Decision Making

Observation: Framing the Problem

A frame in social theory consists of a schema of interpretation that individuals rely on to understand and respond to events.

Learning Objectives

Apply the framing problem to decision making

Key Takeaways

Key Points

  • People do not look at an event and then “apply” a frame to it; people constantly project into the world around them the interpretive frames that allow them to make sense of it.
  • The basis of framing is the selective influence of information on a person’s decision- making process based on internal heuristics.
  • Framing can affect the outcome (i.e., the choices one makes) of choice problems, to the extent that several of the classic axioms of rational choice do not hold. This led to the development of the prospect theory as an alternative to rational choice theory.
  • Depending on how the information is presented, framing can lead to entirely rational individuals making completely different decisions based on the way information is presented. Numerous experiments have shown this to be the case.
  • Generally, people prefer absolute certainty in situations where information is positively framed, while they prefer risk -seeking behavior when decisions are framed in negative terms.

Key Terms

  • Rational choice theory: Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modelling social and economic behavior. Rationality, interpreted as “wanting more rather than less of a good,” is widely used as an assumption of the behavior of individuals in microeconomic models and analysis and appears in almost all economics textbook treatments of human decision making.
  • heuristics: A mental shortcut that may not always yield desired results.
  • schema: An outline or image universally applicable to a general conception, under which it is likely to be presented to the mind.

A frame in social theory consists of a schema of interpretation that individuals rely on to understand and respond to events. In other words, people build a series of mental filters through biological and cultural influences and use those filters to understand the world. Their choices are influenced by their frames.

Explanation

When one seeks to explain an event, the understanding often depends on the individual’s frame. If a friend rapidly closes and opens an eye, we will respond very differently depending on whether we attribute this to a purely “physical” frame (s/he blinked) or to a social frame (s/he winked).

Though the former might result from a speck of dust (resulting in an involuntary and not particularly meaningful reaction), the latter would imply a voluntary and meaningful action (e.g., to convey humor to an accomplice).

People do not look at an event and then “apply” a frame to it; people constantly project into the world around them the interpretive frames that allow them to make sense of it. People only shift frames when incongruity calls for a frame shift. In other words, people only become aware of the frames that they already use when something forces them to replace one frame with another.

Framing is so effective because it is a heuristic, or a mental shortcut that may not always yield desired results and is seen as a “rule of thumb.” According to Susan T. Fiske and Shelley E. Taylor, human beings are by nature ” cognitive misers,” meaning they prefer to do as little thinking as possible. Frames provide people a quick and easy way to process information. Hence, people will use the previously mentioned mental filters (a series of which is called a “schema”) to make sense of incoming messages. This gives the sender and framer of the information enormous power to use these schemas to influence how the receivers will interpret the message.

image

The Brain’s Heuristics for Emotions: Emotions appear to aid the decision-making process.

The Framing of Problems

Amos Tversky and Daniel Kahneman have shown that framing can affect the outcome (i.e., the choices one makes) of choice problems, to the extent that several of the classic axioms of rational choice do not hold. This led to the development of the prospect theory as an alternative to rational choice theory.

The context or framing of problems adopted by decision makers results in part from extrinsic manipulation of the decision options offered, as well as from forces intrinsic to decision makers (e.g., their norms, habits, and unique temperament).

Experimental Demonstration

Tversky and Kahneman (1981) demonstrated systematic reversals of preference when the same problem is presented in different ways, for example, in the Asian disease problem. Participants were asked to “imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume the exact scientific estimate of the consequences of the programs are as follows. ”

The first group of participants was presented with a choice between programs: In a group of 600 people, Program A: “200 people will be saved;” Program B: “there is a one-thirds probability that 600 people will be saved, and a two-thirds probability that no people will be saved. ” Of participants, 72% preferred program A (the remainder, 28%, opted for program B).

The second group of participants was presented with the choice between the following: In a group of 600 people, Program C: “400 people will die” Program D: “there is a one-third probability that nobody will die, and a two-thirds probability that 600 people will die”

In this decision frame, 78% preferred program D, with the remaining 22% opting for program C.

Programs A and C are identical, as are programs B and D. The change in the decision frame between the two groups of participants produced a preference reversal: When the programs were presented in terms of lives saved, the participants preferred the secure program, A (= C). When the programs were presented in terms of expected deaths, participants chose the gamble D (= B).

Absolute and Relative Influences

Framing effects arise because one can frequently frame a decision using multiple scenarios, wherein one may express benefits either as a relative risk reduction (RRR), or as absolute risk reduction (ARR). Extrinsic control over the cognitive distinctions (between risk tolerance and reward anticipation), adopted by decision makers, can occur through altering the presentation of relative risks and absolute benefits.

People generally prefer the absolute certainty inherent in a positive framing-effect, which offers an assurance of gains. When decision options appear framed as a likely gain, risk-averse choices predominate.

A shift toward risk-seeking behavior occurs when a decision maker frames decisions in negative terms or adopts a negative framing effect.

