ESG Seminar - How to Make Smart Decisions by Avoiding 6 Thinking Traps

The Executive Study Group (ESG) seminar in October entitled “How to Make Smart Decisions by Avoiding 6 Thinking Traps” which was held by the ESG, Chinese University of Hong Kong (CUHK) and the Hong Kong Science and Technology Parks Corp (HKSTPC) on 11 Oct 2013. I would like to summarize the seminar for sharing below.

Before the seminar, Dr. Mark Lee played a game with us and asked which yellow circle is larger. By perception, yellow circle in right hand side seemed larger. However, they were the same size, indicating that human Intuition had bias.

In the beginning, Dr. Mark Lee introduced the content of seminar included "Limitation of Human Brains", "6 Thinking Taps", "Forewarned Is Forearmed", and "Group Discussion".

Dr. Mark Lee explained a common misconception that companies must "delight" their customers. It was too hard to delight customers. We should pay more sensitive to unhappy customers experience. It was because 65% of customers would likely speak negatively. Dr. Lee named it to be the Bad-Service Ripple Effect.

Dr. Lee explained how important of decision-making that determined success. However, most the way our brain works could sabotage our decision. Unconscious routine, known as heuristics, affected our decision-making which learnt from our own discoveries and experiences. It usually caused sensory mis-perceptions like the game before the seminar.

Dr. Lee said some invisible traps were hard to recognize called Invisible Traps. It was because everyone has the flows. Warren Buffett said "There seems to be some perverse human characteristic that likes to make easy things difficult."

After that Dr. Lee introduced 6 traps included "The Anchoring Trap", "The Status-Quo Trap", "The Sunk-Cost Trap", "The Confirming-Evidence Trap", "The Framing Trap" and “The Estimating and Forecasting Traps”.

Trap 1: The Anchoring (錨定陷阱 - 先入為主)
The anchoring is a pernicious mental phenomenon. Our mind gave disproportionate weight to the first information we received (First Impression). Dr. Lee quoted Warren Buffett statement that “In the business world, the rearview mirror is always clearer than the windshield.” Then Dr. Lee provided some actions which could be avoid the trap included:
1. Always view a problem from different perspectives
2. Think about the problem on your own
3. Be open-minded
4. Be Careful to avoid anchoring your advisers
5. Be particularly wary of anchors in negotiations

Trap 2: The Status-Quo (現狀陷阱 - 維持現狀)
People dislike change so that Status Quo is preferred. It is because Status Quo is comfortable and avoids taking action. Dr. Lee quoted Warren Buffett statement again that “Risk comes from not knowing what you’re doing.” Some actions were recommended as follows.
1. Always remind yourself of your objectives and examine how they would be served by the status quo
2. Never think of the status quo as your only alternative
3. Avoid exaggerating the effort or cost involved in switching from the status quo
4. Remember that the desirability of the status quo will change over time
5. Don’t default to the status quo

Trap 3: The Sunk-Cost (沉默成本陷阱 - 沒回頭的成本)
People did not like admitting mistakes. Tadashi Yanai (Founder of UNIQLO) said “One win nine losses”. So Dr. Lee mentioned how to create corporate culture to accept Good Decision but lead to Bad Outcome. He quoted IKEA case for investing to outsourcing to Eastern Europe for wood but fail. Since the decision based on rational information, the founder considered the loss as tuition without punishment. Warren Buffett also said that “When you find yourself in a hole, the best thing you can do is stop digging.” The remedy was mentioned by Dr. Lee below.
1. Seek out and listen carefully
2. Examine why admitting to an earlier mistake distresses you
3. Be on the lookout for the influence of Sunk-Cost Biases in the decisions and recommendations made by your subordinates
4. Don’t cultivate a failure-fearing culture

Trap 4: The Confirming-Evidence (證實性陷阱 - 先決定,後確認。)
Dr. Lee found a case that US manufacturer considered whether to call off a planned plant expansion and seek for not-so-independent opinion from the chief executive of a similar company that recently stopped a new factory. Remedies were suggested below.
1. Always check to see whether you are examining all the evidence with equal rigor
2. Get someone you respect to play Devil’s Advocate
3. Be honest with yourself about your motives
4. In seeking the advice of others

Trap 5: The Framing (框定陷阱 - 框架先設)
Set the frame would guide others thinking and decision. Dr. Lee raise different case to explain this phenomena such as “50% chance to losing $300 or winning $500” in your account with $2000” against “either $1,700 or $2,500”. One of interested case about smoking questions quoted. A man asked a priest about:
a) When I am praying, can I smoke?
b) When I am smoking, can I pray?

Dr. Lee introduced some action to be taken aginst framing below.
1. Don’t automatically accept the initial frame
2. Try posing problems in a neutral, redundant way
3. Think hard throughout your decision-making process about the framing of the problem
4. When others recommend decisions, examine the way they framed the problem.

Trap 6: The Estimating and Forecasting (估計和預測陷阱)
Dr. Lee pointed out three traps from the estimating and forecasting included “The Overconfidence Trap”, “The Prudence Trap” and “The Recallability Trap”. For recallability trap, our memory is our enemy because we frequently base our predictions about future events on our memory of past events. Then he quoted Warren Buffett statement that “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” and “I will tell you “how to become rich.” Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

Finally, Dr. Lee concluded that Effortless Customer Experience reduced Disloyalty. Companies should focus on making service easier, not more delightful, by reducing the amount of work required of customers to get their issues resolved.

Before the group discussion, Dr. Lee used NLP method to give us an exercise to choose Two of the most difficult strategies and One of the easiest strategy.

Forewarned Is Forearmed (凡事預則立)
If you know about a problem or situation in advance, you will be able to deal with it when you need to. Warren Buffett said “I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business.”

Before the group discussion, Dr. Lee used NLP method to give us an exercise to choose Two of the most difficult traps to be avoided and One trap to escape.

Reference:The Centre for Logistics Technologies and Supply Chain Optimization, CUHK - http://www.logitsco.cuhk.edu.hk/
HKSTP - www.hkstp.org



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