#91 Improving Decision Making
In this post we will cover seven strategies for correcting the deficiencies in our decision making.
The below strategies seek to create broad change in our intuitive responses to decision-making situations:
Use decision analysis tools
Acquire expertise
Debias your judgment
The below strategies provide techniques for improving specific decisions in specific contexts
Reason analogically
Take an outsider's view
Understand biases in others
Nudge people toward wiser and more ethical decisions
Use Decision Analysis Tools
The field of study that specializes in relying on procedures that can help direct us toward more optimal decisions is generally called decision analysis. Decision analysis usually guides decision making using the logic of expected value. When a decision has multiple dimensions, the decision requires some sort of multi-attribute utility computation. Complex decisions can be guided by the use of a linear model.
A linear model is a formula that weights and adds up the relevant predictor variables in order to make a quantitative prediction. Linear models are superior because people are much better at selecting and coding information (such as what variables to put in the model) than they are at integrating the information (using the data to make a prediction).
We are inconsistent while integrating information. Given the same data, we will not always make the same decision. Our judgment is affected by mood, subjective interpretations, environment, deadlines, random fluctuations, and many other nonstable characteristics.
Acquire Expertise
Decision making expertise results when individuals develop a "strategic conceptualization" of what constitutes a rational decision making process and learn to recognize the biases in individual and group contexts that limit rationality. Decision expertise necessitates constant monitoring and awareness of our decision making processes.
Basic judgmental biases are unlikely to correct themselves over time. Responsive learning requires accurate and immediate feedback, which is rarely available in the real world because:
Outcomes are commonly delayed and not easily attributable to a particular action
Variability in the environment degrades the reliability of feedback
There is no information about what the outcome would have been if another decision had been taken
Most important decisions are unique and therefore provide little opportunity for learning
Debias Your Judgment
Debiasing refers to a procedure for reducing or eliminating biases from the cognitive strategies of the decision maker.
Unfreezing
Unfreezing old strategies is crucial to changing the decision making processes of individuals for the following reasons:
To want to change would be to admit that past strategies were flawed, and this realization is likely to be disturbing
Past successes using intuitive strategies causes resistance to information indicating that their judgment is systematically deficient
An awareness of success clashes with the notion that something is fundamentally wrong with my decision-making
Change
There are three critical steps to changing your decision making process:
Clarification of the existence of specific judgmental deficiencies
Explanation of the roots of these deficiencies
Reassurance that these deficiencies should not be taken as a threat to your self-esteem
The most general purpose debiasing strategy is "consider the opposite" - play devil's advocate and think about the reasons our tentative conclusions could be wrong.
Refreezing
It is tempting to revert to past practices and bad habits. New decision making processes are more effortful and take practice to become second nature. For refreezing to occur, you should schedule routine checkups to evaluate your recent important decisions.
Reason Analogically
Analogical reasoning, or the process of abstracting common lessons from two or more situations, turns out to be remarkably simple debiasing approach. When people learn from one episode at a time, they too often focus on superficial characteristics of the situation and assume that the message applies only to the specific context of the decision. The process of abstracting similar lessons from two (or more) episodes creates a more generalizable insight. When people make a comparison, they focus on the similarities between examples, whose common structure becomes more transparent. An abstract principle is more likely to be transferred to new situations with different contexts.
Take an Outsider's View
We have two perspectives while making a decision:
An insider view - a biased decision maker who looks at each situation as unique
An outsider view - more capable of generalizing across situations and identifying similarities
An outsider makes better estimates and decisions than the insider. The outsider view incorporates more relevant data from previous decisions. Insiders use knowledge of the various details to view each decision as unique.
Debiasing strategy - when making an important decision, invite and outsider to share his or her insight.
Understand Biases in Others
Managerial life requires you to work closely with the decisions of others, reviewing recommendations, transforming recommendations into decisions, and adjusting decisions made by others in the past. A five step process to adjusting the decision of others:
Step 1: Selecting the set of past observations to which the current decision or forecast is to be compared
Step 2: Assess the distribution of the comparison group i.e. assessing the characteristics of the past observations to which the current decision is being compared
Step 3: Identify the decision or forecast of the expert
Step 4: Assess the predicted results of the decision. Determine the correlation between the decision or forecast and the comparison group data
Step 5: Adjust the intuitive estimate. Calculate the adjustment that reduces the bias error of the initial forecast or decision
Nudge Wiser and More Ethical Decisions
We can anticipate the mistakes we make on a regular basis and then create systems that correct for these mistakes in a way that will nudge them toward better and more ethical decisions. For example, we can increase employees enrollment in retirement plans by providing them with an option of committing in advance to increase their savings rates when they get a raise.
This post is a summary of a chapter from the book - Judgment in managerial decision making by Max Bazerman and Don Moore