Tag Archives: Decision making

Reframing Non-Comparable Choices to Make Them Simpler, More Satisfying

Life’s most baffling decisions are among non-comparable choices: “apples-to-oranges” comparisons.

Eunice Kim

Eunice Kim

University of Toronto’s Eunice Kim Cho collaborated with Uzma Khan of Stanford and Yale’s Ravi Dhar to investigate whether non-comparable choices may be made easier and more satisfying by changing their “level of representation,” or decision context.

Uzma Khan

Uzma Khan

Cho and team drew on Construal Level Theory (CLT) discussed by NYU’s Yaacov Trope, Nira Liberman of Tel Aviv University and Cheryl Wakslak, now of USC, to differentiate decisions construed as concrete, specific, contextualized, and personal from more abstract, distant options based on future time, remote space, social distance, and hypothetical probability.

Ravi Dhar

Ravi Dhar

Trope and team reported that these differing construals can determine people’s predictions, decisions, and behavior.

Yaacov Trope

Yaacov Trope

Kim’s team offered volunteers a gift card and asked half of the participants to choose between comparable choices (different types of chess sets or different types of consumer electronics).

Nira Liberman

Nira Liberman

The remaining subjects chose between non-comparable options (chess set vs. cheese sampler or consumer electronic device vs. event tickets), and all  participants chose between these options for themselves (specific context) or for an acquaintance (abstract context).

Cheryl Wakslak

Cheryl Wakslak

When people chose for themselves, at the more personal, specific construal level, they found it easier to select between more similar choices, the two chess sets, but not the dissimilar choice of chess set vs. cheese platter.

In contrast, when participants chose a gift for a more socially-distant person, an acquaintance, they found it easier to select between dissimilar items.
Kim and team concluded that it’s easier to make dissimilar choices when the options are represented at a higher level of abstraction to enable “big picture thinking.”

Marketers use this principle to position dissimilar choices more abstractly, like “level of enjoyment” rather than focusing on specific specific product features, to help consumers make decisions more quickly.

Decision-making ease is crucial because it is associated with greater satisfaction with the decision.
When taking a decision is complex and stressful, many people doubt the decision and feel less content.

Jens Forster

Jens Forster

Liberman and Jens Forster, now of University of Amsterdam, demonstrated that complex, non-comparable, or confusing choices are associated with lower decision satisfaction and greater likelihood of choosing the previously rejected option in a subsequent decision.

Individuals can consider more abstract, “big-picture” criteria when deciding between differing options, such as equal expenditures on a a material possession or an experience, to increase ease and speed of decision-making.

The next post considers which type of purchase – material or experiential – most people find more satisfying.

-*How do you make decisions when the choices are not directly comparable?

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Career “Planning” = Career “Improvisation”

Kathleen Eisenhardt

Kathleen Eisenhardt

Planning is most suited to relatively certain circumstances in which processes and decisions are typically linear, argued Stanford’s Kathleen Eisenhardt and Behnam Tabrizi in their analysis of global computer product innovation.

In contrast, frequently-changing or uncertain conditions with many iterative modifications require improvisation coupled with frequent testing.

Behnam Tabrizi

In “VUCA world,” described by the U.S. Army War College as volatile, uncertain, complex, ambiguous environments, current career “planning” occurs under rapidly-shifting conditions more appropriate for an agile strategy.
As a result, it is increasingly difficult to meaningfully respond to the frequently-asked interview question: “What are your career plans for the next five years?

Iterative exploration, rapid prototyping/experimentation, and testing characteristic of agile development and design thinking are more suited for rapid changes in economic, political, and technology changes that affect known career paths.

Alison Maitland

University of London’s Alison Maitland and Peter Thomson forecast Future Work: How Businesses Can Adapt and Thrive In the New World of Work,
and related books by Deloitte’s Cathy BenkoMolly Anderson, with Anne Weisberg of Paul, Weiss, Rifkind, Wharton & Garrison LLP considerThe Corporate Lattice: Achieving High Performance in the Changing World of Workand Mass Career Customization: Aligning the Workplace with Today’s Nontraditional Workforce.

-*When have you found it more useful to “improvise” instead of “plan” your career?
-*What are the benefits and drawbacks of career “improvisation”?

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“Emotional Contagion” in the Workplace through Social Observation, Social Media

Emotions can be “contagious” between individuals, and can affect work group dynamics.

