04 Heuristics and Most Common Biases Flashcards
Heuristics
- simplifying strategies used when making decisions (e.g. rule of thumb)
- provide people with a simple way of dealing with a complex world (usually produce correct or partially correct judgments)
- can lead to severe errors, especially since we are usually not aware that we are using them
Perception
Stimulus -> Attention -> Recognition -> Translation -> Behavior
Four judgmental heuristics
I. Availability heuristic
II. Representativeness heuristic
III. Congruence heuristic/ positive hypothesis testing
IV. Affect heuristic
Availability heuristic
- we tend to evaluate the frequency, probability, or likely causes of an event by the degree to which instances or occurrences of that event are readily available in memory
- emotionally charged events are more available than unemotional events
- why useful in negotiation and mgmt? -> we generally recall events of greater frequency more easily than rare events
Representativeness heuristic
- when making a judgment about an individual (or object or event), we tend to look for traits an individual may have that corresponds with previously formed stereotypes
- also works at the unconscious level
- why useful in negotiation and mgmt? -> draws our attention to the best option at the first sight
Congruence heuristic
- we intuitively use selective data when testing hypotheses
- involves failure to consider alternative hypotheses
- in the absence of evidence to the contrary, we tend to behave as if a given statement is true
Affect heuristic
- most our judgments are accompanied by an emotional/affective response
- emotions can be conscious or unconscious
- use of such heuristic more common under constraints
Framing
- subjective mechanism through which people evaluate and make sense of situations
- leads people to pursue or avoid subsequent actions (focus, shape and organize the world around us; make sense of complex realities; based on previous experiences)
- why important in negotiation? -> different interpretations of the same event, one cannot avoid them
Types of frames
1. Substantive - what the conflict is about
2. Outcome - a party’s predisposition to achieving a specific result or outcome from the negotiation
3. Aspiration - a predisposition toward satisfying a broader set of interests or needs in negotiation
4. Process - how the parties will go about resolving their dispute
5. Identity - how the parties define “who they are”
6. Characterization - how the parties define the other parties
7. Loss-gain - how the parties define the risk or rewards associated with particular outcomes
How do frames work in negotiation?
- Negotiations can use more than one frame
- Mismatches in frames between parties are sources of conflict
- Parties negotiate differently depending on the frame
- Specific frames may be likely to be used with certain types of issues
- Particular types of frames may lead to particular types of agreements
- Parties are likely to assume a particular frame because of various factors
Cognitive Biases
- negotiators have tendency to make systematic errors when processing information
- errors are collectively labeled = cognitive biases
- some derive from heuristics
Types of Biases
- Escalation of commitment
- Mythical fixed-pie beliefs
- Anchoring and adjustment
- Issue framing and risk
- Availability of information
- The winner’s curse
- Overconfidence
- The law of small numbers
- Self-serving bias
- Endowment effect
- Ignoring other’s cognitions
- Reactive devaluation
Escalation of Commitment
- negotiators maintain commitment to a course of action even when that commitment constitutes irrational behavior
- due in part to biases in perception and judgement
Mythical fixed-pie beliefs
- assuming all negotiations involve a fixed pie (zero-sum)
- no possibility of integrative settlement
- suppresses effort to search for an agreement
Anchoring and Adjustment
- the effect of the standard (anchor) against which subsequent adjustments (gains or losses) are measured
- once anchor is defined, parties treat it as real, valid benchmark
- anchor might be based on faulty or incomplete information
Issue Framing and Risk
Frames can lead people to seek, avoid, or be neutral about risk in decision making and negotiation
Availability of information
- operates when information that is presented in vivid or attention-getting ways becomes easy to recall
- becomes central in evaluating events and options
- can take place during recall (vividness and recency) and retrievability (memory structure)
The Winner’s Curse
- tendency to settle quickly on an item and then subsequently feel discomfort about a win that comes too easily
- feeling you might have overestimated the value
Overconfidence
- Believe that own ability to be correct and accurate is greater than actually true
- confidence = important BUT overconfidence = barrier to effective decision making
The law of small numbers
- tendency to draw conclusions from small sample sizes
- the smaller the sample, the greater the possibility that past lessons will be erroneously used to infer about the future
- leads to self-fulfilling prophecy
Self-serving bias
- people often explain another person’s behavior by making attributions, either to the person or the situation
- effect negotiations in number of ways
Endowment Effect
- tendency to overvalue something you own or possess
- can lead to inflated estimations of value that interfere with reaching a good deal
Ignoring other’s cognition
- negotiators don’t bother to ask about the other party’s perceptions and thoughts -> leads to distributive strategy
- work with incomplete information
- produces false results
Reactive devaluation
- process of devaluing the other party’s concessions simply because the other party made them
- Leads to
- minimize magnitude of a concession made by a disliked other
- reduce their willingness to respond with a concession of equal size
- seek even more from the other party once a concession has been made
How to manage biases?
- typically arise out of conscious awareness
- be aware of negative aspects of these biases
- discuss them in structured manner within the team and with counterparts
