Create an account to read 2 more. Analytics and data science. The Hidden Traps in Decision Making. Hammond, Ralph L. Keeney, and Howard Raiffa. A version of this article appeared in the January issue of Harvard Business Review. Read more on Analytics and data science or related topics Decision making and problem solving , IT management , Managing people , Motivating people , Organizational culture , Psychology , Organizational decision making , Financial service sector , Professional services and North America.
John S. Ralph L. This is a subscriber-only article. Subscribe Now I'm already a subscriber. Forgot Password? I'm a subscriber, but I don't have an HBR. Unfortunately, that means we have to temporarily suspend subscriber syncing. Making business decisions is your most crucial job—and your riskiest. New product development, mergers and acquisitions, executive hirings—bad decisions about any of these can ruin your company and your career.
Where do bad decisions come from? Mostly from distortions and biases—a whole series of mental flaws—that sabotage our reasoning. The higher the stakes of your decision, the higher the risk of getting caught in a thinking trap. Worse, these traps can amplify one another—compounding flaws in our reasoning. Here are five of the nine traps:. Giving disproportionate weight to the first information you receive Example:. A marketer projects future product sales by looking only at past sales figures.
In a fast-moving marketplace, poor forecasts result. Favoring alternatives that perpetuate the existing situation Example:. A key merger stumbles because the acquiring company avoids imposing a new management structure on the acquired company.
Making choices in a way that justifies past, flawed choices Example:. Bankers who originate problem loans keep advancing more funds to the debtors, to protect their earlier decisions. But the loans fail anyway.
Seeking information that supports your existing point of view Example:. A CEO considering canceling a plant expansion asks an acquaintance, who canceled such an expansion, for advice. She, of course, says to cancel. Being overly influenced by vivid memories when estimating Example:. Lawyers overestimate probability of large awards because the media aggressively publicizes massive awards.
Lawyers then offer too large settlements. Making decisions is the most important job of any executive. Bad decisions can damage a business and a career, sometimes irreparably. So where do bad decisions come from?
In many cases, they can 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. The way the human brain works can sabotage our decisions. Researchers have been studying the way our minds function in making decisions for half a century. This research, in the laboratory and in the field, has revealed that we use unconscious routines to cope with the complexity inherent in most decisions.
These routines, known as heuristics , serve us well in most situations. In judging distance, for example, our minds frequently rely on a heuristic that equates clarity with proximity. The clearer an object appears, the closer we judge it to be. The fuzzier it appears, the farther away we assume it must be.
This simple mental shortcut helps us to make the continuous stream of distance judgments required to navigate the world. Yet, like most heuristics, it is not foolproof. On days that are hazier than normal, our eyes will tend to trick our minds into thinking that things are more distant than they actually are.
Because the resulting distortion poses few dangers for most of us, we can safely ignore it. For airline pilots, though, the distortion can be catastrophic.
Researchers have identified a whole series of such flaws in the way we think in making decisions. Some, like the heuristic for clarity, are sensory misperceptions. Others take the form of biases. Others appear simply as irrational anomalies in our thinking.
What makes all these traps so dangerous is their invisibility. Because they are hardwired into our thinking process, we fail to recognize them—even as we fall right into them. For executives, whose success hinges on the many day-to-day decisions they make or approve, the psychological traps are especially dangerous. They can undermine everything from new-product development to acquisition and divestiture strategy to succession planning.
While no one can rid his or her mind of these ingrained flaws, anyone can follow the lead of airline pilots and learn to understand the traps and compensate for them. In this article, we examine a number of well-documented psychological traps that are particularly likely to undermine business decisions.
In addition to reviewing the causes and manifestations of these traps, we offer some specific ways managers can guard against them. Executives who attempt to familiarize themselves with these traps and the diverse forms they take will be better able to ensure that the decisions they make are sound and that the recommendations proposed by subordinates or associates are reliable.
In half the cases, we used 35 million in the first question; in the other half, we used million. Without fail, the answers to the second question increase by many millions when the larger figure is used in the first question.
This simple test illustrates the common and often pernicious mental phenomenon known as anchoring. When considering a decision, the mind gives disproportionate weight to the first information it receives. Initial impressions, estimates, or data anchor subsequent thoughts and judgments. Anchors take many guises. They can be as simple and seemingly innocuous as a comment offered by a colleague or a statistic appearing in the morning newspaper.
In business, one of the most common types of anchors is a past event or trend. A marketer attempting to project the sales of a product for the coming year often begins by looking at the sales volumes for past years. The old numbers become anchors, which the forecaster then adjusts based on other factors. This approach, while it may lead to a reasonably accurate estimate, tends to give too much weight to past events and not enough weight to other factors.
In situations characterized by rapid changes in the marketplace, historical anchors can lead to poor forecasts and, in turn, misguided choices. Details Pub Date: Nov 15, Discipline: Organizational Behavior. Subjects: Decision making Management skills Managerial behavior Psychology and neuroscience. Source: Harvard Business Review. Length: 12 page s. X We use cookies to understand how you use our site and to improve your experience, including personalizing content.
Learn more. By continuing to use our site, you accept our use of cookies and revised Privacy Policy. 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.
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