The Hidden Traps in Decision Making

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The Hidden Traps in Decision Making

Bad decisions can often be traced back to the way the decisions were made–the alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighed. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage the choices we make. In this article, first published in 1998, John Hammond, Ralph Keeney, and Howard Raiffa examine eight psychological traps that can affect the way we make business decisions. The anchoring trap leads us to give disproportionate weight to the first information we receive. The status quo trap biases us toward maintaining the current situation–even when better alternatives exist. The sunk-cost trap inclines us to perpetuate the mistakes of the past. The confirming-evidence trap leads us to seek out information supporting an existing predilection and to discount opposing information. The framing trap occurs when we misstate a problem, undermining the entire decision-making process. The overconfidence trap makes us overestimate the accuracy of our forecasts. The prudence trap leads us to be overcautious when we make estimates about uncertain events. And the recallability trap prompts us to give undue weight to recent, dramatic events. The best way to avoid all the traps is awareness–forewarned is forearmed. But executives can also take other simple steps to protect themselves and their organizations from these mental lapses. The authors describe what managers can do to ensure that their important business decisions are sound and reliable.

Making decisions is the most important job of any executive. It’s also the toughest and the riskiest. Bad decisions can damage a business and a career, sometimes irreparably. So where do bad decisions come from? In many cases, they can be traced back to the way the decisions were made—the alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighed. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage our decisions.

John S. Hammond is a consultant on decision making, a former professor of Harvard Business School in Boston, and a coauthor of Smart Choices: A Practical Guide to Making Better Decisions (Harvard Business School Press, 1998).

Ralph L. Keeney is a professor at Duke University’s Fuqua School of Business in Durham, North Carolina, and a coauthor of Smart Choices: A Practical Guide to Making Better Decisions (Harvard Business School Press, 1998).

Howard Raiffa is the Frank Plumpton Ramsey Professor of Managerial Economics (Emeritus) at Harvard Business School and a coauthor of Smart Choices: A Practical Guide to Making Better Decisions (Harvard Business School Press, 1998).

The Hidden Traps in Decision Making

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The Hidden Traps in Decision Making

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