Douglas Pugh

Douglas Pugh

Emotional contagion is characterized by replicating emotions displayed by others, and differs from empathy, which enables understanding another’s emotional experience without actually experiencing it, according to Virginia Commonwealth University’s S. Douglas Pugh.

Adam D I Kramer

Adam D I Kramer

In addition to direct interpersonal contact, “viral emotions” can be transmitted through social media platforms without observing nonverbal cues, according to Facebook’s Adam D. I. Kramer, Jamie E. Guillory of University of California, San Francisco and Cornell University’s Jeffrey T. Hancock.
This finding suggests the significant impact of social media on workplace interpersonal relations and productivity.

Jeffrey Hancock

Jeffrey Hancock

Kramer’s team found that when positive emotional expressions in Facebook News Feeds were reduced, people produced fewer positive posts and more negative posts.
In contrast, when negative emotional expressions were reduced, the people reduced negative posts, indicating that people’s emotional expressions on a massive social media platform like Facebook influences others’ emotions and behaviors.

Sigal Barsade

Sigal Barsade

People in performance situations are influenced by observing others’ emotions.   
When participants observed positive emotions in a decision task, they were more likely to cooperate and perform better in groups, found Wharton’s  Sigal Barsade.

People who were more influenced by others’ emotions on R. William Doherty’s Emotional Contagion Scale also reported greater:

  • Reactivity,
  • Emotionality,
  • Sensitivity to others,
  • Social functioning,
  • Self-esteem,
  • Emotional empathy.

They also reported lower:

  • Alienation,
  • Self-assertiveness,
  • Emotional stability.
Stanley Schachter

Stanley Schachter

Individuals are more likely to be influenced by others emotions when they feel threated, which increases affiliation with others, according to Stanley Schachter‘s emotional similarity hypothesis.

Brooks B Gump

Brooks B Gump

Likewise, when people believe that others are threatened, they are more likely to mimic others’ emotions, found Syracuse University’s Brooks B. Gump and James A. Kulik of University of California, San Diego.

Elaine Hatfield

Elaine Hatfield

Women reported greater contagion of both positive and negative emotions on Doherty’s Emotional Contagion Scale.
Observers also rated these women as experiencing greater emotional contagion than men in research by Doherty with University of Hawaii colleagues Lisa Orimoto, Elaine Hatfield, Janine Hebb, and Theodore M. Singelis of California State University-Chico.

James Laird

James Laird

People who are more likely to “catch” emotions from other are also more likely to actually feel emotions associated with facial expressions they adopt, reported Clark University’s James D. Laird, Tammy Alibozak, Dava Davainis, Katherine Deignan, Katherine Fontanella, Jennifer Hong, Brett Levy, and Christine Pacheco.
This finding suggests that those with greater susceptibility to emotional contagion are convincing actors – to themselves and others.

Christopher K. Hsee

Christopher K. Hsee

Contrary to expectation, people with greater power notice and adopt emotions of people with less power, found University of Hawaii’s Christopher K. Hsee, Hatfield, and John G. Carlson with Claude Chemtob of the U.S. Department of Veterans Affairs.

Participants assumed the role of “teacher” or “learner” to simulate role-based power differentials, then viewed a videotape of a fictitious participant discussing an emotional experience.
Volunteers then described their emotions as they watched the confederate describe a “happiest” and “saddest” life event.
People in higher power roles were more attuned to followers’ emotions than previously anticipated.

The service industry capitalizes on emotional contagion by training staff members to model positive emotions, intended to increase customer satisfaction and loyalty.

James Kulik

James Kulik

However, customer satisfaction measures were more influenced by service quality than employees’ positive emotion, according to Bowling Green State’s Patricia B. Barger and Alicia A. Grandey of Pennsylvania State University.

Emotions can positively or negatively resonate through work organizations with measurable impact on measures of employee attitude, morale, engagement, customer service, safety, and innovation.

-*How do you intentionally model and convey emotions to individuals and group members?
-*What strategies do you use to manage susceptibility to “emotional contagion”?

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Mindfulness Meditation Improves Decisions, Reduces Sunk-Cost Bias

Sigal Barsade

Sigal Barsade

Brief meditation sessions can reduce the tendency to base current decisions on past “sunk costs,” reported Wharton’s Sigal Barsade, with Andrew C. Hafenbrack and Zoe Kinias of INSEAD.

