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Why analyse decisions?
If you
have ever faced a
difficult decision that
caused you sleepless
nights, the problems
associated with making
hard decisions will be all
too familiar to you. Both
business professionals and
psychologists have
observed common flaws in
the way people make
decisions. Psychologist
Daniel Kahneman received
the Nobel Prize for his
studies on how biases
strongly and
systematically affect
intuitive decisions. He
concluded that we use
unconscious shortcuts,
termed heuristics, to cope
with complex decisions.
“In general, these
heuristics are useful, but
sometimes they lead to
severe and systematic
errors”.
Recognizing these common
problems helps us to
understand what decision
analysis can do for us:
-
Poor
framing: stating the
exact same decision
alternative in
positive or negative
terms can
significantly impact
the attractiveness of
the alternative.
-
Recency effects:
decision makers
frequently make
decisions based on the
information they have
seen most recently.
-
Primacy effects: once
a frame of reference
for analyzing an issue
develops, decision
makers often find it
difficult to move from
that position.
-
Probability
estimation: decision
makers tend to
overestimate the
probability of events
that are familiar or
dramatic, and greatly
underestimate negative
events.
-
Overconfidence:
decision makers tend
to be overconfident
about the accuracy of
what they know.
-
Sunk
costs: decision makers
find it difficult to
abandon courses of
action that have
already been adopted.
-
Association bias:
decision makers try to
repeat past successes
by choosing strategies
more related to a past
situation than the
current one.
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