MGT 110 3,4,10
Tactics to reduce bias
Confidence estimates Trial-and-Error Calibration Healthy Skepticism
Identify the affected parties, consequences, and obligations
Consider primary stakeholders (those directly affected) and secondary stakeholders (those indirectly affected) Consider consequences Consider requirements or responsibilities
Problem
Crash test based on guidelines recommended by Federal Motor Vehicle Standard 301 (proposed in 68, implemented in 76) revealed that the gas tank often ruptured when the car was struck from the rear - even at low speeds. Solutions: Install $11 part Consider an infamous case that, when it broke, had all the earmarks of conscious top-down corruption. The Ford Pinto, a compact car produced during the 1970s, became notorious for its tendency in rear-end collisions to leak fuel and explode into flames. More than two dozen people were killed or injured in Pinto fires before the company issued a recall to correct the problem. Scrutiny of the decision process behind the model's launch revealed that under intense competition from Volkswagen and other small-car manufacturers, Ford had rushed the Pinto into production. Engineers had discovered the potential danger of ruptured fuel tanks in preproduction crash tests, but the assembly line was ready to go, and the company's leaders decided to proceed. Many saw the decision as evidence of the callousness, greed, and mendacity of Ford's leaders—in short, their deep unethicality. But looking at their decision through a modern lens—one that takes into account a growing understanding of how cognitive biases distort ethical decision making—we come to a different conclusion. We suspect that few if any of the executives involved in the Pinto decision believed that they were making an unethical choice. Why? Apparently because they thought of it as purely a business decision rather than an ethical one. Taking an approach heralded as rational in most business school curricula, they conducted a formal cost-benefit analysis—putting dollar amounts on a redesign, potential lawsuits, and even lives—and determined that it would be cheaper to pay off lawsuits than to make the repair. That methodical process colored how they viewed and made their choice. The moral dimension was not part of the equation. Such "ethical fading," a phenomenon first described by Ann Tenbrunsel and her colleague David Messick, takes ethics out of consideration and even increases unconscious unethical behavior. https://hbr.org/2011/04/ethical-breakdowns
Decision Making Framework: PADIL Problem
Define and structure the problem Focus on the root cause, not the outcome (e.g., we need better training) The first step in any good problem-solving process is to define and structure the problem. Put another way, you want to be sure you are working on the correct problem. One common way this seemingly obvious starting point is mishandled is to begin with a solution or outcome, not the problem.
Group decisions
Desire for harmony leads to irrational decisions and diffused individual responsibility "We all voted against the recall...It did not fit the pattern of recallable standards."
Learn
Determine whether the decision and implementation was successful Compare definition of successful outcome to actual outcome In its extreme form, rational choice decision making has dominated in Western societies for most of written history. It was established some 2,500 years ago when Plato and his contemporaries in ancient Greece raised logical debate and reasoning to a fine art. About 400 years ago, Descartes and other European philosophers emphasized that the ability to make logical decisions is one of the most important accomplishments of human beings. In the 1700s, Scottish philosophers refined the notion that the best choice is one that offers the greatest satisfaction. Rational choice decision making selects the best alternative by calculating the probability that various outcomes will occur from the choices and the expected satisfaction from each of those outcomes. All rational decisions rely primarily on two pieces of information: Probability that each outcomes will occur Valence or experienced satisfaction of each outcome.
Ethical consciousness
Develop ability to understand the ramifications of choosing less ethical courses of action Solving problems ethically also requires an ethical consciousness in which you develop an ability to understand the ramifications of choosing less ethical courses of action. Ethical awareness is the willingness and ability to identify moral and ethical contexts and dilemmas; critically examine, assess, and/or change one's own ethical values; and examine the implications of one's own behavior for the lives of others
Rational Choice Decision Making:
Dominated Western societies for most of written history. Established about 2,500 years ago
Three major factors relating to fairness:
Economics Equality Justice
Representativeness
Ex. Bob is an opera fan who enjoys touring art museums when on holiday. Growing up, he enjoyed playing chess with family members and friends. Which situation is more likely? A. Bob plays trumpet for a major symphony orchestra B. Bob is a farmer A large proportion of people will choose A in the above problem, because Bob's description matches the stereotype we may hold about a classical musicians rather than farmers. In reality, the likelihood of B being true is far greater, because farmers make up a much larger proportion of the population.
