Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-669899f699-qzcqf Total loading time: 0 Render date: 2025-04-27T22:46:15.920Z Has data issue: false hasContentIssue false

18 - What Have We Learned from Our Mistakes?

Published online by Cambridge University Press:  05 June 2012

By
Barbara Mellers  and
Connson Locke
Edited by
Ward Edwards ,
Ralph F. Miles Jr.  and
Detlof von Winterfeldt
Barbara Mellers
Affiliation:
Haas School of Business, University of California, Berkeley
Connson Locke
Affiliation:
Haas School of Business, University of California, Berkeley
Ralph F. Miles Jr.
Affiliation:
California Institute of Technology
Detlof von Winterfeldt
Affiliation:
University of Southern California
Get access

Summary

ABSTRACT. The authors discuss the steps involved in good decision making and use those steps to organize results from behavioral decision research. Framing effects, self serving biases, and context effects are a few of the many errors and biases that are presented. The authors also discuss techniques for reducing errors. They conclude by providing examples of human cognitive strengths, while emphasizing the importance of learning from our mistakes.

Good Decision Making

To the lucky few, good decisions come naturally. But to most of us, decisions are difficult, grueling, and sometimes quite painful. The process requires us to make delicate tradeoffs, sort through complex scenarios, hunt for good ideas, estimate the odds of future states, and answer a voice inside that keeps asking, “Is this what I really want?”

Many scholars describe good decision making as a series of interrelated steps. Although there are many ways to categorize steps, most researchers agree that the process includes the following stages:

Define the Problem and Set the Goals

The best way to get what you want is to know what that is. This step could be extremely easy or extremely difficult depending on the problem. Good decision makers ask, “What do I want to achieve? What are my goals and objectives? How will I know if I am successful?”

Gather Information and Identify Options

Important choices require a careful and unbiased search for evidence. Normative theory says that the search for information should continue until the costs outweigh the benefits.

Type
Chapter
Information
Advances in Decision Analysis
From Foundations to Applications
 , pp. 351 - 374
Publisher: Cambridge University Press
Print publication year: 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Book purchase

