Abstract
Decision-making is one of the most important activities that all human beings engage in. Good decisions are critical for organizational growth and productivity. This paper discusses the common psychological traps in decision-making. They include the anchoring trap, the status-quo trap, the sunk cost trap, the confirming evidence trap, the framing trap, the overconfidence trap, the prudence trap, and the recall-ability trap. The paper gives examples of each trap and offers solutions to avoid these traps. By recognizing and subsequently avoiding these mental flaws, the decision maker will be in a position to make the best decision.
Introduction
Decision-making is an integral part of human life. People have to constantly make decisions in their personal and professional lives. Business decisions often have significant implications on the performance of the business. A poor decision could reduce the productivity of the organization or even cause its failure. This begs the question what causes individuals to make poor decisions. The decision making process is hampered by some obstacles that prevent individuals from making sound decisions.
Hammond, Keeney and Raiffa reveal that a person is more likely to fall into the hidden traps if there are high stakes in the decisions being made (1). In order to prevent these obstacles from affecting the decision-making process, it is important to be aware of the obstacles. This paper will discuss the common psychological traps in decision-making and offer suggestions on how decision makers can avoid these traps and therefore make the best decisions in any given circumstance.
The Traps in Decision-making
The Anchoring Trap
The first trap is the anchoring trap, which is characterized by an over-emphasis on the initial thoughts. In this case, the decision maker places too much weight on the initial ideas, estimates, impressions, or data being used to help in the decision making process. Wang reveals that the human brain is predisposed to give disproportionate weight to the first information received and this information is used to make subsequent decisions (10).
For example, a company executive might ask the manager to come up with a propose estimate for a new company office. The executive might then suggest that estimate is likely to be $200,000. When making the budget, the manager’s thinking will be restricted to the estimate offered by the executive. He will therefore likely come up with a figure that is close to the $200,000.
To avoid this trap, the decision maker must consider other options in addition to the first thought. In addition to this, information should be sought from a variety of sources to ensure that the person does not restrict himself due to the psychological trap.
The Status-Quo Trap
The Status quo trap is characterized by a high preference to alternatives that maintain the existing situation. Even when presented with better alternatives, the decision maker is likely to show strong prejudice against the alternatives if they are going to offset the status quo. Hammond et al. suggest that people tend to favor the status-quo since breaking from it means that we have to take responsibility for what might go wrong (4).
An example of a status quo is a company that keeps on advertising in the print press even after it is clear that there would be more efficient ways to reach the customers. The managers might decide to maintain their usual print-advertisement since the company has a history of advertising regularly in the print-press even when it would be better to utilize other means of advertisement.
To avoid the status quo trap, the individual needs to critically analyze whether the traditional way of doing things is the best to serve the objectives. In addition to this, one should consider whether they would choose the status-quo if it was an on the same level with the other options and not the traditional method of doing things.
The Sunk Cost Trap
This trap is characterized by the tendency to protect the earlier choices at whatever cost. Instead of abandoning past decisions that have demonstrated themselves to be wrong, the individual makes decisions meant to protect the earlier flawed decisions (Henman 4). The decision maker who falls prey to the sunk cost trap is hopeful that by dedicating more effort to the flawed decision, he will transform it into success. An example of a sunk cost trap is when an organization invests in a new accounting program to improve efficiency.
However, the software turns out not to be comprehensive or user-friendly leading to increased inefficiency in the accounting department. The manager has to make a decision on whether to replace the program with a more comprehensive and user-friendly package. Instead of doing this, the manager might decide to get the software upgraded and hire trainers to increase the proficiency of the staff. This decision is based on the desire to transform the failed implementation process into a success.
Decision makers need to avoid the sunk cost trap in order to prevent the organization from incurring further losses. To avoid the trap, managers should recognize that wrong decisions can be made. They should learn to acknowledge failure and move on. In addition to this, views of individuals who were not involved in making the initial decisions that failed should be obtained and used to make new decisions.
The Confirming Evidence Trap
This trap is characterized by a tendency by an individual to only see information that reinforces his point or view or argument. The individual ignores information that contradicts his argument. A person who has fallen into this trap is likely to seek out information sources that support their existing instinct or point of view. A manager might fall victim of the confirming evidence trap when she is required to decide on whether to outsource some company activities to a third party.
The manager is in support of outsourcing since she feels that it will benefit the company. To help make the decision, the manager decides to call companies that offer outsourcing companies. Based on this information, she concludes that the best decision is to outsource some of the company’s activities. The manager has fallen for the trap since she has looked for sources that support her opinion and she has not sought sources that might have contradicted her initial opinion.
