Archive for the ‘Decision Making’ Category

Decisions, decisions, decisions — they make up the foundation of our life. Each of us makes hundreds, perhaps even thousands of them every day. They range from simple to complex, from mundane to exhilarating, even life altering.  Without decisions, there would be no action because they are the bridge between our thoughts and emotions, and taking action.

As central and important as decisions are to our work and life overall, one would think they would be fairly easy to make error free. Actually most of them are: what time should I get up, what should I eat, when should I leave for work, which way should I take to work, what lane should I be in, where should I park, etc., etc.  Many of these are made with little if any conscious thought. If we had to think about every decision, consider every option, the pro’s and con’s, we would be paralyzed.

Without careful thought and consideration, however, we are more prone to fall prey to one or more of the following decision errors. The list of theories is from

  1. Ambiguity Effect: We prefer a known probability to an unknown one.
  2. Anchoring and Adjustment Heuristic: We base estimates on known anchors.
  3. Availability Heuristic: Recent events seem more likely.
  4. Bias Blind Spot: We do not compensate enough for our own bias.
  5. Bias Correction: Well-meaning over-compensation.
  6. Biased sampling: We base decisions on available small samples.
  7. Bounded Rationality: We only use limited logic in decisions.
  8. Conjunction Fallacy: An overlap seems twice as likely.
  9. Disconfirmation bias: Agreeing with what supports beliefs and vice versa.
  10. Endowment Effect: We value more highly the things we own.
  11. Focusing Effect: We pay more attention to some things than others.
  12. Gambler’s Fallacy: Belief we can predict random events.
  13. Hot Hand Phenomenon: Assuming success breeds success.
  14. Illusory Correlation: We see correlation where it is not.
  15. Mere Thought Effect: Thinking creates polarization.
  16. Mood-Congruent Judgment: Our moods bias our judgments.
  17. Neglect of probability bias: Ignoring probability; assuming certainty.
  18. Overconfidence Barrier: We are too confident in our own judgments.
  19. Prospect Theory: We value certain gains and try to avoid certain losses.
  20. Psychological Accounting: We care about direct outcomes. We also compare in ratios rather than absolute amounts.
  21. Representativeness Heuristic: We guess probability from a ‘comparable’ event.
  22. Restraint Bias: Assuming we can control urges.
  23. Social Judgment Theory: We vary our judgments about an anchor position.
  24. Sunk-Cost Effect: We are reluctant to pull out of an investment.

So what’s a person to do?  How about use a second language?

According to the Association for Psychological Science, the journal article, “The Foreign-Language Effect: Thinking in a Foreign Tongue Reduces Decision Biases” suggests just that thing.

“Researchers at the University of Chicago have found that people make more analytic decisions when they think through a problem in their non-native tongue.  These findings have implications in many arenas but especially for people doing business in a global economy.”  The article can be found in the April issue of Psychological Science,

According to lead writer, Boaz Keysar, a University of Chicago psychologist, “cognitive biases such as loss aversion are deeply emotional responses, and understanding a second language requires conscious thought in a way that processing our native tongue doesn’t. Because we have to think more to make sense of the question when it’s in a foreign language, we automatically think carefully about the answer—we don’t just answer based on our cognitive biases.”

There should, however, be a caveat here.  A large body of evidence shows that emotions are extremely important in making good decisions.  If instincts or gut feelings that result from our experience are excluded through strict logic or critical thinking, the quality of the decision may well be in jeopardy.  In my experience, I have never seen an organization promote “integrated decision making,” which appears to be critical to success.

So, in the absence of integrated decision making, perhaps we would do just as well using the Christie-Davies Theorem.

 “If your facts are wrong but your logic is perfect, then your conclusions are inevitably false. Therefore, by making mistakes in your logic, you have at least a random chance of coming to a correct conclusion.”

~ John Christopher Davies (Emeritus Professor University of Reading, UK)

“No Coke…Pepsi!”

The iconic phrase made popular on Saturday Night Live in 1978 by John Belushi as Pete Dionasopolis, owner of the Olympia Café illustrates the length of the ongoing rivalry between the two flagship soft drinks.

You may have seen the television add where PepsiCo claims that people prefer the taste of Pepsi over Coke in blind taste tests.  Yet Coca-Cola’s commercials claim that people prefer the taste of Coke.  So who’s right?  As it turns out, both are correct but it depends on how the test is conducted. PepsiCo used a blind test taste while Coca-Cola let people see the name of the product they were drinking.

“To better understand the Coke vs. Pepsi rivalry, a group of neuroscientists conducted their own taste tests — only this time, the participants were tested in a magnetic resonance imaging machine so their brain activity could be monitored throughout the test. Duke Professor Dan Ariely notes in his book PredictablyIrrational, when the participants received a drink, they were presented with visual information indicating either that Coke, Pepsi, or an unknown drink was coming. This way the researchers could record and compare observations under all of the different scenarios.

So what were the results? It turns out that the brain activity of participants did indeed vary depending on whether or not the drink’s brand was revealed. When participants weren’t informed of the brand, only the center part of their brain was activated, which is associated with strong feelings of emotional connection. When the participants were informed of the brand, however, something additional happened. This time, the frontal area of the brain controlling memory, associations, and higher-order cognition was also activated — not coincidentally, the frontal lobe is also closely linked to the brain’s pleasure center. And the response was strongest when they were drinking Coke, indicating that most people do in fact prefer Coke over Pepsi, but only if they know which is which ahead of time.” (Excerpted from Profiting from the Irrationality of Others,  John Maxfield, The Motley Fool, Dec. 7, 2011)

So what is the significance of this discovery in leadership and organizations? For one, the discovery illustrates the importance of “memory, associations, and higher-order cognition” in decision making. While decisions are commonly perceived as rational, memory from past experiences provide a powerful influence. Termed as irrational by some, I believe it is actually non-rational thought, which is not obviously rational versus being against rational.

One of my favorite examples is when I hear executives make statements such as “people are too risk averse…it’s okay to fail…we need to learn from our mistakes…employees need to take more risks.”  To understand risk aversion, all you need to do is reflect on your own past experiences.  As a child, a student, an athlete, an employee – how many times were your mistakes or failures associated with positive emotions and feelings versus negative ones?  It is the power of these memories, whether conscious or not, that truly impact the decisions we make.

Incite: What other examples of decisions or behaviors can you think of that are affected by past memories and their associated emotions?  Giving feedback, speaking up in meetings, confronting bad behavior?