6 steps to making an ethical decision
Gather the facts Define ethical issues Identify the affected parties, consequences, and obligations Consider your integrity Think creatively about actions Check your instincts
Implement
General recommendations Revisit key stakeholders (get approval before implementation) Implementation doesn't need to happen all at once (e.g., small wins) Readjust if necessary
Cost / Benefit Analysis
High pressure from top management due to rising competition Must cost less than $2,000 and weigh less than 2,000 pounds From inception to production in 25 months (vs. 43, on average) Consider an infamous case that, when it broke, had all the earmarks of conscious top-down corruption. The Ford Pinto, a compact car produced during the 1970s, became notorious for its tendency in rear-end collisions to leak fuel and explode into flames. More than two dozen people were killed or injured in Pinto fires before the company issued a recall to correct the problem. Scrutiny of the decision process behind the model's launch revealed that under intense competition from Volkswagen and other small-car manufacturers, Ford had rushed the Pinto into production. Engineers had discovered the potential danger of ruptured fuel tanks in preproduction crash tests, but the assembly line was ready to go, and the company's leaders decided to proceed. Many saw the decision as evidence of the callousness, greed, and mendacity of Ford's leaders—in short, their deep unethicality. But looking at their decision through a modern lens—one that takes into account a growing understanding of how cognitive biases distort ethical decision making—we come to a different conclusion. We suspect that few if any of the executives involved in the Pinto decision believed that they were making an unethical choice. Why? Apparently because they thought of it as purely a business decision rather than an ethical one. Taking an approach heralded as rational in most business school curricula, they conducted a formal cost-benefit analysis—putting dollar amounts on a redesign, potential lawsuits, and even lives—and determined that it would be cheaper to pay off lawsuits than to make the repair. That methodical process colored how they viewed and made their choice. The moral dimension was not part of the equation. Such "ethical fading," a phenomenon first described by Ann Tenbrunsel and her colleague David Messick, takes ethics out of consideration and even increases unconscious unethical behavior. https://hbr.org/2011/04/ethical-breakdowns
Intuition
However, it can lead to cognitive biases e.g., Fundamental attribution error and self serving bias
Why do good people do bad things?
Ideally, individuals know what is ethical and act ethically. In fact, we often self-regulate through self and social sanctions (i.e., we avoid doing things that would make us feel or look bad). However, self-regulation can be inhibited through moral disengagement. Moral disengagement: Process of convincing yourself that your ethical standards do not apply in a particular situation.
Common mistakes made when choosing the problem Picking the wrong stakeholders
Identify the right people to involve in problem identification (e.g., front-line supervisors)
Consideration of people's lives became a fairly removed, dispassionate process
Important language: No problems, only conditions "To do the job "well" there was little room for emotion. Allowing it to surface was potentially paralyzing and prevented rational decisions about which cases to recommend for recall."
Intuition
Important to automatic processes such as social interactions or driving a car
Escalation of commitment
In 1966 a project to build a nuclear power plant in Long Island, New York began. It was anticipated it would cost $75 million and be able to generate power for the growing city by 1973. No one anticipated the pushback from local citizens, and because of that resistance the project wasn't completed until 1986 at a cost of more than $6 billion. In the end, the plant never opened. Why was management at the Long Island Lighting Company so willing to stick to their project even as the cost skyrocketed and the completion date was pushed back by more than two decades? The answer is escalation of commitment.
Giaoi
"Even the best-intentioned organizational members organize information into cognitive structures or schemas that serve as (fallible) mental templates for handling incoming information and as guides for acting upon it."
Mike Batesole, Fresno State Baseball Head Coach
"If everyone likes you, you're doing something wrong. If no one likes you, you're doing something wrong."
Dennis Gioia's Reflection
"It remains the busiest, most information-filled job I have ever held or would want to hold. Each case required a myriad of information-gathering and execution stages. I distinctly remember that the information processing demands led me to confuse the facts of one problem case with another on several occasions because the tell-tale signs of recall candidate cases were so similar."
