The psychology of decision making
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Audiences 1 The Psychology of Decision Making Lars Sudmann mail@lars- sudmann.com @LarsSudmann
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The slides from my keynote session on the "psychology of decision making". For more information go to www.lars-sudmann.com
Transcript of The psychology of decision making
Audiences
Organization Science Lecturer
Organizational Advisor
Kahnemann, Daniel: e.g. Thinking Fast & Slow
Plous, Scott: The Psychology of Decision Making
Sudmann, Lars / Lenzen, Wolfram: Die Psychologie der Krise, Controller Magazin
Audiences „Led“Leader
Organization Science Lecturer
Organizational Advisor
Why do projects fail?
Source: Hays, 27.12.12, in %, combination of “fully agree” and “mostly agree”
Understand key drivers of human decision making…
…and its implication on how we approach decision making
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
Mental Accounting and Sunk Cost
Theatre questions (1 and 7)
The man with the horse (11)
What outcome can still change?
Only take this into account!
Strategic = Be careful!
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
Data Availibility & Confirmation Bias
Linda the bank teller (2);
The cards E, 4, 7, K (10) ?
There are 12 cows, 4 sheep, and 8 pigs onboard a ship
What is the captain’s age?
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Ask: I am looking at the total picture?
17
Ask for the right data, not only the easy data
Get experts with experience on the subject in the room
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
Overconfidence
Linda the bank teller (2)
The estimate of driving qualities (9)?
Source: Asch, S.E. 1956 – A minority of one against a unanimous majority.
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Take the worst case – and add 50%
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Avoid the HIPPO syndrom
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Have your decision peer-reviewed
Install Devil’s Advocate Positions
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
Loss Aversion
Two questions with 1000 and 2000 Euro (3 and 8)?
Install Data Frames & Decision Trees
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
Anchoring
Jim and Kathy (4 and 12)
Bangladesh (5 and 6)?
Write down the last three digits of your phone number
When did Genghis Khan die?Year of death _____________
Left side Close your Eyes
Right side Close your Eyes
All Close your Eyes
Be careful with first numbers & first impressions
Do scenarios, test different reference points
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
Exploration
Psychological Pitfalls
Anchoring
Over-confidence
Loss aversion
Confirmation bias& data availability
Mental Accounting &
Sunk Cost
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“Irrational decisions are almost always caused by fear. If you want to change the behavior, address the fear.”
Seth Godin, author
What kills more people:
a) coconuts falling from trees
b) or sharks?
If you were given a choice, which of the following gambles would you prefer?
a) €1,000,000 for sure
b) 10 % chance of getting €2,500,00089 % chance of getting €1,000,000
1 % chance of getting €0
#Tool
Awareness – Emotions at work!
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Tocky, http://www.nandahome.com/
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#1 Strategic: careful
#2 Look at the total picture
#3 Right data, not easy data
#4 Get experts in the room
#5 Take worst case – add 50%
#6 Peer-review decisions
#7 Install Devil’s advocate positions
#8 Decision frameworks
#9 Rethink First Impressions
#10 Use ranges & scenarios
“Both optimists and pessimistscontribute to our society.The optimist invents the airplaneand the pessimist, the parachute.”
-G.B. Stern
Be a realist when making a decision and an optimist when implementing it – not the other way around.
