Introduction

Before You Make That Big Decision.Daniel Kahneman, Dan Lovallo, Olivier SibonyBy,Nidhin(14PGP026)Ratish(14PGP037)Sravan(14PGP045)Sanjit(14PGP060)Group 5IntroductionA lot of biases creep into every day decision makingConfirmation Bias ignore evidence that contradicts preconceived notionsAnchoring weightage to one piece of information

A McKinsey survey showed that reduction in bias led to higher returns

To reduce bias: review recommendation from some one elseGrasp the facts and check whether the facts are been clouded in any way

An executive cannot recognize his bias but can recognize those of their team

Challenges in avoiding biasTwo modes of thinking:Intuitive Not consciously focusing but it gets doneReflective activated when stakes are high or there is an error

Intuitive thinking wraps stories around context that it suppresses everything

Individual to collective and decision maker to the process of decision making

Apply rational thought to detect others faulty intuitionVisual System + Associative MemoryA single coherent interpretationContextCheck for self-interested biasesIs there any reason to suspect motivated errors, or errors driven by the self-interest of the recommending team?Never to be asked to people making proposalPeople do sometimes lie deliberately which leads to biasA preference for a particular decision is built in recommendationDecision makers need to assess not whether theres a risk of motivated error but whether it is significantReview the proposal with extra care, especially for over optimistic biases

Check for the affect heuristicHas the team fallen in love with its proposal?When evaluating something we like, we tend to minimize its risks and costs and exaggerate its benefitsExecutives often observe this phenomenon in decisions with a strong emotional component, such as those concerning employees, brands, or locationsRigorously apply all the quality controls on checklist for all the biases that may have affected the people making it

Check for groupthinkWere there dissenting opinions within the team? Were they explored adequately?In many corporate cultures, a team presenting a recommendation to a higher echelon will claim to be unanimousThe unanimity is sometimes genuine, but it could be sham unity imposed by the teams leader or a case of groupthinkSenior executive should strive to create a climate where substantive disagreements are seen as a productive part of the decision process, rather than as a sign of conflict between individualsCheck for saliency biasCould the diagnosis be overly influenced by an analogy to a memorable success?Many recommendations refer to a past success story, which the decision maker is encouraged to repeat by approving the proposalThe danger is that the analogy may be less relevant to the current situationAsk for more analogies, and rigorously analyse their similarity to the current situation

Check for confirmation biasAre credible alternatives included along with the recommendation?In a good decision process, other alternatives are fully evaluated in an objective and fact-based wayBoth individuals and groups are prone to generating one plausible hypothesis and then seeking only evidence that supports itOne or two alternatives to the main recommendation should be considered and pros and cons of each should be thoroughly evaluated to arrive at a conclusion11.Is the worst case bad enough?Worst is rarely bad enough3 questions to ask:Where did the worst case come from?How sensitive is it to our competitors responses?What could happen that we have not thought of?Imagine the worst has already happenedMake up a story about it

12.Is the recommending team overly cautious?Less visibilityUnder performanceLess creativityRisk aversion strategies (avoid losses no gains)

Implementing quality control over decisionsWhen to use?Major capital expenditure decisionsQuality controllable decisionsWhy should we conduct the review?Enforcing disciplineCost and benefitsThank You