Andrew Hafenbrack

Andrew Hafenbrack

Sunk-cost bias” is the prevalent tendency to continue unsuccessful actions after time and money have been invested.
Frequent examples include:

  • Holding poorly-performing stock market investments,
  • Staying in abusive interpersonal relationships,
  • Continuing failing military engagements.
Zoe Kinias

Zoe Kinias

In these cases, people tend to focus on past behaviors rather than current circumstances, leading to emotion-driven decision biases.

Meditation practices can:

  • Enable increased focus on the present moment,
  • Shift attention away from past and future actions,
  • Reduce negative emotions.
Kirk Brown

Kirk Brown

Barsade, Hafenbrack, and Kinias asked volunteers to complete Mindful Attention Awareness Scale, a widely used trait-mindfulness scale developed by Virginia Commonwealth University’s Kirk Brown and Richard Ryan of University of Rochester.

Richard Ryan

Richard Ryan

They also measured participants’ ability to resist “sunk cost” bias using Adult Decision-Making Competence Inventory, developed by Leeds University’s Wändi Bruine de Bruin with Baruch Fischhoff of Carnegie Mellon and  RAND Corporation’s Andrew M. Parker.

Wändi Bruine de Bruin

Wändi Bruine de Bruin

In a decision task, participants could choose to take an action or to do nothing, as a measure of vulnerability to sunk-cost bias.
Propensity to take action indicated resistance to the sunk-cost bias, whereas those who took no action were seen as influenced by the sunk-cost bias.

Baruch Fischhoff

Baruch Fischhoff

Volunteers who listened to a 15-minute focused-breathing guided meditation were more likely to choose action and resist the sunk-cost bias than those who had not heard the meditation instruction.

Andrew M Parker

Andrew M Parker

Barsade’s team controlled for participants’ age and trait self-esteem, noting that, “People who mediated focused less on the past and future, which led to them experiencing less negative emotion. That helped them reduce the sunk-cost bias.

Jochen Reb

Jochen Reb

Mindful attention also enables negotiators to craft better deals by “claiming a larger share of the bargaining zone” in distributive (“fixed pie”) negotiations, found Singapore Management University’s Jochen Reb, Jayanth Narayanan of National University of Singapore, and University of California, Hastings College of the Law’s Darshan Brach.
These effective negotiators also expressed greater satisfaction with the     negotiation process and outcome. 

JAYANTH NARAYANAN

JAYANTH NARAYANAN

Mindful attention also leads to a lower negativity bias, the tendency to weigh negative information more heavily than positive, reported Virginia Commonwealth University’s Laura G. Kiken and Natalie J. Shook of West Virginia University.

They assessed negativity bias with BeanFest, a computer game developed by Shook, with Ohio State’s Russell Fazio and J. Richard Eiser of University of Sheffield.

Natalie Shook

Natalie Shook

This task asks participants to associate novel stimuli with positive or negative outcomes during attitude formation exercises.

Russell Fazio

Russell Fazio

Volunteers who listened to a mindfulness induction correctly classified positive and negative stimuli more equally, expressed greater optimism, and demonstrated less negativity bias in attitude formation than those in the control condition.

J Richard Eiser

J Richard Eiser

Mindful attention improves decision-making and enhances negotiation outcomes by reducing biases linked to negative emotions.
As a result, taking a brief mental break (“time-out”) during decision-making can improve choices and reduce the likelihood that “let the wrong emotions cloud the decision-making process.”

-*How do you evoke reduce bias in making decisions and crafting negotiation proposals?

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Women Board Members + Strong Shareholder Protections = Higher Financial Performance

Kris Byron

Kris Byron

The relationship between women on corporate Boards of Directors and company positive financial results is mixed, according to Syracuse University’s Kris Byron and Corinne Post of Lehigh University.

Corinne Post

Corinne Post

To clarify conflicting data, they conducted a meta-analysis of 140 existing studies and found that women on corporate boards was related to positive financial outcomes in countries with stronger shareholder protections.

Companies with women on Boards and subject to rigorous shareholder protections reported higher accounting returns or firm profitability.

Richard Gentry

Richard Gentry

Accounting returns evaluate a firm’s efficiency in using assets to generate earnings and represent short-term financial performance, noted University of Mississippi’s Richard Gentry and Wei Shen of Arizona State University.

