The hidden traps in decision making.

Bad decisions can often be traced back to the way the decisions were made--the alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighed. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage the choices we make. Eight psychological traps that are particularly likely to affect the way we make business decisions are examined. The anchoring trap leads us to give disproportionate weight to the first information we receive. The status-quo trap biases us toward maintaining the current situation--even when better alternatives exist. The sunk-cost trap inclines us to perpetuate the mistakes of the past. The confirming-evidence trap leads us to seek out information supporting an existing predilection and to discount opposing information. The framing trap occurs when we misstate a problem, undermining the entire decision-making process. The overconfidence trap makes us over-estimate the accuracy of our forecasts. The prudence trap leads us to be overcautious when we make estimates about uncertain events. And the recallability trap leads us to give undue weight to recent, dramatic events. The best way to avoid all the traps is awareness--forewarned is forearmed. The authors show how to take action to ensure that important business decisions are sound and reliable.

The hidden traps in decision making.

Bad decisions can often be traced back to the way the decisions were made--the alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighted. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage the choices we make. John Hammond, Ralph Keeney, and Howard Raiffa examine eight psychological traps that are particularly likely to affect the way we make business decisions: The anchoring trap leads us to give disproportionate weight to the first information we receive. The statusquo trap biases us toward maintaining the current situation--even when better alternatives exist. The sunk-cost trap inclines us to perpetuate the mistakes of the past. The confirming-evidence trap leads us to seek out information supporting an existing predilection and to discount opposing information. The framing trap occurs when we misstate a problem, undermining the entire decision-making process. The overconfidence trap makes us overestimate the accuracy of our forecasts. The prudence trap leads us to be overcautious when we make estimates about uncertain events. And the recallability trap leads us to give undue weight to recent, dramatic events. The best way to avoid all the traps is awareness--forewarned is forearmed. But executives can also take other simple steps to protect themselves and their organizations from the various kinds of mental lapses. The authors show how to take action to ensure that important business decisions are sound and reliable.

Even swaps: a rational method for making trade-offs.

Making wise trade-offs is one of the most important and difficult challenges in decision making. Needless to say, the more alternative you're considering and the more objectives you're pursuing, the more trade-offs you'll need to make. The sheer volume of trade-offs, however, is not what makes decision making so hard. It's the fact that each objective has its own basis of comparison, from precise numbers (34% versus 38%) to relationships (high versus low) to descriptive terms (red versus blue). You're not just trading off apples and oranges; you're trading off apples and oranges and elephants. How do you make trade-offs when comparing widely disparate things? In the past, decision makers have relied mostly on instinct, common sense, and guesswork. They've lacked a clear, rational, and easy-to-use trade-off methodology. To help fill that gap, the authors have developed a system-which they call even swaps-that provides a practical way of making trade-offs among a range of objectives across a range of alternatives. The even-swap method will not make complex decisions easy; you'll still have to make hard choices about the values you set and the trades you make. What it does provide is a reliable mechanisms for making trades and a coherent framework in which to make them. By simplifying and codifying the mechanical elements of trade-offs, the even-swap method lets you focus all your mental energy on the most important work of decision making: deciding the real value to your company of different courses of action.