Common mistakes made when choosing the problem Failure to find the facts
Collect and make decisions based on valid methods and data Affinity (similarity) diagram
Overview (1970)
180 burn deaths, 180 serious burn injuries, 2,100 burned vehicles Unit cost: $200,000 per death, $67,000 per injury, $700 per vehicle Total cost of payouts: (180 X $200,000) + (180 X $67,000) + (2,100 X $700) = $49.5 million 12.5 million cars $11 per car Total cost of recall: 12.5 million X $11 = $137.5 million
Einstein's 1 hr solution
55 minutes on defining the problem 5 minutes on solving it
How do we decide whether an issue represents an ethical dilemma? Moral intensity:
: the degree to which people see an issue as an ethical one. I.e., the degree of badness of an act Impacts recognition of an issue as posing moral dilemmas Effects ethical judgements and behavioral intentions The way in which we frame moral dilemmas leads to very different judgements about what to do Moral intensity suggests that ethical decisions are primarily contingent upon the perceived characteristics of the issue at stake, and therefore ethical decision-making involves the collective assessment of those characteristics. The way in which we perceive ethical dilemmas depends heavily on the moral intensity the issue possesses. That is, something in the context or situation of how an ethical dilemma is perceived leads people to endorse the situation as unethical. Moral intensity suggests that ethical decisions are primarily contingent upon the perceived characteristics of the issue at stake, and therefore ethical decision-making involves the collective assessment of those characteristics. In the image to the right, a trolley is heading toward five people on the track. 90% would flip the switch so that only the one person was killed. However, let's say that same trolley were hurtling down the track toward five people. You can stop it by dropping a heavy weight in front of it. It just so happens there's a very heavy man next to you. Would you push him onto the tracks? Only 30% say they would.
Moral imagination:
Ability to (1) step out of your situation and see the possible ethical problems present; (2) imagine other possibilities and alternatives; (3) evaluate from an ethical standpoint the new possibilities you have envisioned.
Check your instincts
After arriving at a solution, put your decision into perspective Wall Street Journal Test (would you be embarrassed to see it on the front page?) Platinum Rule (treat others they way they would like to be treated?) Personal Gain (is personal gain biasing your decision?) Cost-Benefit Test (benefiting some while costing others?)
Healthy Skepticism
Ask yourself questions such as "what are the strongest arguments against my position? On what basis am I rejecting them? What are the weakest parts of my position? How will I know if I am wrong?
What is ethics?
At its simplest, ethics is a system of moral principles. They affect how people make decisions and lead their lives. Ethics is concerned with what is good for individuals and society and is also described as moral philosophy. The term is derived from the Greek word ethos which can mean custom, habit, character or disposition. Ethics covers the following dilemmas: how to live a good life our rights and responsibilities the language of right and wrong moral decisions - what is good and bad? Our concepts of ethics have been derived from religions, philosophies and cultures. They infuse debates on topics like abortion, human rights and professional conduct.
Judgement errors
Availability Representativeness Anchoring and adjustment Confirmation Overconfidence Escalation of commitment
Healthy Skepticism
Be prepared question yourself and others Seek out negative or disconfirming evidence In the process, try to avoid being overly cynical
Gather the facts
Before you can apply any ethical framework, you need to gather as many relevant facts about the situation as possible E.g., Who is involved? How did this situation occur? Who will be impacted by a decision and how? Many evidence-based frameworks exist to guide you in ethical decision making. As you might imagine, however, there is considerable overlap and consensus about the key elements of the process. In the following, we describe six key steps that reflect these critical elements.
Alternatives
Brainstorming vs. brainwriting Diversify participants Use metaphors and analogies Set high performance standards and provide feedback Assume a "perfect world" (no constraints during idea generation Benchmarking Compare possible solutions against industry best practices In an effective brainstorming session, the group sits around a table with a flip chart or some way to visibly present the input. The brainstorming facilitator states the problem in a clear manner so all participants understand it. Members then "free-wheel" (without limiting themselves as many alternatives as they can in a given length of time. No criticism is allowed, and all alternatives are recorded for later discussion and analysis. Judgements of even the most bizarre suggestions are withheld until later because one idea can stimulate others. Disallowing criticism thus encourages group members to "think the unusual." Unfortunately, brainstorming sessions are often rendered ineffective because of problems related to group dynamics in which people aren't able to defer judgement, can be critical of others, and usually don't "let it all hang out" toward solving the problem. Thus, a modest variant of brainstorming called brainwriting emerged. In this case, participants write down all of their ideas and then present each of them to a group in a "round robin" format.