Wei Shen

Wei Shen

Another financial performance measure in Byron and Post’s meta-analysis was market performance, defined by University of Chicago’s Richard H. Thaler as marketplace behavior that reflects expectations of a firm’s long-term value.

Richard Thaler

Richard Thaler

Women on Boards of Directors provide “diversity of thought and experience” and tolerate less financial risk.
As a result, female board members made stronger efforts to monitor the firms and to ensure strategy execution, according to Byron and Post.

Kathleen Eisenhardt

Kathleen Eisenhardt

The team considered Agency Theory, proposed by Stanford’s Kathleen Eisenhardt, in her theory that Boards of Directors are “information systems” used by key stakeholders to verify organizational behavior.

Amy Hillman

Amy Hillman

These systems are influenced by Directors’ individual cognitive frames, derived from their diverse values and experiences, argued Arizona State’s Amy Hillman and Thomas Dalziel of University of Cincinnati.

Donald Hambrick

Donald Hambrick

These diverse cognitive frames yield more favorable organizational outcomes only when teams “engage in mutual and collective interaction [and] share information, resources, and decisions,” according to Upper Echelons Theory (UET) developed by Penn State’s Donald Hambrick.
This means that women Board members affect group decision-making and financial performance when other Board members are willing to consider their diverse perspectives and experiences.

Thomas Dalziel

Thomas Dalziel

Strong shareholder protections provide “an information-processing stimulus that motivates (Boards) to leverage the decision-making resources (i.e., knowledge, experience and values) that women bring,” asserted Byron and Post.
From this, they concluded that strong financial outcomes occur in companies with women on their Boards of Directors in countries with strong shareholder protections.

Byron and Post’s analysis illustrates that diverse perspectives provide little benefit if they are not solicited and fully considered in a context of regulatory oversight.

-*When have you observed diverse perspectives associated with increased profitability and performance?

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Ethnic Diversity Reduces “Groupthink,” Economic “Bubbles”

Despite progress in raising awareness about implicit bias and stereotypes, most people are less likely to trust recommendations and evaluations from people of different ethnic groups.

Sheen Levine

Sheen Levine

However, this bias may reduce the “herd mentality” that characterized recent price “bubbles” in U.S. housing and global financial markets, reported Columbia’s Sheen S. Levine, Evan P. Apfelbaum of MIT, Goethe University’s Mark Bernard, Texas A&M’s Valerie L. Bartelt, Edward J. Zajac of Northwestern, and University of Warwick’s David Stark.
They concluded that, “Diversity facilitates friction that enhances deliberation and upends conformity.”

Economic “bubbles” occur when the majority of traders, probably influenced by a type of “groupthink,” set inaccurate prices, leading to a mismatch between market prices and true asset values.

Irving Janis

Irving Janis

Groupthink can occur when three conditions interact, according to Yale’s Irving Janis:

  • Group Cohesiveness
    • Deindividuation,” when group cohesiveness becomes more important than individual dissenting views,
  • Group Structure
  • Context
    • Stressful external threats,
    • Recent failures,
    • Decision-making difficulties,
    • Moral dilemmas.
Scott E. Page

Scott E. Page

A mathematical model, developed by University of Michigan’s Scott E. Page and Lu Hong of Loyola University, demonstrated that a wider range of viewpoints leads to less groupthink and more balanced decisions.

Diverse groups ran into fewer “dead ends” in developing solutions than homogenous groups full of smart individuals, who tended to think similarly.

David A. Thomas

David A. Thomas

Likewise, additional experimental evidence by Georgetown’s David A Thomas and Robin J. Ely of Harvard confirmed that identity-diverse groups can outperform homogeneous groups.
Group errors depended on group member ability and member diversity, expressed in the formula:

Collective Accuracy = Average Accuracy + Diversity.

To test the impact of group diversity on market “bubbles,” Levine’s group constructed experimental markets in Singapore and Texas, USA, in which participants traded stocks to earn money.

Evan Apfelbaum

Evan Apfelbaum

More than 175 volunteers with backgrounds in business or finance were randomly-assigned to groups of six ethnically-homogeneous or ethnically- diverse participants.

Traders knew the ethnic composition of their groups, but they couldn’t communicate with each other.
In addition, their “trades” of dividend-paying stock during 10 rounds were anonymous.

