Business Decision Analysis Flashcards
Examples of what evidence should be acquired
How should we manage organisational change? When is best to buy from our suppliers to upkeep our stock inventory? Why are we underperforming? What explains our sales increasing? How should we recruit the best people for the company?
What are the four sources of evidence?
Practitioners, scientific research literature, the organisation, and stakeholders
What counts as evidence?
Information - that is available
Information - from many sources
Information - that is ‘conceivable’
Information - that is ‘trustworthy’
Scientific research
What counts as evidence?
Information - that is available
Information - from many sources
Information - that is ‘conceivable’
Information - that is ‘trustworthy’
Scientific research
What are some misconceptions about EBM?
- It ignores the practitioner’s professional experience
- It is all about numbers and statistics
- Managers don’t have time for EBM
- Scientific literature evidence is limited
- Without high-quality evidence, you cannot do anything
- Good quality evidence gives you ‘the answer’ to the problem
Only under three specific circumstances can professional experience be considered valid and reliable:
- When there are numerous opportunities to practise
- When practice leads to direct, objective feedback
- Within a regular, predictable work environment
What are heuristics?
A mental shortcut that helps us make judgements quickly without having to spend a lot of time researching and analysing information.
Describe System 1 thinking.
System 1 is fast, intuitive, associative and emotional. It is the fast, effortless thinking system that operates automatically with little voluntary control and that uses intuition or heuristics to make decisions fast.
Describe System 2 thinking
System 2 is slow, effortful, deliberate, and rational. It draws heavily on our cognitive resources and requires attention and concentration.
What are cognitive biases?
Cognitive biases are errors in thinking that affect how we make decisions - they directly stem from our System 1. There are three cognitive biases highly relevant to the field of management:
1. Patternicity and the illusion of causality
2. Confirmation bias
3. Group conformity
What is patternicity and the illusion of causality?
Our System 1 is predisposed to see order, pattern and causal relations in the world. As a result, we tend to see meaningful patterns, some of which are meaningful and others are but meaningless noise. We seek patterns and assume causal relations by connecting the dots: A appears connected to B, so we assume there is a causal link.
Confirmation bias
Due to the dominance of our System 1 thinking, we are predisposed to confirm our existing beliefs. By selectively searching for and interpreting information in a supporting fashion while ignoring information to the contrary we reinforce our existing beliefs. In other words, we ‘see what we want to see’. This phenomenon is known as confirmation bias.
Group conformity
Group conformity is the tendency to conform to others in a group, even if doing so goes against your own judgement. Human beings are very social creatures and are very aware of what people around us think. Therefore, our System 1 is strongly inclined to conform to the group: we strive for consensus and avoid confrontations, even when we don’t agree with what people are saying.
Availability bias
The tendency (of our System 1) to rely on examples that spontaneously come to mind when evaluating a specific topic, method, or decision. As a result, we are more likely to believe something is true, effective, or commonplace if we know an example of it, and we are less likely to believe in something that we’ve never seen or heard before. However, the examples that are ‘available’ in our memory are largely determined by how recent the examples are or how unusual or emotionally charged they may be. For example, a manager who has just read an article on the benefits of Lean Six Sigma in a popular magazine will more likely suggest (or accept) this as a solution for a managerial problem than a model they have never heard of.
Authority bias
The tendency to over-value the opinion of someone who is seen as an authority. As a result, we tend to be less critical when an ‘authority’ makes a claim or a suggestion.