Schemas
Cognitive frameworks based on prior experience used to structure and comprehend new information and situations Consist of organized knowledge that precludes the necessity for further active cognition. Pinto didn't fit the schema of a recallable problem Even the best-intentioned organizational members organize information into cognitive structures or schemas that serve as (fallible) mental templates for handling incoming information and as guides for acting upon it. I had trained myself to respond to prototypical cues, and these didn't fit the relevant prototype for crisis cases. (Yes, the Pinto reports fit a prototype - but it was a prototype for "normal accidents" that did not deviate significantly from expected problems). The frequency of the reports relative to other, more serious problems (i.e., those that displayed more characteristic features of safety problems) also did not pass my scripted criteria for singling out the Pinto case. Consequently, I looked right past them.
Ideally, individuals know what is ethical and act ethically.
In fact, we often self-regulate through self and social sanctions (i.e., we avoid doing things that would make us feel or look bad). However, self-regulation can be inhibited through moral disengagement.
Rational Choice Decision Making:
In its extreme form, rational choice decision making has dominated in Western societies for most of written history. It was established some 2,500 years ago when Plato and his contemporaries in ancient Greece raised logical debate and reasoning to a fine art. About 400 years ago, Descartes and other European philosophers emphasized that the ability to make logical decisions is one of the most important accomplishments of human beings. In the 1700s, Scottish philosophers refined the notion that the best choice is one that offers the greatest satisfaction. Rational choice decision making selects the best alternative by calculating the probability that various outcomes will occur from the choices and the expected satisfaction from each of those outcomes. All rational decisions rely primarily on two pieces of information: Probability that each outcomes will occur Valence or experienced satisfaction of each outcome.
Moral justification
Individuals do not engage in ethical conduct unless they justify to themselves the rightness of their actions! We portray inhuman behavior as having a moral purpose to make it socially and personally acceptable E.g., torture, in order to obtain necessary information to protect a nation's citizens, may be seen as acceptable.
Ethical competency
Involves a thoughtful consideration of ethics in each stage of the problem-solving process Finally, a third dimension of ethical behavior is ethical competency, which involves a thoughtful consideration of ethics in each stage of the problem-solving process.
Decision Making:
Involves identifying, selecting, and applying the best possible alternatives
Decide
Is it feasible and effective? Alternatives table vs. weighted ranking (narrowing alternatives tools) Devil's advocate method (use for your favored solution) Don't forget about the optimism bias! (e.g., attractiveness, intelligence, performance, positive/negative life events, etc.) Alternatives table: Simply list your most important decision criteria on the left side of the table and the alternatives along the top. Then simply compare (e.g., job offers). Weighted ranking: First, in a table, list the criteria down the left side of the first column from most to least important. Next, list your alternatives along the top row of the table. Third, on each of your criteria, rate every alternative on some scale, such as 1-10. It doesn't matter what scale you use, just be consistent. Finally, multiply your rank ordering by your rating of each alternative.
Ethical commitment
Level of dedication or desire to do what is right even in the face of potentially harmful personal repercussions Involves integrity or adherence to an ethical code or standard Ethical commitment is about accepting the challenge to be a person of high moral standards If you choose to strive toward ethical decisions and behavior, it will require your ethical commitment.
Components of moral intensity
Magnitude of consequences (total impact or consequence) Social consensus (degree of agreement among members of a society that an option is good or evil) Probability of Event (likelihood that action will cause expected consequences) Temporal immediacy (length of time between behavior and consequences of that behavior) Proximity (feelings of nearness that the moral agent has for the victims or beneficiaries) Concentration of effect (extent to which consequences are focused)
Think creatively about actions
Moral imagination Step out of your situation and see the possible ethical problems present Imagine other possibilities and alternatives Evaluate from an ethical standpoint the new possibilities you have envisioned
Moral intensity
Moral intensity suggests that ethical decisions are primarily contingent upon the perceived characteristics of the issue at stake, and therefore ethical decision-making involves the collective assessment of those characteristics.
Moral intensity
Moral intensity suggests that ethical decisions are primarily contingent upon the perceived characteristics of the issue at stake, and therefore ethical decision-making involves the collective assessment of those characteristics. The way in which we perceive ethical dilemmas depends heavily on the moral intensity the issue possesses. That is, something in the context or situation of how an ethical dilemma is perceived leads people to endorse the situation as unethical.