To avoid this trap, decision makers should ensure that they examine supporting and opposing evidence with equal thoroughness. In addition to this, the decision maker should get a person to argue against the decision that he supports. This will provide a better perspective on the issue and help to identify any bias.
The Framing Trap
In this trap, the decision made is influenced by the manner in which the issue is framed instead of other critical considerations. The decision maker who falls for this trap fails to concentrate on the question posed leading to other important issues not being considered (Bakker and Helmink 53). By accepting the initial poorly framed problem and reacting to it, the manager makes an incorrect decision.
An example of a framing trap is when a manager is faced with the question “how quickly can the company adopt a new technology to its production branch”. This question ignores the issue of whether the proposed technology is desirable or even feasible with the production branch. A manager who uses poorly framed questions as the basis for making a decision is bound to make poor decisions.
To overcome this trap, the individual should avoid the temptation to react to the initial framing of the problem (Henman 3). Instead, he should try to rephrase the problem in his own way. This will help overcome any misrepresentations that might occur due to poor framing. In addition to this, one should ensure that the problem is framed in neutral terms.
The Overconfidence Trap
This trap is characterized by the decision maker being over confident about his accuracy in making estimates or forecasts (Jarvis 3). Even though the person might lack any special skills in making prudent estimates, he is likely to perceive that he is in a position to make accurate estimates. Since the person does not notice this overconfidence trap, he ends up making significant errors in judgment, which might be costly to the organization.
For example, a manager might be asked to make a decision on the number of days renovation work will take. Without knowledge of the intricate details of the work, the manager might make an optimistic estimate. He will then proceed to act as though this estimate is based on sound knowledge.
To avoid this risk, the decision maker should demonstrate discipline in forecasting. He should consider the extremes in the given case and then do research to challenge the extremes and therefore come up with the best estimate.
The Prudence Trap
This trap is characterized by exhibiting over cautiousness in decision-making. The decision maker will avoid taking any risks when making estimates or forecasts. Instead, he will make the decision that is safe and has will work under most situations. Instead of reacting to the realities of the time, an individual who falls into this trap makes decisions that are meant to be safe (Jarvis 3).
An example of this trap is when a person is asked to make plans for a company party. While the person has a list of the company staff who might attend, he might not be sure if they will bring along their families or not. To play it safe, the person might ask the caterers to prepare a party for the staff plus their families and friends. Such a decision will be costly for the company and it is likely that the provisions for the party will exceed the number of attendants by far.
To avoid this trap, the decision maker should aim to make estimates that are within a reasonable range. It can help if the decision maker enlists the help of another person to ensure that the estimates or forecasts made are not overly safe.
The Recall-Ability Trap
In this trap, the decision made is unduly influenced by the events of the past. The decision maker bases his current estimates or forecasts on events that have made an impression on his memory. Wang states that the memory of a dramatic or traumatic event in the life of the decision maker prevents him from making an unbiased decision (10). For example an individual who has had bad experiences working with disabled people might develop a negative perception to them. He might therefore be opposed to a proposal by the organization to implement an affirmative action plan that encourages hiring disabled people.
To avoid this trap, a person should be aware of the assumptions he makes when making a decision. He should ensure that these assumptions are not overly influenced by past memories and if they are, he should recognize this. The negative influence of memory on decision-making can further be minimized by making use of facts and statistics when possible.
Discussion
Research indicates that bad decisions are made due to mental flaws that the decision maker has. These flaws are distortions and biases that prevent the person from making the most appropriate decision. This paper has highlighted the eight common traps that decision makers are likely to fall into. The psychological traps are easy to fall into since they occur unconsciously and most people do not even know of their existence. Being able to identify these traps can help a person to be more alert to them and avoid making bad decisions because of them.
Conclusion
This paper set out to discuss the common psychological traps in decision-making and recommend ways in which the traps can be avoided. The paper began by acknowledging the importance of decision making in the personal and professional lives of all individuals. It then discussed the psychological traps that prevent individuals from making sound decisions. By being aware of these traps, decision makers can take steps to avoid them and make the best decisions in any given situation.
Works Cited
Bakker, Hans and William Helmink. Successfully Integrating Two Businesses. Boston: Gower Publishing, Ltd., 2000. Print.
Hammond, John, Ralph Keeney and Howard Raiffa. The Hidden Traps in Decision Making. Cambridge, MA: Harvard Business School Publishing Corporation, 2003. Print.
Henman, Linda. How to Avoid the Hidden Traps of Decision Making. 2009. Web. Jarvis, Jim. “The 8 Traps of Decision Making.” The Morse Group 1.7 (2005): 1-4. Web.
Wang, Caroline. Managerial Decision Making Leadership: The Essential Pocket Strategy Book. NY: John Wiley & Sons, 2011. Print.