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The anchoring trap example6/21/2023 They especially don't want to repeat an expensive mistake another team made last month by choosing a technology that's overly complicated or hard to learn. The right solution, he feels, is right around the corner. They just need to keep digging until the right answer emerges. He and his team have been diligently gathering information for weeks. Their efforts to be thorough are causing delays, and the whole team is feeling frustrated. Interested in learning more on how to make great decisions by avoiding common decision-making traps and understanding the four styles of decision making? Take a look at Kent State’s Making Great Decisions program.Raul must recommend a new ERP for his tech department. You should involve people who are willing to tap you on the shoulder and question your biases or give you another point-of-view. Your decision making process should let you know when it is appropriate to involve others in the decision. By using a process, you’re not turning over the entire decision making process to intuition. Having an effective decision making process actually leads to a final method for avoiding these two common decision making traps. Forewarned is forearmed. Another effective method of avoiding these traps is to have a decision making process that walks the decision maker through a series of logical steps such as defining the question, establishing objectives to be achieved by answering the question, generating answers that are in alignment with the objectives and evaluating risk. Our brains are always at work when we make decisions. When it comes to business decisions, there is rarely such a thing as a no-brainer. Here are a few ideas as to how to avoid these traps. First, be aware of these biases. It’s been said that the trouble with ignorance is that it feels so much like expertise. Overconfidence is the same trap that led IBM to decide not to invest heavily in the personal computer market. Admittedly when you’re making a lot of money with your current business model why should you consider changing it? Or, for that matter, take advice from a start-up company with no retail stores and just a few employees. It can lead to significant miscalculations of risk. Overconfidence bias is defined as thinking we know more than we do about how the future will unfold or about our knowledge on a subject. In Netflix, they saw an upstart company with a business model different than their up-to-that-time successful model.īlockbuster executives also exhibited overconfidence in their decision to ignore Netflix’s offer. Clearly, at the time, Blockbuster’s success prevented their executives from identifying the flaws in their business model. Gathering and analyzing information are important steps in any effective decision making process. This bias impacts not only how we gather information about a situation, but also how we recall information and interpret it. Confirmation bias is defined as developing a quick belief about a situation and then seeking information that confirms that belief. So, which of the two common biases were in play in the above Blockbuster/Netflix example? Actually, both were. Netflix on the other hand was introducing subscriptions for renting videos and allowing customers to keep them for as long as they wanted or return it and get a new one. At the time, Blockbuster’s business model had two major flaws – high expenses from running thousands of retail locations and its major source of revenue was coming from charging late fees to its customers. In 2010, Blockbuster would file for bankruptcy and today Netflix is worth approximately $33 billion. The start-up company Blockbuster turned down was Netflix. It is reported that Blockbuster executives “laughed him out of the room.” His offer was to sell his video-rental company to Blockbuster for $50 million and together they would create a new video-rental brand. In the spring of 2000, the founder of a start-up mail-order video-rental company flew to Dallas to meet with executives of video-rental giant Blockbuster and propose a partnership. Before I explain them, consider the following business decision. The two most common traps that impact decision making are known as confirmation bias and overconfidence bias. Sometimes the cause is bad luck or poor timing, but more often than not bad decisions are the result of biases that as humans we bring into our decision making processes. These traps can even cause great leaders to make bad decisions at times. It is a skill that can be sidetracked by a number of psychological traps that can undermine decisions. It’s also one of the toughest and riskiest skills. Therefore, decision making is an important skill of leaders in all levels of an organization. Stripped down to its essentials, business is about one thing: making decisions.
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