Mechanisms of moral disengagement
Moral justification Euphemistic labeling Advantageous comparisons Displacement of responsibility Diffusion of responsibility Disregarding or distorting the consequences Dehumanization Attribution of blame Moral disengagement functions in the perpetration of inhumanities through moral justification, euphemistic labeling, advantageous comparison, displacing or diffusing responsibility, disregarding or misrepresenting injurious consequences, and dehumanising the victim. Rather than operating independently, these cognitive mechanisms are interrelated within a sociostructural context to promote inhumane conduct in people's daily lives.
Gioia
Most models of ethical decision making in organizations implicitly assume that people recognize and think about a moral or ethical dilemma when they are confronted with one. I call this seemingly fundamental assumption into question. The unexplored ethical issue for me is the arguably prevalent case where organizational representatives are not aware that they are dealing with a problem that might have ethical overtones. If the case involves a familiar class of problems or issues, it is likely to be handled via existing cognitive structures or scripts - scripts that typically include no ethical component in their cognitive content. Gioia
Information overload - overwhelming complexity: Strict rules to assess situations
Specifics not met: high frequency or directly traceable causes Pinto problem was distinctly a little one
My central thesis is this
My own schematized (scripted) knowledge influenced me to perceive recall issues in terms of the prevailing decision environment and to unconsciously overlook key features of the pinto case, mainly because they did not fit an existing script. Although the outcomes of the case carry retrospectively obvious ethical overtones, the schemas driving my perceptions and actions precluded consideration of the issues in ethical terms because the scripts did not include ethical dimensions.
Morals vs. business decisions
People implicitly accept risks in cars "On moral grounds I knew I could recommend most of the vehicles on my list for recall. On moral grounds, I recognized that people implicitly accept risk in cars. The country was in the midst of its first, and worst, oil crisis at this time Layoffs were imminent
Self-serving bias
People's tendency to attribute positive events to their own character but attribute negative events to external factors
Comparison of the Pinto's survivability in a rear end accident with other small cars
Pinto was merely the worst of a bad lot The competition had similar problems
Decision Making Framework: PADIL
Problem Alternatives Decide Implement Learn In its extreme form, rational choice decision making has dominated in Western societies for most of written history. It was established some 2,500 years ago when Plato and his contemporaries in ancient Greece raised logical debate and reasoning to a fine art. About 400 years ago, Descartes and other European philosophers emphasized that the ability to make logical decisions is one of the most important accomplishments of human beings. In the 1700s, Scottish philosophers refined the notion that the best choice is one that offers the greatest satisfaction. Rational choice decision making selects the best alternative by calculating the probability that various outcomes will occur from the choices and the expected satisfaction from each of those outcomes. All rational decisions rely primarily on two pieces of information: Probability that each outcomes will occur Valence or experienced satisfaction of each outcome.
Common mistakes made when choosing the problem Framing the problem too narrowly
Problems are often larger than they first appear (e.g., parking lot is always full, so we need to redesign it) Is the problem that the parking lot needs to be redesigned? (e.g., shuttle, ferry, car pool, telecommute)
Moral disengagement:
Process of convincing yourself that your ethical standards do not apply in a particular situation.
Decision Making:
Process of making choices among alternatives with the intention of moving toward some desired state of affairs.
Confidence estimates
Rather than relying on a single point estimate, develop a probability range or confidence estimate of something occurring Conversely, ask yourself "what are the chances that this judgement is wrong"
Economics
Related to supply and demand (e.g., Video) Even the most rational, economically based decisions will be perceived differently (e.g., $99 cases of water; $3,200 flights out of Miami)
Intuition
Represents a collection of what we've learned about the world
Rational Choice Decision Making:
Selects the best alternative by calculating the probability that various outcomes will occur from the choices and the expected satisfaction from each of those outcomes.
Opportunity
Some choices may produce better results than current goals or expectations
Define ethical issues
Sort through primary ethical issues involved Consider probably consequences of the decision Consider the process of the decision Moral intensity suggests that ethical decisions are primarily contingent upon the perceived characteristics of the issue at stake, and therefore ethical decision-making involves the collective assessment of those characteristics.
