Making Good Decisions

Question 1

Escalation of Commitment

Answer 1

Once people have invested time, money, effort they value the investment and have a hard time abandoning it.

They are optimistic it can turn around.
They are publicly committed and want to save face.
They fear loss of investment if project fails.

Question 2

Winner’s Curse

Answer 2

The winner’s curse occurs in common value auctions, where bidders have the same value for an item but receive different private signals about this value. The winner is the bidder with the most optimistic evaluation of the asset and will tend to overestimate and overpay.

Set limits for yourself before beginning.

Question 3

Sunk Cost

Answer 3

A cost that has already been incurred and cannot be recovered.

Remember that many investments cannot be recouped with extra marginal investments.

Question 4

Anchor Bias

Answer 4

Cognitive bias that causes us to rely too heavily on the first piece of information we are given about a topic.

Question 5

Confirmation Bias

Answer 5

The tendency to search for, interpret, favor, and recall information in a way that confirms or supports one’s prior beliefs or values.

Question 6

Information Filtering

Answer 6

Information filtering (IF) is one of the methods that is rapidly evolving to manage large information flows. The aim of IF is to expose users to only information that is relevant to them.

This is problematic when it filters out valid dissenting opinions.

Question 7

How to encourage Courage among employees.

Answer 7

1. Reduce confirmation bias.
2. Create intellectual safety

Question 8

Group Think

Answer 8

• Norms for conforming in a group become very strong
• Members are highly concerned about maintaining unanimity
• So they fail to critically evaluate their options, and
• Consequently make a poorly reasoned decision

Question 9

Advocacy vs Inquiry

Answer 9

Advocacy
Purpose: Persuasion & Lobbying
Participant: Spokesperson
Behavior: Strive to persuade others, Defend your position, Downplay weaknesses
Minority Views: Discouraged or Dismissed
Outcome: Winners & Losers

Inquiry
Purpose: Testing & Evaluation
Participant: Critical Thinkers
Behavior: Present balanced arguments, Remain open to alternatives, Accept constructive criticism
Minority Views: Cultivated & Valued
Outcome: Collective Ownership