By charting these undercurrents and their unanticipated effects, we can identify our faulty thinking that lead us to make irrational decisions.
Despite a great need for them, judgment and decision-making skills are only beginning to appear in better business schools’ curricula. But studies show we still don’t know enough about how good decisions occur.
Rational versus Emotional?
Psychologist and political scientist Herbert Simon in 1957 laid the groundwork on the limits of rationality when he attacked classical economics and game theory. Simon’s work made it clear that we must take the real world’s messiness and irrationality into account when making decisions.
“Research indicates that people are myopic in their decisions, may lack skill in predicting their future tastes, and can be led to erroneous choices by fallible memory and incorrect evaluations of past experiences,” wrote psychologist and Nobel Prize laureate Daniel Kahneman.
Neuroscientific research also proves that the brain is influenced by subconscious emotional reactions from its more primitive centers. We’re not in control of our reasoning capabilities as much as we’d like to think.
Scientists have identified several flaws in how we think when making decisions. Because they’re hardwired into our thinking process, we often fail to recognize them. This means they can undermine everything from new product development to acquisitions and divestiture strategy to succession planning.
This article examines 5 biases that lead to bad decisions and how we can avoid their traps.
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The complete 2,000 word article includes these important concepts:
- Rational versus Emotional?
- Loss Aversion
- Value Attribution
- Diagnosis Bias
- Too Much Information
- Decision Effectiveness
- Rate Your Company
- Leaders Can Improve
- The Certainty Bias
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