Script
Specialized type of schema that retains knowledge of actions appropriate for specific situations and contexts (e.g., it's like cruising on auto pilot) Developed from salient experiences Based on prototypes that store abstract information about main features / characteristics; Scripts link cognition and actions Efficient but not necessarily good: Saves mental work, prevents cognitive paralysis
Overconfidence
Tendency to be more confident in our judgments than is objectively reasonable I.e., People are more sure that they are correct than they should be
Availability
Tendency to estimate the probability of something occurring by how easily we can recall those events E.g., We easily remember emotional events (such as shark attacks), so we overestimate how often these traumatic events occur. Recent events are also recalled more easily (i.e., what's in the news?) On average, there are 16 shark attacks per year in the United States, with one fatality every two years.
Confirmation
Tendency to search for, interpret, favor, and recall information in a way that confirms one's pre-existing beliefs or hypotheses. E.x., Jon's Tesla bias
Intuition
The ability to immediately understand something without conscious reasoning or evident rational thought
Fundamental attribution error (FAE)
The claim that in contrast to interpretations of their own behavior, people place undue emphasis on internal characteristics of the agent (character or intention), rather than external factors, in explaining other people's behavior. The effect has been described as "the tendency to believe that what people do reflects who they are".
Ethics:
The principles, norms, and standards of conduct governing an individual or group's behavior. Moral standards are concerned with right and wrong conduct.
Attribution of blame
The unethical conduct was provoked by the victim.
Dehumanization
The victim is stripped of human qualities
To solve problems effectively, we first must keep in mind that
There is a difference between good decisions and good outcomes We can never fully control the outcomes of our decisions There is no such thing as a perfect decision process Bounded rationality Satisficing Bounded rationality is the view that people are bounded in their decision making capabilities, including access to limited information, limited information processing, and tendency toward satisficing rather than maximizing when making choices. Satisficing - choosing an alternative that is satisfactory or good enough. According to rational choice decision making, people rely on logic to evaluate and choose alternatives. This view assumes that decision makers have well-articulated and agreed-on organizational goals, that they efficiently and simultaneously process facts about all alternatives and the consequences of those alternatives, and that they choose the alternative with the highest payoff. However, people are bounded in their rationality and thus human decision making will not be entirely rational.
David Gioia
There was so much to do and so much information to attend to that the only way to deal with it was by means of schematic processing. Before I went to Ford I would have argued strongly that Ford had an ethical obligation to recall. After I left Ford I now argue and teach that Ford had an ethical obligation to recall. But, while I was there, I perceived no strong obligation to recall and I remember no strong ethical overtones to the case whatsoever.
Common mistakes made when choosing the problem Failure to think systematically
Think about the entire system or interrelated aspects of the problem (e.g., root cause analysis; x - m - y) Events, patterns/trends, systematic structure, mental models
Disregarding or distorting the consequences
Unethical conduct did not have any (or only minor) negative consequences E.g., avoiding the results of scientific studies showing the harm your actions are causing.
Diffusion of responsibility
Unethical conduct is attributed to the behavior of the group "Everyone did it" "I played a small part"
Advantageous comparisons
Unethical conduct is compared to more severe actions "It's not like I stole something big" This process exploits the contrast principle, which follows that the assumption that the perception of human conduct is influenced by what it is compared against (similar to anchoring). That is, individuals contrast their conduct with other examples of immoral behavior and in doing this comparison their own behavior is trivialized.
Euphemistic labeling
Unethical conduct is masked as ethical conduct by describing it in a way that change its appearance E.g., clean surgical strikes instead of bombing; collateral damage instead of victims; reduction in force instead of terminations; strategic misrepresentation instead of lying
Displacement of responsibility
Unethical conduct is the result of social pressure or was demanded by someone with authority "I was just following orders"
Trial-and-Error Calibration
Use prior data to calibrate your estimates Record the reasons why you've established the prediction Track the results Study success and failures at prediction Remember that chance is not self-correcting (e.g., gambler's fallacy or representative bias)
Judgement Errors
Very few of us are skilled at listening for the deepest meaning in what people say.
Alternatives
What are the characteristics of a good alternative? Postponed evaluations Stakeholder involvement Organizational focus (consistent with organizational goals) Time implications (Focus on short and long-term solutions) Effective (the solutions addresses the root cause)
Consider your integrity
What are your values? What common rationalizations (e.g., everyone else does it) do you need to avoid?