Developing Alternate Plans of Action

It is important to develop and consider alternatives for dealing with any given situation.

Learning Objectives

Explain the benefits of decision planning

Key Takeaways

Key Points

  • After defining a problem, decision makers must take steps to identify alternative actions to respond to it.
  • Developing alternatives requires decision makers to gather data, interpret that data, and brainstorm to come up with multiple solutions that can be compared and ranked.
  • Creative thinking, and thinking out of the box, are key to coming up with a full range of alternatives.

Key Terms

  • brainstorming: A method of problem solving in which members of a group contribute ideas spontaneously.

Decision Planning

Making a decision without planning is fairly common, but does not often end well. Planning allows for decisions to be made comfortably and in a smart way. Planning also makes decision making much simpler. Any decision will get four benefits out of planning:

image

Flowchart Diagram: Simplistic decision diagram of when to create Wikipedia articles

  1. Planning establishes independent goals. It is a conscious and directed series of choices.
  2. Planning provides a standard of measurement. It is a measurement of whether you are going toward or further away from your goal.
  3. Planning converts values to action. You think twice about the plan and decide what will help advance your plan best.
  4. Planning allows for limited resources to be committed in an orderly way. Always govern the use of what is limited to you (e.g., money, time, and so on).

Developing Alternatives

The need to make a decision arises because there are many available alternatives. Hence, the next step after defining the main problem would be to identify the alternatives available for that particular situation.

Gathering data helps decision makers have actual evidence that will aid them in coming up with a solution. Brainstorming helps them develop alternatives. Coming up with more than one solution enables decision makers to see which one can actually work.

While brainstorming, individuals do not have to restrict themselves to thinking about the very obvious options. Instead, they can use their creative skills and come up with alternatives that may look a little irrelevant. This is important because sometimes solutions can come from these out-of-the-box ideas.

Analyzing the Options

Evaluating alternatives is an important and difficult step of the decision-making process.

Learning Objectives

Analyze the misleading effects of evaluating alternatives

Key Takeaways

Key Points

  • The normative approach to analyzing decision-making assumes rational decision-makers with well-defined preferences. On the other hand, the descriptive approach is based on empirical observations and experiments. Finally, the prescriptive enterprise develops methods to improve decision making.
  • Whichever approach is taken, there is always the problem that misleading effects can lead to a bad decision. These effects can take the form of heuristics, which help in some situations and not in others.
  • Decision making often includes the need to assign a reason to justify the decision.
  • – Subjective models – people create misleading and incorrect decision making models
  • – Focusing illusion – people neglect important outcomes because they are focused on other, more obvious aspects
  • – Selective search for evidence – focusing on facts that support certain conclusions
  • – Premature termination of search for evidence
  • – Selective perception – screening out of information not thought to be important
  • – Wishful thinking – our desire to see things in a positive light may distort our perception
  • – Recency – placing more emphasis on more recent events
  • Repetition bias – believing that which we hear most often
  • – Group think – pressure to conform to the opinions of a group
  • – Source credibility bias
  • – Anchoring – accepting initial information as factual and basing subsequent opinions around that
  • – Over confidence
  • – Recallability trap – a distorted ability to recall life events objectively
  • – Outguessing randomness trap – imagination of patterns where none exist

Key Terms

  • Prescriptive: Prescriptive analytics automatically synthesizes big data, mathematical sciences, business rules, and machine learning to make predictions and then suggest decision options to take advantage of the predictions.

Evaluating the alternatives can be said to be one of the most important stages of the decision-making process. This is the stage where you have to analyze each alternative that you have come up with. You have to find out the advantages and disadvantages of each option. This can be done with the research you have done on that particular alternative. At this stage, you can also filter out the options that you think are impossible or do not serve your purpose. Rating each option with a numerical digit would also help in the filtration process.

image

Money and Decision Making: Relation between (monetary) gains and losses and their subjective value.

Misleading Effects

But even respecting the considerations above, there still might be problems in making the “right” decision because of different misleading effects, which mainly arise because of the constraints of inductive reasoning. This generally means that our model of a situation or problem might not be ideal to solve it in an optimal way. Biases can creep into our decision-making processes. Many different people have made a decision about the same question (e.g., “Should I have a doctor look at this troubling breast cancer symptom I’ve discovered? ” “Why did I ignore the evidence that the project was going over budget? “) and then craft potential cognitive interventions aimed at improving decision-making outcomes.

At every step of decision making, misperceptions based on incorrect input, biases, lack of information, and other traps can corrupt the choices we make. We are particularly vulnerable to traps involving uncertainty because most of us are not good at judging chances. Complex and important decisions are the most prone to distortion because they tend to have many assumptions and estimates, as well as influence by misaligned parties.

Research has shown that over time we develop unconscious routines to cope with the inherent intricacy in most decision making. These thinking patterns, known as heuristics, can help us in many situations. We are nimble at judging distance, time, weight, and volume. For example, in judging distance our minds rely on a heuristic that associate clearness with closeness. The better the visibility of an object, the closer it must be.

