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The hidden traps in decision making.

J S Hammond1, R L Keeney, H Raiffa

  • 1Harvard Business School, Boston, MA, USA.

Harvard Business Review
|August 5, 1998
PubMed
Summary
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Understanding psychological traps is key to making sound business decisions. Awareness of cognitive biases like anchoring and overconfidence helps executives avoid mental lapses and improve choices.

Area of Science:

  • Cognitive Psychology
  • Decision Science
  • Behavioral Economics

Background:

  • Poor decision-making in business often stems from flawed processes or cognitive biases.
  • Psychological traps can unconsciously sabotage rational decision-making.
  • Understanding these mental pitfalls is crucial for executives.

Purpose of the Study:

  • To identify and examine common psychological traps that impact business decision-making.
  • To provide strategies for recognizing and mitigating the effects of cognitive biases.
  • To enhance the reliability and soundness of executive decisions.

Main Methods:

  • Analysis of psychological literature on decision-making biases.
  • Identification and categorization of eight specific psychological traps.

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  • Examination of how these traps affect business choices.

    • Main Results:

    • Eight key psychological traps identified: anchoring, status quo, sunk-cost, confirming evidence, framing, overconfidence, prudence, and recallability.
    • These traps lead to distorted information processing, biased choices, and suboptimal outcomes.
    • Awareness and specific countermeasures can mitigate the impact of these cognitive biases.

    Conclusions:

    • Psychological traps significantly influence business decisions, often leading to errors.
    • Forewarned is forearmed: awareness of these traps is the first step to avoidance.
    • Executives can implement practical steps to protect against mental lapses and ensure better decision-making.