[Global HR Forum 2014] Keys to Making Better Decisions

© Phil Rosenzweig www.leftbrainrightstuff.com

The Halo Effect

Keys to Making Better Decisions

Phil Rosenzweig

Global HR Conference

Seoul, Korea

November 2014


Stages of Thinking about Decisions

1. Economic Rationality

2. Behavioral Decision Theory

3. New Frontiers in Decision Making


Behavioral Decision Theory: Leading Researchers


Heuristics and Biases

“The way to block errors that originate in System 1 is simple in principle: recognize the signs you are in a cognitive minefield, slow down, and ask for reinforcement from System 2.”

Daniel Kahneman

Thinking, Fast and Slow, p.417

• Human cognition is limited

– “Bounded rationality”

• We often rely on shortcuts, or heuristics

– “System 1” is rapid but often leads to predictable errors, or biases

– “System 2” allows for reflection and accuracy


a. Framing of Choice (1)

Which camera would you prefer? n = 69

Minolta S1 priced at $269.99, rated 6 out of 10 by Consumer Reports


42

27


a. Framing of Choice (2)

Which camera would you prefer? n = 57




14

40

3


b. Mental accounting (1)

You’re about to spend $ 30 for a watch strap.

As you reach for your wallet, the sales associate tells

you the same strap is on sale for $10 at another

branch of the store, twenty minutes away.

Would you buy the strap here, or would you go to

the other store? (Check one) n = 139

Buy it here:

Go to the other store:

52

87


b. Mental accounting (2)

You’re about to spend $1,889 for a luxury watch.

As you reach for your wallet, the sales associate tells you

the same watch is on sale for $1,869 at another branch

of the store, twenty minutes away.

Would you buy the watch here, or would you go to

the other store? (Check one) n = 140

Buy it here:

Go to the other store:

109 31


The Power of Experiments

“For social scientists, experiments are like microscopes or

strobe lights, magnifying and illuminating the complex,

multiple forces that simultaneously exert their influences

on us.

They help us slow human behavior to a frame-by-frame

narration of events, isolate individual factors, and examine

them carefully and in more detail.”

Dan Ariely

The Upside of Irrationality:

Defying Logic at Home and at Work

2010


In many experiments …

1. No ability to influence outcomes

– You make a choice or judgment, but cannot improve or change

2. Performance is absolute

– You make the decision that suits you, never mind anyone else

3. Cycle time is fast

– Decisions are rapid, with immediate results

4. Decisions made by individuals

– Acting alone, by themselves, without past or future


Whereas in managerial decisions …

1. Managers can shape outcomes – The mark of a good manager is precisely to influence

outcomes

2. Managers (often) have to think about competition – “Strategic decisions” involve rivalry, and performance is relative

3. Results are slow and hard to isolate

– Cause and effect is unclear

– Decisions are often concurrent and not consecutive

4. Managers make decisions in a social setting – Perception, credibility, reputation, all matter


Ebbinghaus Illusion

After Hermann Ebbinghaus, 1850-1909


The Power of Positive Thinking

Is there a difference when golfers aim at a hole surrounded by many

small circles and a hole surrounded by fewer large circles?


Harvard Business Review, Nov 2013



A curious paradox

• The first field is the ideal place to study human cognition

• The results are applicable for many decisions, such as

consumer choice and financial investments.

• But we should not apply those findings to situations that

are very different

• We conduct first field research but face fourth field

decisions


Beyond the First Field

• When we can directly influence outcomes, positive

thinking – even holding self-beliefs that are somewhat

elevated – can be useful.

• Leaders must at times convey positive thinking to inspire

and motivate others

• When performance is relative and highly skewed, such

an ability is not only useful but essential for success


Keys to Making Better Decisions

• Discern what sort of decision you are facing

• Develop versatility to respond to each kind

• For some, seeking to avoid biases is sufficient

– Rational, analytical, dispassionate, deliberate: “Left Brain”

• For managerial and strategic decisions, a different

mindset is needed

– Ability to inspire, push boundaries, convey optimism “Right Stuff”


Tom Wolfe’s The Right Stuff

• A willingness to undertake new challenges

and achieve new levels of performance

• Not recklessness or bravado

• Not risks at all costs

• Rather, a careful assessment of risks

• A willingness to push boundaries

• To do more than has been done

before calls for the Right Stuff



Summary for Global Human Resources

• Making good decisions is crucial for all levels of the

organization

– Not just for executive levels

• It is useful to teach our employees about decision errors

and common biases

• Even more important is to recognize how decisions vary

• Discern differences, and respond with versatility


Thank You

Leadership & Management

[Global HR Forum 2014] Keys to Making Better Decisions