But some heuristics can muddle our thinking with biases and irrational preferences. The danger with these traps is that they are invisible to most of us.

Justification in Decision Making

Decision making often includes the need to assign a reason to justify the decision. This factor is illustrated by an experiment by A. Tversky and E. Shafir in 1992. For this experiment, a very attractive vacation package was offered to a group of students who had just passed an exam. It was also offered to another group of students who had just failed the exam and had the chance to rewrite it over their vacation. All students had the option to buy the ticket straight away, to stay at home, or to pay and keep the option open until they would get their results. Even though the actual exam result did not influence the decision, it was required in order to provide a rationale.

Putting the Plan to Work

After analyzing the options, the next step is the implementation of a solution.

Learning Objectives

Outline the key steps in the decision making process

Key Takeaways

Key Points

  • Implementation is a difficult and important step, as decisions made need to be carried out.
  • It is important that all the people involved in implementation know about the implications.
  • The decisive actions are taken, and additional actions are taken to prevent any adverse consequences from becoming problems and starting both systems (problem analysis and decision making) all over again.

Key Terms

  • contingency planning: the process of forming an alternative set of actions in case the original set of intended actions fails
  • planning: The act of formulating a course of action, or of drawing up plans.

Decision Making

Steps in the decision making process include:

  • Objectives must first be established.
  • Objectives must be classified and placed in order of importance.
  • Alternative actions must be developed.
  • The alternatives must be evaluated against all the objectives.
  • The alternative that is able to achieve all the objectives is the tentative decision.
  • The tentative decision is evaluated for more possible consequences.

The decisive actions are taken, and additional actions are taken to prevent any adverse consequences from becoming problems and starting both systems (problem analysis and decision making) all over again. There are steps that are generally followed that result in a decision model that can be used to determine an optimal production plan. In a situation featuring conflict, role-playing is helpful for predicting decisions to be made by the parties involved.

image

SYSTEM: The SYSTEM pyramid explains the key leadership attributes for strategic thinking.

Decision Planning

Making a decision without planning is fairly common, but does not often end well. Planning allows for decisions to be made comfortably and in an intelligent way. Planning also simplifies the decision-making process. Any decision will get four benefits out of planning:

  1. Planning establishes independent goals. It is a conscious and directed series of choices.
  2. Planning provides a standard of measurement. It is a measurement of whether you are going toward or further away from your goal.
  3. Planning converts values to action. You think twice about the plan and decide what will help advance your plan best.
  4. Planning allows for limited resources to be committed in an orderly way. Always govern the use of what is limited to you (e.g., money, time, and so on).

Closing the Feedback Loop

Feedback is the process where past information influences the a similar phenomenon in the present or future.

Learning Objectives

Explain the role of the feedback loop in decision making and the different types of feedback associated with it

Key Takeaways

Key Points

  • It is important to note that information by itself is not feedback unless it is translated into action.
  • Feedback is also a synonym for feedback signals, feedback mechanisms, and feedback loops.
  • The making and implementation of a decision is not the end of the decision-making process. Regular monitoring, and measuring the results of implementation against expected standards from an early stage will help close the feedback loop by altering decisions, if necessary.

Key Terms

  • Feedback mechanism: the action or means used to subsequently modify the gap in a feedback loop
  • Feedback signal: the measurement of the actual level of the parameter of interest in a feedback loop
  • Feedback loop: Feedback is a process in which information about the past or the present influences the same phenomenon in the present or future. As part of a chain of cause-and-effect that forms a circuit or loop, the event is said to “feed back” into itself. The feedback loop is the complete causal path that leads from the initial detection of the gap to the subsequent modification of the gap.

Feedback is a process in which information about the past or the present influences the same phenomenon in the present or future. As part of a chain of cause-and-effect that forms a circuit or loop, the event is said to “feed back” into itself.

Ramaprasad (1983) defines feedback generally as “information about the gap between the actual level and the reference level of a system parameter which is used to alter the gap in some way,” emphasising that the information by itself is not feedback unless translated into action. “…’feedback’ exists between two parts when each affects the other…”

Feedback is also a synonym for:

  • Feedback signal: The measurement of the actual level of the parameter of interest.
  • Feedback mechanism: The action or means used to subsequently modify the gap.
  • Feedback loop: The complete causal path that leads from the initial detection of the gap to the subsequent modification of the gap.

The Feedback Loop in Decision Making

Just making a decision, and implementing it is not the end of the decision-making process. It is crucial to monitor your decision regularly once it is implemented. At this stage, you have to keep a close eye on the progress made by implementing the solution. You may need to measure the results of implementation against your expected standards. Monitoring of solutions early on will help you close the feedback loop by altering your decisions, if you notice a deviation of results from your expectations.

In the end, you will be able to see what you did right and wrong when coming up and putting the decision to use and you may choose to revisit the past decision or take a different tact when faced with similar problems in the future.