04 Heuristics and Most Common Biases

Question 1

Heuristics

Answer 1

• simplifying strategies used when making decisions (e.g. rule of thumb)
• provide people with a simple way of dealing with a complex world (usually produce correct or partially correct judgments)
• can lead to severe errors, especially since we are usually not aware that we are using them

Question 2

Perception

Answer 2

Stimulus -> Attention -> Recognition -> Translation -> Behavior

Question 3

Four judgmental heuristics

Answer 3

I. Availability heuristic

II. Representativeness heuristic

III. Congruence heuristic/ positive hypothesis testing

IV. Affect heuristic

Question 4

Availability heuristic

Answer 4

• we tend to evaluate the frequency, probability, or likely causes of an event by the degree to which instances or occurrences of that event are readily available in memory
• emotionally charged events are more available than unemotional events
• why useful in negotiation and mgmt? -> we generally recall events of greater frequency more easily than rare events

Question 5

Representativeness heuristic

Answer 5

• when making a judgment about an individual (or object or event), we tend to look for traits an individual may have that corresponds with previously formed stereotypes
• also works at the unconscious level
• why useful in negotiation and mgmt? -> draws our attention to the best option at the first sight

Question 6

Congruence heuristic

Answer 6

• we intuitively use selective data when testing hypotheses
• involves failure to consider alternative hypotheses
• in the absence of evidence to the contrary, we tend to behave as if a given statement is true

Question 7

Affect heuristic

Answer 7

• most our judgments are accompanied by an emotional/affective response
• emotions can be conscious or unconscious
• use of such heuristic more common under constraints

Question 8

Framing

Answer 8

• subjective mechanism through which people evaluate and make sense of situations
• leads people to pursue or avoid subsequent actions (focus, shape and organize the world around us; make sense of complex realities; based on previous experiences)
• why important in negotiation? -> different interpretations of the same event, one cannot avoid them

Question 9

Types of frames

Answer 9

1. Substantive - what the conflict is about

2. Outcome - a party’s predisposition to achieving a specific result or outcome from the negotiation

3. Aspiration - a predisposition toward satisfying a broader set of interests or needs in negotiation

4. Process - how the parties will go about resolving their dispute

5. Identity - how the parties define “who they are”

6. Characterization - how the parties define the other parties

7. Loss-gain - how the parties define the risk or rewards associated with particular outcomes

Question 10

How do frames work in negotiation?

Answer 10

1. Negotiations can use more than one frame
2. Mismatches in frames between parties are sources of conflict
3. Parties negotiate differently depending on the frame
4. Specific frames may be likely to be used with certain types of issues
5. Particular types of frames may lead to particular types of agreements
6. Parties are likely to assume a particular frame because of various factors

Question 11

Cognitive Biases

Answer 11

• negotiators have tendency to make systematic errors when processing information
• errors are collectively labeled = cognitive biases
• some derive from heuristics

Question 12

Types of Biases

Answer 12

• Escalation of commitment
• Mythical fixed-pie beliefs
• Anchoring and adjustment
• Issue framing and risk
• Availability of information
• The winner’s curse
• Overconfidence
• The law of small numbers
• Self-serving bias
• Endowment effect
• Ignoring other’s cognitions
• Reactive devaluation

Question 13

Escalation of Commitment

Answer 13

• negotiators maintain commitment to a course of action even when that commitment constitutes irrational behavior
• due in part to biases in perception and judgement

Question 14

Mythical fixed-pie beliefs

Answer 14

• assuming all negotiations involve a fixed pie (zero-sum)
• no possibility of integrative settlement
• suppresses effort to search for an agreement

Question 15

Anchoring and Adjustment

Answer 15

• the effect of the standard (anchor) against which subsequent adjustments (gains or losses) are measured
• once anchor is defined, parties treat it as real, valid benchmark
• anchor might be based on faulty or incomplete information

Question 16

Issue Framing and Risk

Answer 16

Frames can lead people to seek, avoid, or be neutral about risk in decision making and negotiation

Question 17

Availability of information

Answer 17

• operates when information that is presented in vivid or attention-getting ways becomes easy to recall
• becomes central in evaluating events and options
• can take place during recall (vividness and recency) and retrievability (memory structure)

Question 18

The Winner’s Curse

Answer 18

• tendency to settle quickly on an item and then subsequently feel discomfort about a win that comes too easily
• feeling you might have overestimated the value

Question 19

Overconfidence

Answer 19

• Believe that own ability to be correct and accurate is greater than actually true
• confidence = important BUT overconfidence = barrier to effective decision making

Question 20

The law of small numbers

Answer 20

• tendency to draw conclusions from small sample sizes
• the smaller the sample, the greater the possibility that past lessons will be erroneously used to infer about the future
• leads to self-fulfilling prophecy

Question 21

Self-serving bias

Answer 21

• people often explain another person’s behavior by making attributions, either to the person or the situation
• effect negotiations in number of ways

Question 22

Endowment Effect

Answer 22

• tendency to overvalue something you own or possess
• can lead to inflated estimations of value that interfere with reaching a good deal

Question 23

Ignoring other’s cognition

Answer 23

• negotiators don’t bother to ask about the other party’s perceptions and thoughts -> leads to distributive strategy
• work with incomplete information
• produces false results

Question 24

Reactive devaluation

Answer 24

• process of devaluing the other party’s concessions simply because the other party made them
• Leads to
  
  • minimize magnitude of a concession made by a disliked other
  • reduce their willingness to respond with a concession of equal size
  • seek even more from the other party once a concession has been made

Question 25

How to manage biases?

Answer 25

• typically arise out of conscious awareness
• be aware of negative aspects of these biases
• discuss them in structured manner within the team and with counterparts