Decision Making I and II Flashcards
Define decision making
The process of developing a commitment to some course of action
Explain how decision making is a process of problem solving
There is a perceived gap between your current state and your desired state. You need to take actions to resolve that discrepancy
Define well-defined/well-structured problems
When the parameters are known; you can follow rules or standard procedures
Define ill-defined/ill-structured problems
When the parameters are unknown; there are no obvious rules, no clear means to the end goal, and you might not even be clear on what the goal should be
When are biases most likely to happen in decision making? Why?
When it’s most important for us to make good decisions: when we perceive a threat, when there’s uncertainty, and when there’s pressure
What are five different forms of egocentrism (i.e. poor reasoning)?
- Confirmation bias
- Echo chambers
- Justifying earlier decisions
- Sunk costs and escalation of commitment
- Groupthink and the status quo
Explain why you are more likely to make bad decisions regarding ill-structured problems
- More missing information
- More likely to ignore information
- More likely to make up information
- More likely to try to find “short-cuts”
- More vulnerable to bias
Define confirmation bias
Paying more attention of evidence that supports what they were already inclined to do
Explain how perceptual biases play a role in ill-structured problems
Essentially, we select the info we want and neglect important info
- We see what we want (eg. confirmation bias)
- We trust/remember best what we hear first
- We go with who we like or respect more
What are the seven different types of decision making bias?
- Confirmation bias
- Overconfidence
- Stereotyping
- Groupthink
- Group polarization
- Framing effects
- Escalation of commitment
What are the seven steps of the rational decision making process?
- Identify problems
- Search for relevant information
- Develop alternative solutions to the problem
- Evaluate alternative solutions
- Choose best solution
- Implement chosen solution
- Monitor and evaluate chosen solution
What are the decision making biases that affect individual decision making?
- Heuristic decision making
- Overconfidence
- Confirmation bias/selective perception
- Escalation of commitment
- Anchoring effect
- Framing effect
What are the decision making biases that affect group decision making?
- Groupthink
2. Group polarization
Define bounded rationality
Ideally we would like to follow the rational decision making process; however, our decision making is limited by a huge number of factors
What are some limitations on the rational decision making process?
- The capacity to acquire and process information (bottleneck)
- Time constraints (feel like we need to make quick decisions, we don’t have time to find all the available alternatives)
- Social and political considerations
- Willpower limitations (things take effort)
- Self-interest/egocentric view
Define framing
The manner in which objectively equivalent alternatives are presented
What happens if information is framed negatively (loss frame)?
Encourages risk
What happens if information is framed positively (gain frame)?
We go with the sure thing; more conservative
Define prospect theory
The theory that we make decisions based on (the feeling of) losses and gains, instead of the actual value of the final outcome
Define sunk costs
Permanent losses of resources incurred as the result of a decision. Since these resources have been lose permanently, they should not enter into future decisions
Define escalation of commitment
The tendency to invest additional resources in a failing course of action
Why do people do escalation of commitment?
People want to reduce dissonance by recouping the “sunk costs” from a previous decision
How can you prevent yourself from committing escalation of commitment?
Take yourself out of the picture; re-frame losses as gains/opportunity; don’t punish inconsistency, reward accuracy; hand off decisions about whether to commit more resources to an investment to new decision makers; make sure decision-makers are frequently reminded of actual goals
Define groupthink
The capacity for group pressure to damage the mental efficiency, reality testing, and moral judgement of decision-making groups
What happens if a group suffers group polarization?
If group members are initially somewhat conservative, then the group will shift even more conservative. If group members are initially somewhat risk, then the group will shift even more risky
