Session 1 : Introduction to the Scientific Approach of Decision-Making Flashcards
What is the storytelling trap, and why is it dangerous ?
It’s the act of constructing stories to give meaning to isolated facts, which can derail decision-making. It plays into our confirmation bias, making us more likely to believe stories that align with our pre-existing beliefs.
Example: In business, a board of directors might trust their “champion” based on past successes, even when evidence shows the strategy is failing.
N.B : Nassim Taleb, in The Black Swan, describes how our minds are “wonderful explanation machines,” always seeking to make sense of information, often through stories.
What is confirmation bias ?
It’s the tendency to search for or interpret information that confirms our pre-existing beliefs while ignoring contradictory evidence.
Example: In politics, supporters of both candidates in a debate believe their own champion won, ignoring the opponent’s strong points.
N.B : Confirmation bias can affect even “objective” fields like fingerprint analysis, where examiners may be swayed by preexisting expectations.
What is champion bias ?
It occurs when the reputation of a project leader (the “champion”) outweighs the value of the information or project itself.
Example: A company might continue to support a failing strategy simply because it was proposed by a highly respected leader.
How does experience bias affect decision-making ?
Answer: It happens when we rely on past experiences to make sense of new situations, leading us to confirm familiar stories, even if they don’t fit the current situation.
Example: A business leader might apply a previously successful strategy to a new market, despite the context being different, and fail.
What is the imitation trap ?
It occurs when we try to imitate successful companies or individuals without recognizing the role of external factors like circumstances or chance.
Example: People attribute Apple’s success entirely to Steve Jobs, ignoring the role of product timing and market conditions.
N.B :
1. We often overestimate the importance of single leaders in success (attribution error).
2. Halo effect : We form a broad impression based on limited traits, like assuming a tall politician is a better leader because they “look the part.”
What is attribution error in decision-making ?
It’s when we attribute success or failure to a single individual, underestimating the role of external factors like circumstances or luck.
Example: People might say Steve Jobs single-handedly made Apple successful, ignoring the team and external market forces.
N.B : Fundamental attribution error is when we credit our own success to internal factors and others’ success to external factors.
What is survivorship bias?
Survivorship bias occurs when we focus only on successful cases and ignore the failures, leading to an overestimation of success due to risk-taking.
Example: “Those crazy enough to think they can change the world sometimes do” – but most fail, yet we only see the successful ones.
N.B : We shouldn’t draw conclusions from a sample composed only of survivors (e.g., focusing only on successful startups without considering those that failed).
What is hindsight bias ?
It’s the tendency to see past events as more predictable than they actually were. After an event, people often believe they “knew it all along.”
Example : After a stock market crash, investors might say they knew it was coming, even if there was no way to predict it at the time.
N.B : Hindsight bias perpetuates the illusion that the world is understandable and predictable, which can prevent realistic decision-making.
How does cognitive bias influence decision-making ?
Cognitive biases are systematic deviations from rational judgment. They lead to predictable errors in decision-making.
N.B : Biases can be reduced using structured decision-making processes, but they are hard to overcome alone.
What is the decoy effect ?
The decoy effect happens when a third, less attractive option is introduced to make one of the original two choices seem more appealing.
Example: If a company offers two subscription plans, adding a third plan with worse features at a similar price may make the middle plan seem like a better deal.
Rationality vs. Happiness : How does the human mind approach decision-making in terms of rationality and happiness?
Decisions are often influenced by the choice that makes us happy, rather than the most rational choice. Popular culture often pits the rational brain (left side) against the emotional, creative side (right side).
N.B : Concepts like happiness and fairness are not biases themselves, but they influence the formation of biases.
Bystander Effect & Choice Blindness : What is the bystander effect, and how does choice blindness manifest ?
The bystander effect is when people are less likely to offer help if others are present. Choice blindness refers to people justifying decisions they didn’t even make, believing they were involved in choices that were actually made for them.
Example: In an experiment, participants who were unaware of their actual choice would still create a justification for the decision they believed they made.
