CHAPTER 3 Common errors FOUNDATIONS OF DECISION MAKING 1.

Overconfidence bias Think they know more The decision making process 2. Immediate gratification bias Identify Want immediate rewards problem Avoid immediate costs 3. Anchoring effect First impression RULES! Identify 4. Selective perception bias decision criteria Interpret ideas by own perception 5. Confirmation bias Allocation of weights Seek info that reaffirms past decision 6. Framing bias Alternatives Highlight certain aspects development Exclude others 7. Availability bias Remember recent events Alternatives 8. Representation bias analysis Assess by the resemblances 9. Randomness bias Alternative Create meaning from random selection events 10. Sunk costs error FORGET: current choice can't Alternative repair pasts implementation 11. Self-serving bias Take credit for success Blame failure to outsiders Evaluation 12. Hindsight bias Falsely believe they have predicted outcome

3 Approaches to make decisions Types of problems 1. Rational model 1. Structured problem Logical, consistent choices Goal is clear Maximize value Problem is familiar 2. Bounded rationality Info easily defined & complete Make decision rationally 2. Unstructured problem Bounded by process info ability New / unusual 3. Satisfice Incomplete info Accept solution 'good enough' 4. Escalation of commitment Types of decisions 1. Programmed decision commitment to decisions despite WRONG evidence Procedures o Series of interrelated Intuitive decision making sequential steps Rules Experienceo Explicit statement based o Tells manager what to do decisions Policies EthicsAffect o Guidelines to channel based initiated thinking in specific direction decision decisions Intuition 2. Non-programmed decision No cut-and-dried solution
Subconscious mental precessing Cognitivebased decisions

On basis of experience, feelings, accumulated judgment "unconscious reasoning" Can complement both bounded rationality & rational decision making