Overview What is a decision? Models of decision-making Some questions… How can decision-making be influenced?
What is a ‘decision’? How would you define a ‘decision’? Decision = choice between two or more alternatives (e.g. Drucker, 2001) So, in order to make a decision we need to find a way to evaluate the different alternatives…and we might end up with something like this…
Rational Economic Model Recognition and definition of a problem or opportunity Search for alternative courses of action Gathering and analysis of data about alternatives Evaluation of alternatives Selection and implementation of preferred alternative Source: Buchanan and Huczynski (2004:756)
But… Are all decisions rational? Do you really know what all the alternatives are? Do you really have time to analyse everything?
More questions… How quickly in mph does the Earth rotate? Which is more likely? –HHHHHTTTTT or THHTHTTHTH
Heuristics Kahneman and Tversky (1971 onwards) argues that people make decisions using cognitive heuristics These are shortcuts, rules of thumb, simplifying tactics Strategic decisions can be based on stereotypes or generalisations (i.e. heuristics) and can be very effective: –The Magic Kingdom in Florida does not sell alcohol but Disneyland Paris does (stereotype of French culture where wine with meals is commonplace) –Do you think a brewery would be better off expanding its business into Pakistan or the EU? Why?
Heuristics Many types, including: Anchor and adjustment –making decisions by starting from an initial value that is then adjusted (Tversky and Kahneman, 1982). –How quickly does the Earth spin? Representative –the degree to which A resembles B (Tversky and Kahneman, 1972) –Heads or tails?
Cognitive heuristics questioned Heuristics and biases school Heuristics use part of the information and so may miss out something crucial Heuristics are prone to influence (i.e. bias) and so lead to error Heuristics should be minimised in favour of rational approaches Kahneman, Tversky, Sunstein, Ariely, Slovic Fast and frugal school Heuristics make fast decisions Heuristics make good use of limited information (i.e. they are frugal) Heuristics are just as accurate as rational approaches Heuristics are efficient and should not be discouraged Gigerenzer, Hutchinson, Hoffrage, Todd
How is your decision-making influenced by others?
Remus Rodham Remus Rodham; horse thief, sent to Montana Territorial Prison 1885, escaped 1887, robbed the Montana Flyer six times. Caught by Pinkerton detectives, convicted and hanged in 1889. Remus Rodham was a famous cowboy in the Montana Territory. His business empire grew to include acquisition of valuable equestrian assets & intimate dealings with Montana railroad. Beginning in 1883, he devoted several years of his life to service at a government facility, finally taking leave to resume his dealings with the railroad. In 1887 he was a key player in a vital investigation run by the renowned Pinkerton Detective Agency. In 1889 Remus passed away during an important civic function held in his honour, when the platform on which he was standing collapsed.
Framing Spin! Not necessarily bad, but something to be aware of…
Manipulation of a CEO, who was totally unaware! No matter how good a report was, he would always have to make some change to it. It was never good enough. He would never sign off anything controversial So, his staff would frame the information to disguise the controversial item and to include something outrageous that would never be accepted. The outrageous item would be taken out (so the CEO would be happy that he’d changed something) and the controversial item would get through.
Other influencing factors Perceptual –Thorn, Thimble, Point –Pin, Eye, Sharp, Injection –Cloth, Haystack, Sewing –Syringe, Knitting, Hurt, Thread Prof Bruce Hood – Royal Institution Christmas Lectures 2011
Other influencing factors Marketing can actively seek to influence decision- making Name a chocolate manufacturer… Most people say ‘Cadbury’…
Other influencing factors Cadbury is not even in top ten…
Other influencing factors Compare Cadbury to soap powder Cadbury = availability heuristic: making decisions on the basis of how easily something is called to mind (Tversky and Kahneman, 1982). Soap powder: my product is best = representative heuristic: Similarity. The degree to which A resembles B (Tversky and Kahneman, 1972)
Other influencing factors Can be much more subtle than this…
Summary People do not make ‘rational’ decisions Heuristics commonly used by decision-makers Decisions can be influenced by a range of factors: –Availability heuristic (Cadbury) –Representative heuristic (Soap Powder) –Recognition heuristic (The Queen, watches) –Framing (Remus Rodham, NEET, graphs) –Perception (needle, pattern formation, invisible gorilla!) So…