Cognitive Biases in Decision Making

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Questions and Answers

What is a key characteristic of high-reliability organizations (HROs) regarding their perception of success?

  • They are complacent due to their successful history.
  • They rely solely on past achievements for future decisions.
  • They focus on individual accolades rather than organizational goals.
  • They recognize success can be misleading and don't let it cloud their judgment. (correct)

Which aspect does an effective decision-making process emphasize?

  • Prioritizing information collection above all.
  • Focusing exclusively on quantitative data.
  • Focusing on what is important and relevant to the decision at hand. (correct)
  • Utilizing complex algorithms for calculations.

How do HROs typically handle unexpected circumstances?

  • They use them to find innovative solutions. (correct)
  • They allocate blame to team members for oversight.
  • They see them as signs of failure.
  • They disregard them as they rely on planned procedures.

What blends subjective and objective thinking in an effective decision-making process?

<p>The combination of analytical and intuitive thinking. (B)</p> Signup and view all the answers

What is NOT a feature of an effective decision-making process?

<p>Ignoring external opinions on the matter. (B)</p> Signup and view all the answers

What is the main reason behind the framing effect in decision-making?

<p>The presentation of the problem influences preferences. (B)</p> Signup and view all the answers

How do individuals typically react to potential gains and losses according to the framing effect?

<p>They are risk-averse with potential gains and risk-seeking with potential losses. (D)</p> Signup and view all the answers

What common mistake does the fix-pie assumption lead to in negotiations?

<p>Viewing negotiations solely in terms of win-lose scenarios. (D)</p> Signup and view all the answers

What is a likely consequence of the winner's curse in negotiation contexts?

<p>Overpaying and feelings of having been misled. (B)</p> Signup and view all the answers

What strategy does the content suggest to counteract the winner's curse?

<p>Seek objective assessments from external experts. (C)</p> Signup and view all the answers

In what context does the fix-pie assumption often occur?

<p>Within highly competitive settings, like negotiations. (B)</p> Signup and view all the answers

What aspect of decision-making should individuals consider based on strategies to mitigate cognitive biases?

<p>Understand and respect cultural differences. (D)</p> Signup and view all the answers

Why is overconfidence problematic in negotiations, as highlighted in the content?

<p>It reduces the incentive to compromise. (C)</p> Signup and view all the answers

Which characteristic best describes the flexibility of an effective decision-making process?

<p>It is adaptable to different situations as needed. (D)</p> Signup and view all the answers

In what way do highly reliable organizations (HROs) approach the complexity of situations?

<p>By embracing and addressing the complexities involved. (A)</p> Signup and view all the answers

What should one anticipate in addition to the outcomes when using an effective decision-making process?

<p>Their own limitations and potential biases. (C)</p> Signup and view all the answers

Regarding information gathering in decision-making, what is a critical aspect?

<p>Guiding the gathering of relevant information and informed opinions. (C)</p> Signup and view all the answers

What is a key strategy HROs employ in regards to expert input?

<p>They delegate tasks to front-line experts for informed decisions. (C)</p> Signup and view all the answers

Which principle is NOT part of an effective decision-making process?

<p>It disregards emotional intelligence in decision outcomes. (B)</p> Signup and view all the answers

How do effective decision-making processes handle information analysis?

<p>They necessitate just enough analysis to resolve the dilemma. (C)</p> Signup and view all the answers

What mindset should organizations avoid to maintain reliability?

<p>Underestimating potential challenges due to past successes. (B)</p> Signup and view all the answers

Which piece of advice best summarizes when to make a decisive action in a decision-making scenario?

<p>Evaluate the situation comprehensively before concluding. (D)</p> Signup and view all the answers

How does the framing effect influence decision-making?

<p>It alters preferences based on the presentation of information. (C)</p> Signup and view all the answers

In what scenario is the fix-pie assumption likely to be most prevalent?

<p>A competitive sports event with a clear winner. (A)</p> Signup and view all the answers

What does the winner's curse often lead to in negotiation contexts?