Temporarily unavailable

References

Arkes, H. R., and Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35, 125–140.CrossRefGoogle Scholar
Arkes, H. R., Dawes, R. M., and Christensen, C. (1986). Factors influencing the use of a decision rule in a probabilistic task. Organizational Behavior and Human Decision Processes, 27, 148–180.Google Scholar
Arkes, H. R., Saville, P. D., Wortmann, R. L., and Harkness, A. R. (1981). Hindsight bias among physicians weighing the likelihood of diagnoses. Journal of Applied Psychology, 66, 252–254.CrossRefGoogle ScholarPubMed
Armstrong, K., Schwartz, J. S., Fitzgerald, G., Putt, M., and Ubel, P. A. (2002). Effect of framing as gain versus loss on understanding and hypothetical treatment choices: Survival and mortality curves. Medical Decision Making, 22, 76–83.CrossRefGoogle ScholarPubMed
Asch, S. E. (1946). Forming impressions of personality. Journal of Abnormal Psychology, 41, 258–290.CrossRefGoogle ScholarPubMed
Ashton, R. H. (1992). Effects of justification and a mechanical aid on judgment performance. Organizational Behavior and Human Decision Processes, 52, 292–306.CrossRefGoogle Scholar
Babcock, L., and Loewenstein, G. (1997). Explaining bargaining impasse: The role of self-serving biases. Journal of Economic Perspectives, 11, 109–125.CrossRefGoogle Scholar
Bahrick, H. P., Bahrick, P. O., and Wittlinger, R. P. (1975). Fifty years of memory for names and faces: A cross-sectional approach. Journal of Experimental Psychology: General, 104, 54–75.CrossRefGoogle Scholar
Baker, L. A., and Emery, R. E. (1993). When every relationship is above average: Perceptions and expectations of divorce at the time of marriage. Law and Human Behavior, 17, 439–450.CrossRefGoogle Scholar
Barber, B., and Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. Journal of Finance, 55, 773–806.CrossRefGoogle Scholar
Bukszar, E., and Connolly, T. (1988). Hindsight bias and strategic choice – Some problems in learning from experience. Academy of Management Journal, 31, 628–641.Google Scholar
Cain, D. N., Loewenstein, G., and Moore, D. A. (2005). The dirt on coming clean: Perverse effects of disclosing conflicts of interest. Journal of Legal Studies, 34, 1–25.CrossRefGoogle Scholar
Camerer, C. F., and Hogarth, R. M. (1999). The effects of financial incentives in experiments: A review and capital-labor-production framework. Journal of Risk and Uncertainty, 19, 7–42.CrossRefGoogle Scholar
Ceci, S. J., and Liker, J. K. (1986). A day at the races: A study of IQ, expertise, and cognitive complexity. Journal of Experimental Psychology: General, 115, 255–266.CrossRefGoogle Scholar
Chase, W. G., and Simon, H. A. (1973). The mind's eye in chess. In Chase, W. G. (Ed.), Visual information processing. New York: Academic Press, pp. 215–281.Google Scholar
Chapman, G. B., and Johnson, E. J. (1994). The limits of anchoring. Journal of Behavioral Decision Making, 7, 223–242.CrossRefGoogle Scholar
Dellarosa, D., and Bourne, L. E. (1984). Decisions and memory: Differential retrievability of consistent and contradictory evidence. Journal of Verbal Learning and Verbal Behavior, 23, 669–682.CrossRefGoogle Scholar
Desvouges, W. H., Johnson, F., Dunford, R., Hudson, S., Wilson, K., and Boyle, K. (1993). Measuring resource damages with contingent valuation: Tests of validity and reliability. In Contingent valuation: A critical assessment. Amsterdam: North Holland.Google Scholar
Fischhoff, B. (1975). Hindsight ≠ Foresight: The effect of outcome knowledge on judgment under uncertainty. Journal of Experimental Psychology: Human Perception and Performance, 1, 288–299.Google Scholar
Fischhoff, B., and Beyth, R. (1975). “I knew it would happen”: Remembered probabilities of once-future things. Organizational Behavior and Human Decision Processes, 13, 1–16.CrossRefGoogle Scholar
Fischhoff, B., Slovic, P., and Lichtenstein, S. (1986). Knowing with certainty: The appropriateness of extreme confidence. In Arkes, H. R. and Hammond, K. R. (Eds.), Judgment and decision making: An interdisciplinary reader. New York: Cambridge University Press, pp. 397–416.Google Scholar
Frisch, D. (1993). Reasons for framing effects. Organizational Behavior and Human Decision Processes, 54, 399–429.CrossRefGoogle Scholar
Gigerenzer, G., and Hoffrage, U. (1995). How to improve Bayesian reasoning without instruction: Frequency formats. Psychological Review, 102, 684–704.CrossRefGoogle Scholar
Gigerenzer, G., and Murray, D. J. (1987). Cognition as intuitive statistics. Hillsdale, NJ: Erlbaum.Google Scholar
Gourville, J. T., and Soman, D. (1998). Payment depreciation: The behavioral effects of temporally separating payments from consumption. Journal of Consumer Research, 25, 160–174.CrossRefGoogle Scholar