Homogeneous groups set inflated selling prices, yet traders in those groups still bought the stock, resulting in increasing stock prices.

Mark Bernard

Mark Bernard

In contrast, traders in diverse groups refused inflated selling prices, so the stock price fell to approximately the price in an “ideal” market with “rational” traders.

When traders and other decision-makers come from similar ethnic, social, and attitudinal backgrounds, they tend to place undue confidence in others’ opinions and decisions, and tend not to subject them to rigorous analysis and scrutiny.

Valerie Bartelt

Valerie Bartelt

As a result, they may be more likely to accept prices and deals that deviate from actual underlying values.
Levine’s group concluded that “homogeneity…imbues people with false confidence in the judgment of coethnics, discouraging them from scrutinizing behavior.”

  • How do you mitigate “groupthink” in organizational decision-making?

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Unrealistic Optimism Drives Profitability

Overconfident decision-making in financial markets led to myriad negative consequences in the past decade, when companies underestimated business risks. 

Gilles Hilary

Gilles Hilary

In contrast to overconfidence, unrealistically optimistic judgments can result in increased profitability and market value, according to INSEAD’s Gilles Hilary and Benjamin Segal with Charles Hsu of Hong Kong University of Science & Technology.

Benjamin Segal

Benjamin Segal

Hilary, Hsu, and Segal demonstrated that over-optimism differs from overconfidence, and may result in larger growth projections.

Charles Hsu

Charles Hsu

The team drew on earlier work by University of Illinois’s Dirk Hackbarth that showed both overconfident, and overoptimistic managers chose higher debt levels and issued more new debt.
Hackbarth did not differentiate over-confident and over-optimistic investment behaviors, and reported that both tendencies reduce manager-shareholder conflict, which can increase firm value.

Dirk Hackbarth

Dirk Hackbarth

Static over-optimism” refers to an unrealistically positive view of the impact of one’s own actions on future outcomes.
In contrast, “dynamic overconfidence” refers to overvaluation of one’s skills and the accuracy of private information.
In addition, “dynamic overconfidence”  is associated with  underestimates of random events after several positive outcomes, according to Hackbarth.

Together, static over-optimism and dynamic overconfidence lead to “dynamic over-optimism” after successes.

Neil Weinstein

Neil Weinstein

The pervasiveness of this “rose-tinted glasses” view leading to over-optimistic assessments was demonstrated by Neil Weinstein of University of Arizona.
He investigated people’s beliefs about future positive and negative health events, discussed in a previous blog post.
Weinstein reported that people tend to believe negative events are less likely to happen to them than to others, whereas they expect they are more likely than other people to experience positive events.

Hilary’s team built on Hackbarth’s concepts by comparing North American companies’ quarterly earnings forecasts with analysts’ predictions and actual performance.
Then, they calculated the number of company-issued press releases containing optimistic language.

Optimistic performance forecasts were correlated with better-than-expected performance, suggesting that successes led to additional effort and positive expectations.

Hilary noted the potentiating effect of past successful performance, though it may lead to “burnout” after about four quarters due to the challenge of continually exceeding performance expectations.

The team noted that this cycle of over-optimism and burnout might be mitigated by instituting policies to moderate overestimates or underestimates future performance by rewarding executives who provide accurate forecasts.

Sheryl Winston Smith

Sheryl Winston Smith

Similarly, Temple’s Sheryl Winston Smith noted that optimistic entrepreneurs chose higher levels of debt financing relative to equity, facilitating patent-based and product-based innovation among nearly 5,000 US firms tracked by the Kauffman Firm Survey (KFS).

Young-Hoon Kim

Young-Hoon Kim

In contrast to these financial studies, Yonsei University’s Young-Hoon Kim, Nanyang Technical University’s Chi-yue Chiu and Zhimin Zou of University of Illinois reported mixed results for self-enhancing (overconfident) and self-effacing (pessimistic) biases on performance

Chiu Chi-Yue

Chiu Chi-Yue

Kim’s team posited that either over-optimistic or pessimistic biases lead to “self-handicapping” behavior, in which people perform under disadvantageous conditions that provide an explanation for any poor performance outcomes.

Although over-optimism may drive innovation and financial results, longer-term consequences may include performance “burnout,” reduced motivation, and lower performance.

-*How to you manage the impact of optimism bias and pessimism bias on judgments and performance?

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