Summary of article, "The hidden traps in decision making." The book examines 5 major decision traps and offers key examples and solutions . To buy this article: http://amzn.to/1POMJEJ

1. How to avoid decision traps
Andrew Leone, BS Engineering, MBA, MS Finance
Summary of “The Hidden Traps in Decision Making”

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Recommended Reading
Hammond, J., Keeney, R. and Raiffa, H. (1998). The
Hidden Traps in Decision Making. Boston, Massachusetts:
Harvard Business Review Magazine.

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Two Primary Sources of Bad Decisions
Unconscious traps in how we think can undermine efforts, if we fail to recognize them
Fault 2: Mind of the decision makerFault 1: Way decisions are made VS
• Heuristics: unconscious routines
• Sensory misperceptions
• Biases
• Irrational anomalies
• Alternatives were not clearly defined
• Right information was not collected
• Cost/benefits not weighed accurately

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Common Psychological, Unconscious Traps
Goal: Increase awareness, then monitor traps to avoid poor decision making
1
Anchoring
2
Status
Quo
3
Sunk
Costs
4
Confirming
Evidence
5
Estimating &
Forecasting

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The Anchor Trap
Key Insights
Example
How to Avoid
1. View problems from multiple perspectives. Widen your frame of reference
2. Develop your own opinion on a problem first before discussing w/ others
3. Be open to outside consultants; avoid stating your anchors upfront
4. Consider positons carefully going into negotiations to avoid being anchored
• Different anchors applied to the same question will influence results:
Is the population of Turkey 35 million? What is your best guess?
Is the population of Turkey 100 million? What is your best guess?
• The mind give disproportionate weight to the first info it receives
• Initial impressions, estimates or data anchor subsequent thoughts or judgements
• Stereotypes, past experience, simple comments can also influence

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The Status Quo Trap
Key Insights
Example
How to Avoid
1. Always remind yourself of objectives; does the status quo support?
2. What are alternatives to the status quo? Never think it’s the only alternative
3. Avoid overestimating switching costs
4. If several alternatives to status quo exist, just pick one. The future is dynamic
• “Let’s not rock the boat right now”
• “Let’s wait until the situation stabilizes”
• “Maybe I’ll rethink it later”
• Decisions are not all rational & objectives; biases influence decisions
• The mind desires to protect the ego: Breaking status quo means taking
responsibility opening up self to criticism opening up self to regret
• Sins of commission (doing something) > sins of omission (doing nothing)

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The Sunk Cost Trap
Key Insights
Example
How to Avoid
1. Seek out perspective of objective people not involved w/ prior decisions
2. Examine why admission is distressing and deal w/ head on
3. Monitor sunk cost biases in employees
4. Don’t cultivate a failure fearing culture that leads to vicious cycle
• Failure to sell a stock and suffer a loss, in exchange for a better investment
• Pouring heavy time and effort into improving performance of an employee that
should never have been hired
• Deep seeded bias to make decisions that justify past choices
• Due to unwillingness to admit poor decisions; worry over public/private criticism
• Economic sunk costs: old investment of resources that are not recoverable

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The Confirming Evidence Trap
Key Insights
Example
How to Avoid
1. Examine all evidence w/ equal rigor
2. Find someone you respect to play devils advocate
3. Be honest about motives
4. In seeking advice, do not ask leading questions
• Call up an acquaintance to check reasoning from a similar situation and use
feedback as final clincher
• Bias that leads to seeking out information that supports existing point of view
• Tendency to subconsciously decide what to do before figuring out why
• Inclination to be more engaged by things we like v. dislike
• Effects where we go to collect evidence and how we interpret

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The Estimating & Forecasting Trap
Key Insights
Example
How to Avoid
1. Avoid overconfidence by examining extremes
2. Check to make sure any forecast inputs are reasonable
3. Examine assumptions to make sure not biased by past experience
• Overconfidence in picking stocks
• “Just to be on the safe side”
• Prior traumatic events
• Three common areas where judgement off due to lack of continuous calibration:
1. Overconfidence in accuracy
2. Over cautiousness in estimates
3. Predications about future overly influenced by past

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