Construction Method and Management

10 Reasons for Bad Decisions

REPORTER: Galang, Joan M. (BSCE-5B)

✘ 1. Attentional Bias

You may be about to make a crucial decision, but rather than weigh up all of the
options you concentrate upon a few and ignore the others. For example, you might
believe that all product failures are down to poor marketing and so you overly
concentrate upon those factors and ignore the product quality issues that were the real
cause.

✘ 2. Bandwagon Effect

Everybody else is doing it, so I should be doing it too, even if I don’t believe it.
For example, the boss just made a decision which sucks, but everyone else around the
table is agreeing with him, so I’ll just jump on the bandwagon and agree, even though I
know from my own experience that it is doomed to fail.

✘ 3. Confirmation Bias

Rather than trying to weigh up the evidence and then make a decision, instead
you make up your mind beforehand and then go and get the evidence to fit that pre-
existing judgement. For example, I’ve been asked to provide evidence to support the
sales forecast for my pet project, so I ignore all of the contradictory information and I
only give the boss the data that upholds my figures.

✘ 4. Curse of Knowledge

A tendency for the smart people on the team to fail to understand the perspective
of those less educated than they are. For example, the new PhD on the sales team
dismissed the idea of using a shopping channel, just because he wouldn’t buy from it
himself.

✘ 5. Decoy Effect

Making an option seem better, by presenting the decision-maker with another

unfavourable option that puts the original in a more favourable light. For example, the
sales agent wanted to influence us to buy the house, so they showed us another
property that was in the same price bracket, but it was in such a bad neighbourhood
that it made the first one look much better.
 ✘ 6. Functional Fixedness

Thinking that something can only be used in a specific way, just because that is
how it has always been done, thereby missing the potential for alternative uses. For
example, Product A had only ever been sold into the home improvement market since
the company began, so the marketing team didn’t spot the opportunity to sell into the
gift market, which had been picked up by one of our competitors.

✘ 7. Gambler’s Fallacy

A belief that future events are influenced by the past, where the reality is that the
probability of the outcome remains unaltered. For example, the sales team had one all
five of the previous pitches, but their lax attitude to the sixth resulted in failure, despite
their assurance that it was a certainty because of the previous successes.

✘ 8. Hindsight Bias

Believing that something was inevitable, after it had happened. For example, Jeff
announced to the team that he had never believed all long that the merger would ever
happen, despite everyone remembering him as being its most staunch advocate in the
beginning.

✘ 9. IKEA Effect

The tendency to place a greater value on things that you have been involved in
creating, regardless of the quality of the resulting item. For example, Jane was reluctant
to agree to the discontinuation of the product, despite the overwhelming evidence that
sales had tanked, because she had headed up the original team that brought it to
market.

✘ 10. Loss Aversion

A tendency to view the avoidance of losses as more powerful than realising

gains. For example, the board was reluctant to sell the loss-making factory, despite
forecasts which suggested we would return to profit in a couple of years.

2 APPROACH OF BAD DECISIONS

1. Outcome of Decision

2. Process of Decision Making

Process of Decision Making

1. Observe
2. Formal Recognition

3. Interpretation/ Diagnosis

4. Definition

5. Set Objectives

6. Determine the Options

7. Evaluate Options

8. Select option

9. Implement

10. Monitor

The Elements of a Decision

The Key Elements of a Decision are:

1. The Decision Body

2. The Decision Options

3. The Uncontrollable Factors

4. The Consequences of Each Option

Classification of Decision Options

 Given – Fully developed at the start of process

 Found Ready Made – Fully developed & found in the

environment of decision and discovered during the process

 Custom Made – Developed Specially for the decision

in question

 Modified – Ready made options with some

customized features