NPM702 Lecture Notes - Lecture 9: Confirmation Bias, Sunk Costs, Daniel Kahneman
Why we Need Awareness
Decisions in Organizations
• Collaborative Decisions – in Stages
– Diffusion of Information
– Diffusion of Decision Making Authority
– Diffusion of Responsibility - Who is responsible?
– Unintended Consequences
• Culture
– Team Player Pressure
– Following orders
– Everyone is doing it
– Groupthink
Individual Decision Errors
• See “Thinking Fast and Slow” by Daniel Kahneman
Individual Decision Errors
• Loss Aversion over potential gain
• Framing Effect on Us
• Confirmation Bias (How we use our reason)
• Commitment and sunk costs
– Fear of loss and admitting you are wrong
• Dissonance
• Illusion of Control: Create supporting narrative from past
• Overestimate positive outcomes
• Intuition versus Reason
Intuition – Your Gut
• Is important
• Serves to help efficient decisions
• But can mislead us
Decision Errors
• 1. Intuition
– Gut instincts and intuition drive most of our behaviour
– Our intuition can be our best guide
– BUT our intuition can also lead us the wrong way.
• We have to try to be able to STOP and THINK
Document Summary
Decisions in organizations: collaborative decisions in stages. Individual decision errors: see thinking fast and slow by daniel kahneman. Individual decision errors: loss aversion over potential gain, framing effect on us, culture. Fear of loss and admitting you are wrong: confirmation bias (how we use our reason, commitment and sunk costs, dissonance, illusion of control: create supporting narrative from past, overestimate positive outcomes, intuition versus reason. Intuition your gut: is important, serves to help efficient decisions, but can mislead us. Gut instincts and intuition drive most of our behaviour. Our intuition can be our best guide. But our intuition can also lead us the wrong way: we have to try to be able to stop and think. Intuition is feeling low: intuitive errors are more frequent with people whose ego (self esteem, eg. Even with good intentions we make common mistakes when evaluating potential consequences: therefore being aware and thinking about potential consequences from different perspectives is crucial.