Perception, Attribution & Decision Making

The Hidden Traps in Decision Making - Hammond

*The Status-Quo Trap* -strong bias toward alternatives that perpetuate the status quo ----- *Sunk-Cost Trap* -choices to justify past choices -people not willing to admit a mistake or poor choice ----- *Confirming-Evidence Trap* -seek out information that supports our existing instinct or point of view while avoiding information that contradicts it ----- *Framing Trap* -the way a problem is framed can profoundly influence the choices you make ----- *Estimating and Forecasting Traps* -overconfidence trap-----we tend to be overconfident about our accuracy -prudence trap-----overcautiousness on the safe side -recallability trap-----base our predictions on memory of past events and can be overly influenced by dramatic events---shark week

selective perception

--imply means that we pay selective attention to parts of the environment while ignoring other parts. When we observe our environment, we see what we want to see and ignore information that may seem out of place. ----- The violin he was playing was worth $3.5 million, and tickets for Bell's concerts usually cost around $100. During the rush hour in which he played for 45 minutes, only one person recognized him, only a few realized that they were hearing extraordinary music, and he made only $32 in tips. When you see someone playing at the metro station, would you expect them to be extraordinary? [7]

programmed decisions / decision rule

For example, before you come to class, you make simple and habitual decisions such as what to wear, what to eat, and which route to take as you go to and from home and school. You probably do not spend much time on these mundane decisions. These types of straightforward decisions are termed programmed decisions, or decisions that occur frequently enough that we develop an automated response to them. ---- The automated response we use to make these decisions is called the decision rule. For example, many restaurants face customer complaints as a routine part of doing business. Because complaints are a recurring problem, responding to them may become a programmed decision. The restaurant might enact a policy stating that every time they receive a valid customer complaint, the customer should receive a free dessert, which represents a decision rule.

rational decision making model

For optimal decision, one must: • Know goal/problem • Clear preferences & values • Know all options • Predict which alternative maximizes outcome ----- 1.identify the problem 2.establish decision criteria 3.weigh decision criteria 4.generate alternatives 5.evaluate the alternatives 6.choose the best alternative 7.implement the decision 8.evaluate the decision -- USE WHEN: -information on alternatives can be gathered and quantified -the decision is important -you are trying to maximize your outcome

framing bias

Framing bias refers to the tendency of decision makers to be influenced by the way that a situation or problem is presented. ---- For example, when making a purchase, customers find it easier to let go of a discount as opposed to accepting a surcharge, even though they both might cost the person the same amount of money. Similarly, customers tend to prefer a statement such as "85% lean beef" as opposed to "15% fat."

Perception ----- 3 different kinds

Perception "Process by which individuals detect and interpret environmental stimuli" -Visual Perception - "Count the number of times the students in white pass the ball." Did you see the monkey? Curtain colors? -Self-Perception - Self-Enhancement, overestimate our performance and capabilities and see ourselves in a more positive light than others. (Are you more ethical than average?) -Social Perception- Stereotypes, generalizations based on group characteristics. (Martha Stewart vs. Snoop-Dog) Self-fulfilling Prophecy (First and second grade students - who has higher IQ?)

false consensus error

Simply put, we overestimate how similar we are to other people. ----We assume that whatever quirks we have are shared by a larger number of people than in reality. People who take office supplies home, tell white lies to their boss or colleagues, or take credit for other people's work to get ahead may genuinely feel that these behaviors are more common than they really are.

stereotypes

Stereotypes are generalizations based on group characteristics. For example, believing that women are more cooperative than men, or men are more assertive than women, is a stereotype.

availability heuristic

Tendency to judge the frequency or likelihood of an event by the ease with which relevant instances come to mind. • Ease of recall • Retrievability • Presumed associations ---SUMMER OF SHARK -sports illustrated jinx -regression to the mean

confirmation bias

Tendency to notice and search for information that confirms one's decision (and to ignore information that disconfirms one's decision).

attribution / fundamental attribution error

The causal explanation we give for an observed behavior" -Fundamental Attribution Error - Attribute OTHER peoples' behavior to internal or dispositional causes and to downplay situational causes.

first impressions

The first impressions we form about people tend to have a lasting impact. In fact, first impressions, once formed, are surprisingly resilient to contrary information. Even if people are told that the first impressions were caused by inaccurate information, people hold onto them to a certain degree. The reason is that, once we form first impressions, they become independent of the evidence that created them.

self-fulfilling prophecy

This cycle occurs when people automatically behave as if an established stereotype is accurate, which leads to reactive behavior from the other party that confirms the stereotype. ------If you have a stereotype such as "Asians are friendly," you are more likely to be friendly toward an Asian yourself. Because you are treating the other person better, the response you get may also be better, confirming your original belief that Asians are friendly.

self-effacement bias

This is the tendency for people to underestimate their performance, undervalue capabilities, and see events in a way that puts them in a more negative light. ---We may expect that people with low self-esteem may be particularly prone to making this error.

self-serving bias

This is the tendency to attribute our failures to the situation while attributing our successes to internal causes. [14]

self-enhancement bias

This is the tendency to overestimate our performance and capabilities and see ourselves in a more positive light than others see us. ---People who have a narcissistic personality are particularly subject to this bias, but many others are still prone to overestimating their abilities.

external attribution if...

high consensus, high distinctiveness, low consistency

flexibility

refers to how different the ideas are from one another.

originality

refers to how unique a person's ideas are.

fluency

refers to the number of ideas a person is able to generate.