Anchoring and adjustment
When we are influenced by an initial anchor point and do not sufficiently move away from that point as new information is provided. Ex. 2 - Selling a car (adjust what we're willing to pay based on anchor)
Escalation of commitment
When we continue to dedicate resources, including time and money, to a failing course of action. Sunk costs, not wanting to give up or appear irrational, and not wanting to admit a mistake.
Representativeness
When we judge the probability of an object or event A belongs to class B by looking at the degree to which A resembles B. Put differently, we pay more attention to whether something is representative of something else than to more precise statistics about its probability. When we do this, we neglect the general probability of B occurring. Put differently, we pay more attention to whether something is representative of something else than to more precise statistics about its probability. Also, gambler's fallacy
black or white fallacy.
When you start to examine problem framing, you will notice the tendency for people to generally frame problems in "either-or" terms.
Bounded Rationality and Prospect Theory
You have $1,000, and you must pick one of the following choices: Choice A: You have a 50% chance of gaining $1,000 and a 50% chance of gaining $0. Choice B: You have a 100% chance of gaining $500. Daniel Kahneman won the Nobel Prize in Economics in 2002, in part for his work with Amos Tversky on the prospect theory of decision making. Their work focused on the risk perceptions in decision people make. The authors conducted studies in which subjects were asked to make decisions when given two monetary options that involved prospective losses and gains. Consider the examples above. Prospect theory describes the way in which people probabilistic alternatives that include risk, where the probabilities and outcomes are unknown. Framing: Refers to whether questions are presented as gains or losses. Leaders must pay attention to how decisions are framed when they are presented.
Bounded Rationality and Prospect Theory
You have $2,000, and you must pick one of the following choices: Choice A: You have a 50% chance of losing $1,000 and a 50% chance of losing $0. Choice B: You have a 100% chance of losing $500. The results of this study showed that an overwhelming majority of people chose B for question 1 and A for 2. Why? People are willing to settle for a reasonable gain (even if they have a reasonable chance of earning more), but are willing to engage in risk-seeking behaviors where they can limit their losses. In other words, losses weigh more heavily emotionally in decision making than an equivalent gain.
Overconfidence
an example of a miscalibration of subjective probabilities. Throughout the research literature, overconfidence has been defined in three distinct ways: (1) overestimation of one's actual performance; (2) overplacement of one's performance relative to others; and (3) overprecision in expressing unwarranted certainty in the accuracy of one's beliefs.[2]
Stakeholders
anyone who has a stake in the problem or solution
Black or white fallacy
assumes our choices are clear and limited to two (it's either black or white), when in reality there may be many other choices (shades of gray).
cornerstone of rational choice decision making
calculate the alternative with the highest satisfaction
Heuristics
described as "judgmental shortcuts that generally get us where we need to go - and quickly - but at the cost of occasionally sending us off course."[2] Heuristics are useful because they use effort-reduction and simplification in decision-making.[3]
psychologists Amos Tverskey and Daniel Kahneman
discovered that human beings have built-in decision heuristics that automatically distort those calculations.
Affinity diagram
idea generation method that allows you to sort aspects of the problem into themes or categories. The categories will help when you begin to gather data about the problem and research alternatives. Steps include: 1. Write the problem statement on a flip chart or board. Underneath the problem, write the phrase, "what are the possible causes of it?"; 2. Using sticky notes, Allow each person to write as many possible causes as possible and place each note on the board. Do not evaluate the merit of the person's idea; 3. Once all the ideas are posted, begin to look for similarities in ideas. Group the similar notes together and lable them according to the category they represent. You now have some ideas for where to begin your data collection.
In the summer of 1978 NHTSA
issued a formal determination that the Pinto was defective. Ford then launched a reluctant recall of all 1971 - 1976 cars. A jury awarded a Pinto burn victim $125 million in punitive damages (later reduced to $6.6 million). Most cases were settled out of court and held confidential. Ford was indicted on charges of reckless homicide. It was the first time a corporation was tried for alleged criminal behavior. Ford won.
45% of CEOS at Fortune 1,000 firms
rely on intuition more than facts
of 6,000 students on 31 U.S. campuses
~66% admitted to cheating Future MBAs (76% reported cheating) Engineers (71%) Medicine (68%) Government (66%)
