative is outranked by another. Eliminate dominated alternatives (those that are outranked by others on most or all the objectives). Step 2: Determine the change necessary to cancel out an objective (row). All rights reserved. Step 4: Cancel out the now-irrelevant objective (row) in your consequences table. Step 5: See whether an alternative (column) outranks another. no alternative is clearly outranked by any other). follow the above steps again as often as necessary until you have one alternative left. Program Concepts Page 5 © Copyright 2010 by Harvard Business School Publishing.Harvard Business Publishing. Then decide what change in that same alternative (column) would compensate for the first change made. Keeney. until the remaining alternatives have a mix of advantages and disadvantages relative to one another (that is. eLearning: Decision Making Tool: Decision-Making Example and Worksheet Key Points (Continued) Hammond. If so.
June 1997. Intuition lets managers make decisions faster.” “professional judgment. February 2001. Develop a diverse professional and personal background. Harvard Business Publishing is an affiliate of Harvard Business School.” The direct knowing of something without the conscious use of reasoning. How Can You Best Use Your Intuition? How Can You Strengthen Your Intuition? Program Concepts Page 6 © Copyright 2010 by Harvard Business School Publishing. Hayashi as presented in “When to Trust Your Gut. . Why Balance Intuition with Intellect? Managers have little time to absorb and weigh all the information relevant to a decision. Don’t ignore it completely. “Gut instinct. Balance it with your intellect. Build expertise in a particular area. check your instincts’ accuracy through self-reflection and discussion with others not involved in the decision. before the information required becomes obsolete or irrelevant. Consider it another form of data in making decisions. but don’t follow it blindly either. All rights reserved. and on “Your Managerial Intuition: How Much Should You Trust It? Can You Improve It?” Harvard Management Update. Hayashi and Harvard Management Update’s Insights on Intuition What Is Intuition? Knowing something without knowing how you know it. eLearning: Decision Making Tool: Strengthening Your Managerial Intuition Key Points The Key Points for this Tool are based on the research and writings of Alden M. On particularly tough or high-stakes decisions.Harvard Business Publishing. Engage in meditative.” “a visceral feeling. distraction-free activities to let thoughts connect randomly in your mind.” “a hunch.” Harvard Business Review. Keep a journal or diary about your intuitive feelings and your thoughts.
Keeney. It can be avoided by: Allowing yourself to be wrong Remembering that even the best managers make mistakes Getting opinions from people who were not involved in the original decision Perspective on the Past Making decisions that require action means taking risks. and Raiffa call the confirming evidence trap. Harvard Business Publishing is an affiliate of Harvard Business School. a process can be applied to ensure that the right issues are being examined and the right decision is made. The estimating trap can be avoided by: Considering the extremes. Hammond. John S. and Raiffa suggest creating a matrix that lists the objectives of the decision and shows the alternatives. then challenging them Getting actual data. Hammond. and Raiffa point out that people often subconsciously make decisions that perpetuate the status quo in order to avoid such risk. Hammond. It can be avoided by: Seeking information from a variety of sources Pursuing other lines of thought in addition to the first one that occurs Decision makers also seek information that supports their point of view. which Hammond. Keeney. and Howard Raiffa believe that we can compensate for these biases and distortions and make good decisions. not just impressions Processing Decisions When decisions are complicated. Keeney. Setting up the decision this way lets you make trade-offs among various objectives. It can be avoided by: Asking whether the current situation really serves the desired objectives Asking if you would chose the current situation if it were not the status quo Downplaying the cost or effort of switching from the status quo Decision makers fall into the estimating trap when they are overly influenced by vivid memories when assessing possibilities. (continued on next page) Program Concepts Page 7 © Copyright 2010 by Harvard Business School Publishing. Weighing Information Decision makers fall into the anchoring trap when they give disproportionate weight to the first information they receive. Because we fall victim to unconscious psychological traps that influence our decisions. Ralph L. This is the status quo trap. eLearning: Decision Making Scenario Summary Thinking Traps Decision making is a critical skill in almost any business situation. . A matrix can help you reduce a decision that seems overwhelming into something that seems manageable. Keeney. All rights reserved. It can be avoided by: Asking a colleague to play devil’s advocate Examining all evidence with equal rigor Avoiding “yes-men” Righting Wrongs Making decisions that justify past choices leads decision makers to fall into the sunk cost trap.Harvard Business Publishing. it’s easy to make bad decisions.
across a range of alternatives. Program Concepts Page 8 © Copyright 2010 by Harvard Business School Publishing. the best decisions are made simply by trusting your gut. It forces you to think about the value of one objective in terms of another—or to think about what is most important to you. decision makers have to trust their intuition. and Raiffa’s “Even-Swaps” method is a technique for using a matrix to simplify complex decisions. . It lets you make trade-offs among any set of objectives. managers must leverage their knowledge to make intuitive decisions in the face of insufficient time and inadequate data. Fast decisions give you options slow ones don’t. then see what trade-offs need to be made to compare alternatives based on the most important criterion. eLearning: Decision Making Scenario Summary (Continued) Making Even Swaps Hammond. Trusting Your Gut In certain situations. Hiyashi. Harvard Management Update holds that it is better to make a decision quickly and be right seven out of ten times than to delay while searching for the perfect solution. allowing you to focus all your mental energy on deciding the real value of different options. It simplifies and codifies the trade-off process. According to Alden M.Harvard Business Publishing. To be right seven out of ten times. Market testing at an early stage allows decision makers to get feedback from the people who will ultimately use the product or service. trusting your instincts is important when: Logical methods are not enough Decisions are complex and ambiguous Decisions are time-sensitive and there is not enough time to analyze all options Data supporting all options appears the same Thinking in the Fast Lane In today’s fast-paced world. All rights reserved. Keeney. Harvard Business Publishing is an affiliate of Harvard Business School. which then helps shape its development.
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