anchoring

refers to the tendency for individuals to rely too heavily on a single piece of information. -

idea quotas

which the group must reach a set number of ideas before they are done, is recommended to avoid process loss and maximize the effectiveness of brainstorming.

ways to minimize biases

• Be aware of... • Factors influencing perception • Attribution biases, judgment biases • Post decision biases • Collect lots of data from multiple sources • Analyze assumptions • Involve "outsiders" in decisions • Designate a "devil's advocate" • Imagine the issue from other perspectives (future CEO, worst case scenario, etc) • Align incentives with risk • Take time when possible

nonprogrammed decisions

On the other hand, unique and important decisions require conscious thinking, information gathering, and careful consideration of alternatives. -

overconfidence bias

Overconfidence bias occurs when individuals overestimate their ability to predict future events. Many people exhibit signs of overconfidence. For example, 82% of the drivers surveyed feel they are in the top 30% of safe drivers, 86% of students at the Harvard Business School say they are better looking than their peers, and doctors consistently overestimate their ability to detect problems.

wildstorming

A variation of brainstorming is wildstorming, in which the group focuses on ideas that are impossible and then imagines what would need to happen to make them possible.

intuitive decision-making model

-Arriving at decisions without conscious reasoning. The Model argues that in a given situation, experts making decisions scan the environment for cues to recognize patterns -------------- model refers to arriving at decisions without conscious reasoning. A total of 89% of managers surveyed admitted to using intuition to make decisions at least sometimes and 59% said they used intuition often. [6] Managers make decisions under challenging circumstances, including time pressures, constraints, a great deal of uncertainty, changing conditions, and highly visible and high-stakes outcomes. --The intuitive decision-making model argues that in a given situation, experts making decisions scan the environment for cues to recognize patterns. [7] Once a pattern is recognized, they can play a potential course of action through to its outcome based on their prior experience. Thanks to training, experience, and knowledge, these decision makers have an idea of how well a given solution may work. -USE WHEN -goals are unclear -there is time pressure and analysis paralysis would be costly -you have experience with the problem

tactical decisions

-decisions about how things will get done ---made by managers EXAMPLES -What should we do to help facilitate employees from the two companies working together? -How should we market the new product line? -Who should be let go when we downsize?

operational decisions

-decisions employees make each day to make the organization run----made by employees throughout the organization EXAMPLES -How often should I communicate with my new coworkers? -What should I say to customers about our new product? -How will i balance my new work demands?

strategic decisions

-set the course of an organization----made by top management teams, CEOS, BOD ---EXAMPLES -Should we merge with another company? -Should we pursue a new product line? -Should we downsize our organization?

bounded rationality model

. According to this model, individuals knowingly limit their options to a manageable set and choose the first acceptable alternative without conducting an exhaustive search for alternatives. USE WHEN: -minimum criteria are clear -you do not have or you are not willing to invest much time to make the decision -you are not trying to maximize your outcome -"An important part of the bounded rationality approach is the tendency to satisfice (satisfy and suffice) - accept the first alternative that meets your minimum criteria."

consensus

Do other people behave the same way?

distinctiveness

Does this person behave the same way across different situations?

consistency

Does this person behave this way in different occasions in the same situation?

hindsight bias

Hindsight bias is the opposite of overconfidence bias, as it occurs when looking backward in time and mistakes seem obvious after they have already occurred. -----In other words, after a surprising event occurred, many individuals are likely to think that they already knew the event was going to happen. This bias may occur because they are selectively reconstructing the events. Hindsight bias tends to become a problem when judging someone else's decisions. For example, let's say a company driver hears the engine making unusual sounds before starting the morning routine. Being familiar with this car in particular, the driver may conclude that the probability of a serious problem is small and continues to drive the car. During the day, the car malfunctions and stops miles away from the office. It would be easy to criticize the decision to continue to drive the car because in hindsight, the noises heard in the morning would make us believe that the driver should have known something was wrong and taken the car in for service. However, the driver in question may have heard similar sounds before with no consequences, so based on the information available at the time, continuing with the regular routine may have been a reasonable choice. Therefore, it is important for decision makers to remember this bias before passing judgments on other people's actions.

internal attribution

If you believe that a behavior is due to the internal characteristics of an actor, you are making an internal attribution. ----For example, let's say your classmate Erin complained a lot when completing a finance assignment. If you think that she complained because she is a negative person, you are making an internal attribution.

decision criteria

If you know you want to have room for at least five adults, get at least 20 miles per gallon, drive a car with a strong safety rating, not spend more than $22,000 on the purchase, and like how it looks, you have identified the decision criteria.

analysis paralysis

In fact, the availability of too much information can lead to analysis paralysis, in which more and more time is spent on gathering information and thinking about it, but no decisions actually get made.

brainstorming

is a group process of generating ideas that follow a set of guidelines, including no criticism of ideas during the brainstorming process, the idea that no suggestion is too crazy, and building on other ideas (piggybacking

external attribution

is explaining someone's behavior by referring to the situation. ----If you believe that Erin complained because finance homework was difficult, you are making an external attribution.

internal attribution if...

low consensus, low distinctiveness, high consistency

Escalation of commitment

occurs when individuals continue on a failing course of action after information reveals it may be a poor path to follow. ----It is sometimes called the "sunken costs fallacy," because continuation is often based on the idea that one has already invested in the course of action. For example, imagine a person who purchases a used car, which turns out to need something repaired every few weeks. rather than cutting their losses, they waste time and energy while trying to justify their purchase of the car.