These are only a few examples of the many cognitive decision-making and behavioral biases that exist and which may negatively impact decision making.
The escalation of commitment and sunk outcomes (defined below) are other factors that can influence your decision making. The more committed a person feels toward a decision, the more likely they are to put more time and effort and even money into it. Sunk costs have already been incurred, cannot be recovered and should not be considered in future decisions — only future or prospective costs should influence your decisions. However, in reality, many people allow those sunk costs to lead their decisions.
Emotions and the fear of loss also impact decisions. Emotions can sometimes be very controlling and overwhelming. Quick decisions may be based more on emotion than reasoning. Ever send a snap email to someone that you later wished you hadn’t? Do you think that was driven by in-depth analysis or emotions? People also do not like the thought of losing something they have or the thought of losing the opportunity to get something they want. People will often weigh the fear of losing something more in a decision than the hope of gaining something else in that same decision. Now that you know what is going on in your head when you are making decisions, let’s examine some elements important in making good decisions.
Framework and tools
As a feed and grain industry manager, you are probably faced with three basic types of decisions: strategic decisions, typical decisions and in-the-moment decisions. Carl Spetzler, director of the Strategic Decision and Risk Management program at Stanford University and CEO of the Strategic Decisions Group, defines strategic decisions as those which are very complex and challenging to think through, have large uncertainty, have shaping effects on the business and for which you have weeks or months to decide. Spetzler explains typical decisions as being those that frequently arise from team meetings. They may have a large impact but are usually tactical decisions that are made collaboratively. In-the-moment decisions are made impromptu, during the activity, and when generally needed; they are not planned ahead.
We can think of the way in which people make decisions generally, as two different methods: an intuitive method and a deductive method. As suggested by the name, the intuitive method consists of us making decisions based on our feelings and emotions. Our feelings and emotions often lead us to make the decision that we “want” to make. The deductive method is a more logic-based and systematic process. This method often leads us to make the decision that we “should” make. It is often easy for us to know what we “want” to do; the challenge may be in the battle between “want” and “should” so having a method to follow to identify those “should” decisions is valuable. We will now look at elements or steps in a deductive decision making-process.
First, define the problem — and make sure you define the right problem. If you do not identify the correct problem to solve, you will not solve that problem. In defining the problem, also be clear about what the objective is that you want to accomplish.
Once you clearly define the problem and recognize the objective you want to accomplish with the decision, it is useful to create a list of alternative solutions to the problem. The alternatives should solve the problem while also meeting your objective.
Next, gather the important and the right information about the alternatives. This involves determining what uncertainty exists with each alternative and involves determining what you do and do not know. It also involves laying out the consequences for each alternative. Each alternative decision will have benefits and costs. Making a good decision involves doing a good job of identifying these costs and benefits and understanding them so that you make an informed decision. Your decision will involve reasoning through these alternatives and their associated benefits and costs.