Making better decisions

“We Speak Your Language”Retained Executive Search Recruitment Outsourcing Leadership Consulting
Making Better Decisions
ACEC Leadership PE-2017

“We Speak Your Language”“We Speak Your Language”

“We Speak Your Language”“We Speak Your Language”
Brain teaser: Please consider Linda, a 31-year-old woman,
single and bright. When she was a student, in high school
and in college too, she was deeply involved in social justice
issues, and also participated in environmental protests.
Which is more probable about Linda’s occupation today?
a) Linda works as a TV reporter;
b) Linda is a bank teller;
c) Linda is a bank teller, and she’s very active in the environ-
mental movement.
Quick, what’s your answer? a) or b) or c)?
And, in what precise order?

“We Speak Your Language”
Making decisions…

Traditional decision making
1. Create a constructive environment.
2. Investigate the situation in detail.
3. Generate good alternatives.
4. Explore your options.
5. Select the best solution.
6. Evaluate your plan.
7. Communicate your decision, and take
action.

But the problem is this…

Fill in the blank
• SO_P
–Why did you answer this way?

Our decisions are often biased
• We have two ways of thinking
–System 1-thinking fast
–System 2-thinking slow
• System one is more intuitive and quick
• System two is deliberative and involves
effort
From “Thinking Fast and Slow”
by Daniel Kahneman

One more example
• What is 2 x 2?
• What is 12 x 14?

System 1 vs. System 2
• System 1 thinking is practically effortless
• System 2 requires effort and will interfere with
other processes
–Here is an example

Our decisions are
influenced-Heuristics
• Priming (environmental impact)
• Cognitive ease (familiarity)
• Confirmation bias (seeing what we want)
• Halo effect (WYSIATI)

Cognitive ease
• Cognitive ease makes us feel more favorable
toward things that are familiar, easy to
understand, and easy to see or read.
• We feel less favorable toward what is
unfamiliar, difficult to understand, or difficult to
see or read

Confirmation bias
• Confirmation bias causes us to selectively
notice and pay attention to what confirms our
beliefs and to ignore what doesn’t.
– Example: Gun control

Halo effect
• When we consider someone to be a good
person, we find it easier to excuse or ignore
behavior that is inconsistent with being a good
person.
– Good people can do no wrong.
– On the other hand, if we consider someone to be a bad
person, we find it hard to accept that he or she has any
positive qualities. Bad people can do no good.

Recency vs Quality
• The brain is wired to notice change over stasis
– New email
– Text
– Social media post
• Our brain gives more power to recent
information
• Too much information can lead to no decision

Prospect theory
• Certainty
–People have a strong preference for certainty and
are willing to sacrifice income to achieve more
certainty. For example, if option A is a guaranteed
win of $1,000, and option B is an 80 percent chance
of winning $1,400 but a 20 percent chance of
winning nothing, people tend to prefer option A.

Relative positioning
• People tend to be most interested in their relative
gains and losses as opposed to their final income
and wealth. If your relative position doesn’t
improve, you won’t feel any better off, even if your
income increases dramatically. In other words, if
you get a 10 percent raise and your neighbor gets a
10 percent raise, you won’t feel better off. But if you
get a 10 percent raise and your neighbor doesn’t
get a raise at all, you’ll feel rich.

Loss aversion
• People tend to give losses more weight than
gains — they’re loss averse. So, if you gain
$100 and lose $80, it may be considered a
net loss in terms of satisfaction, even though
you came out $20 ahead, because you’ll tend
to focus on how much you lost, not on how
much you gained.

Small probabilities
• People tend to under-react to low-probability
events. So, you may completely discount the
probability of losing all your wealth if the
probability is very small. This tendency can
result in people making super-risky choices.

Consider this
• You submit a proposal on a project with a
maximum fee of $1.5 million. There is a
bonus of 2% if you finish the project on time.
• You submit a proposal on a similar project
with a fee of $1.6 million
–Which project is more attractive to you?
• Why?

System 1 vs. System 2
SYSTEM 1 SYSTEM 2
Subconscious values, drives,
beliefs that influence our “gut
reactions.”
Articulates judgments, makes
choices, endorses or rationalizes
ideas and feelings
Jumps to conclusions regarding
causality.
Makes up stories to either
confirm or deny those
conclusions.
Operates effortlessly. Requires conscious effort to
engage.
Can be wrong but is more often
right.
Can be wrong or right
depending on how hard it
works.
Influenced by heuristics. Examines those heuristics
when so inclined.

Situations for discussion
1. Your firm has the choice of working on these
proposals:
1. Proposal A has a projected revenue maximum of $5 million,
but the probability of success is 40%
2. Proposal B has a projected revenue maximum of $2 million,
but the probability of success is 75%
3. Proposal 3 is for two $1 million projects with a probability of
success of 80%
Where do you spend your time if you have to choose just one?

Situations for discussion-part 2
• You have a choice of the following options:
1. You can expend $25,000 in expense to pursue a project
with revenue maximum of $1 million, with a success
probability of 50%
with revenue maximum of $2 million, with a probability of
success at 40%
with revenue maximum of $4 million and a success
probability of 80%
Which do you choose?

Making better decisions

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