AFM203 Chapter Notes - Chapter 8: Anchoring, Confirmation Bias, Loss Aversion
6 Nov 2018
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Confirmation bias: leads people to ignore evidence that contradicts their preconceived notions. Anchoring: weigh one piece of information too heavily in making decisions. The challenge of avoiding bias: two modes of thinking, both are continuously active. Identify biases that may have influenced the people putting forth proposals. Assess not if there is a risk of motivated error but if it is significant. Substantive disagreements should be a productive part of the decision process and resolved objectively. In a good decision process, other alternatives are fully evaluated in an objective and fact- based way. Insist that people submit at least one or two alternatives and explain their pros and cons: risks and mitigating actions or a set of implausible alternatives to make the recommendation look appealing by contrast. Challenge is to encourage a genuine admission of uncertainty and a sincere recognition of multiple options. Initial estimates, often best guesses, and their accuracy is not challenged.