<p>Overpayment and dissatisfaction post-negotiation. (B)</p> Signup and view all the answers

Which strategy is recommended to mitigate cognitive biases in decision-making?

<p>Seek expert opinions to validate personal assessments. (D)</p> Signup and view all the answers

What common behavior regarding risk is observed among individuals when facing potential gains?

<p>They exhibit risk-averse behavior. (B)</p> Signup and view all the answers

What is a potential outcome of misunderstanding the fix-pie assumption in negotiations?

<p>A reduction in win-win outcomes. (A)</p> Signup and view all the answers

When negotiating, why is it important to understand cultural differences?

<p>Cultural understanding enhances collaborative problem solving. (D)</p> Signup and view all the answers

What can be a consequence of the framing effect during decision-making?

<p>It significantly affects risk perception. (D)</p> Signup and view all the answers

How does overconfidence impact negotiation success?

<p>It may diminish the incentive to negotiate effectively. (D)</p> Signup and view all the answers

What type of decision-making behavior do individuals display when dealing with definite losses?

<p>They prefer risk-taking to avoid losses. (B)</p> Signup and view all the answers

Flashcards

Highly Reliable Organizations (HROs)

Organizations that consistently achieve reliable and high-quality outcomes, even in complex and challenging situations.

Effective Decision-Making Process

Making choices based on information and logic, while acknowledging individual perspectives and intuition.

Not Tricked by Success

Not being complacent about success and actively seeking opportunities to improve.

Delegate to Experts

Empowering frontline employees to make decisions and solve problems using their expertise.

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Embrace Complexity

Accepting that complexity is a part of life and using it to find solutions instead of avoiding it.

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The Framing Effect

The way a decision is presented can influence a person's choice. People tend to prefer a sure gain over a risky one, but prefer a risky loss over a certain loss.

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Fixed Pie Assumption

This bias assumes that every situation is a competition where one person must win and the other must lose. This can limit opportunities to find mutually beneficial solutions.

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Winner's Curse

Winning bidders often overpay because they have more information than other bidders. This can happen because the winner is the only one who knows how much they are willing to pay.

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Overconfidence Bias

Overconfidence is a bias where people overestimate their knowledge, abilities, or judgment. It can lead to making bad decisions because people don’t seek more information.

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Loss Aversion

People are more sensitive to potential losses than potential gains. This can lead to decisions that are based on fear of losing, rather than the potential for gain.

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Consider Gains & Losses

When making a decision, remember to consider both the potential gains and the potential losses. This can help you make more realistic and informed choices.

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Cultural Differences in Decision-Making

Different cultures have different ways of making decisions. It's important to be aware of these differences to avoid misunderstandings.

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Objective Information & Feedback

Seek out objective information and get feedback from others to help you make better decisions. This can help you avoid biases that can cloud your judgment.

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Study Notes

Cognitive Biases

  • Framing Effect: Decision preferences depend heavily on how a problem is presented ("framed"). A "loss" frame is more influential than a "gain" frame. Behavioral economics acknowledges that people don't always make rational choices, unlike traditional economics. People are more motivated by the potential loss than the potential gain.

  • Fix-Pie Assumption: A tendency to see situations as win-lose, stemming from a competitive society. This leads to a distributive (rather than integrative) approach to negotiations, hindering both everyday and international interactions. Thinking creatively to find "win-win" options is crucial.

  • Winner's Curse: Arises when one party holds better information than the other, leading to overestimation of a situation's value resulting in potentially overpaying. This overconfidence negatively impacts negotiation outcomes. Seeking external expertise and objective assessments is vital to address potential overestimation, making negotiation more successful.

Effective Decision Making

  • Guidelines: Consider cultural nuances, recognize when to stop, and implement an effective decision-making process.

  • HRO Habits: Highly reliable organizations (HROs) avoid complacency, empower frontline experts, embrace uncertainty, anticipate limitations, and maintain a balanced view of success and failure.

  • Effective Decision-Making Process: Focus on crucial aspects, maintain logical consistency, blend subjective and objective thinking (analytical and intuitive), gather just enough information, encourage informed input, and use a streamlined and adaptable method.

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