Hoch, S. J. (1985). Counterfactual reasoning and accuracy in predictive judgment. Journal of Experimental Psychology: Learning, Memory, and Cognition, 11, 719–731.Google Scholar
Hoffrage, U., and Gigerenzer, G. (1998). Using natural frequencies to improve diagnostic inferences. Academic Medicine, 73, 538–540.CrossRefGoogle ScholarPubMed
Huber, J., Payne, J. W., and Puto, C. (1982). Adding asymmetrically dominated alternatives: Violations of regularity and the similarity hypothesis. Journal of Consumer Research, 9, 90–98.CrossRefGoogle Scholar
Johnson, E. J., Hershey, J., Meszaros, J., and Kunreuther, H. (1993). Framing, probability distortions, and insurance decisions. Journal of Risk and Uncertainty, 7, 35–51.CrossRefGoogle Scholar
Joyce, E. J., and Biddle, G. C. (1981). Anchoring and adjustment in probabilistic inference in auditing. Journal of Accounting Research, 19, 120–145.CrossRefGoogle Scholar
Kahneman, D., and Frederick, S. (2002). Representativeness revisited: Attribution substitution in intuitive judgment. In Gilovich, T., Griffin, D., and Kahneman, D. (Eds.), Heuristics and biases: The psychology of intuitive judgment. New York: Cambridge University Press, pp. 49–81.CrossRefGoogle Scholar
Kahneman, D., Ritov, I., and Schkade, D. (1999). Economic preferences or attitude expressions? An analysis of dollar responses to public issues. Journal of Risk and Uncertainty, 19, 203–235.CrossRefGoogle Scholar
Kidd, J. B. (1970). The utilization of subjective probabilities in production planning. Acta Psychologica, 34, 338–347.CrossRefGoogle Scholar
Knetsch, J. L. (1989). The endowment effect and evidence of nonreversible indifference curves. American Economic Review, 79, 1277–1284.Google Scholar
Kruglanski, A. W., and Freund, T. (1983). The freezing and unfreezing of lay-inferences: Effects on impressional primacy, ethnic stereotyping, and numerical anchoring. Journal of Experimental Social Psychology, 32, 437–459.Google Scholar
Larrick, R. (2004). Debiasing. In Koehler, D. J. and Harvey, N. (Eds.), Blackwell handbook of judgment and decision making. Malden, MA: Blackwell Publishing, pp. 316–377.CrossRefGoogle Scholar
Larwood, L., and Whittaker, W. (1977). Managerial myopia: Self-serving biases in organizational planning. Journal of Applied Psychology, 62, 194–198.CrossRefGoogle Scholar
Leary, M. R. (1982). Hindsight distortion and the 1980 presidential election. Personality and Social Psychology Bulletin, 8, 257–263.CrossRefGoogle Scholar
LeBoeuf, R. A., and Shafir, E. (2003). Deep thoughts and shallow frames: On the susceptibility to framing effects. Journal of Behavioral Decision Making, 16, 77–92.CrossRefGoogle Scholar
Lerner, J. S., and Tetlock, P. E. (1999). Accounting for the effects of accountability. Psychological Bulletin, 125, 255–275.CrossRefGoogle ScholarPubMed
Levin, I. P., and Gaeth, G. J. (1988). Framing of attribute information before and after consuming the product. Journal of Consumer Research, 15, 374–378.CrossRefGoogle Scholar
Levin, I. P., Gaeth, G. J., Schreiber, J., and Lauriola, M. (2002). A new look at framing effects: distribution of effect sizes, individual differences, and independence of types of effects. Organizational Behavior and Human Decision Processes, 88, 411–429.CrossRefGoogle Scholar
Libby, R., and Lipe, M. G. (1992). Incentives, effort, and the cognitive processes involved in accounting-related judgments. Journal of Accounting Research, 30, 249–273.CrossRefGoogle Scholar
Loewenstein, G., Issacharoff, S., Camerer, C., and Babcock, L. (1993). Self-serving assessments of fairness and pretrial bargaining. Journal of Legal Studies, XⅫ, 135–159.CrossRefGoogle Scholar
Lusted, L. B. (1977). A study of the efficacy of diagnostic radiologic procedures: Final report on diagnostic efficacy. Chicago: Efficacy Study Committee of the American College of Radiology.Google Scholar
McNeil, B. J., Pauker, S. G., Sox, H. C., and Tversky, A. (1982). On the elicitation of preferences for alternative therapies. New England Journal of Medicine, 306, 1259–1262.CrossRefGoogle ScholarPubMed
Mellers, B. A., and Cooke, A. D. J. (1996). The role of task and context in preference measurement. Psychological Science, 7, 76–82.CrossRefGoogle Scholar
Mellers, B. A., Hertwig, R., and Kahneman, D. (2001). Do frequency representations eliminate conjunction effects? An exercise in adversarial collaboration. Psychological Science, 12, 269–275.CrossRefGoogle ScholarPubMed
Messick, D. M., and Bazerman, M. H. (1996). Ethical leadership and the psychology of decision making. Sloan Management Review, 37, 9–23.Google Scholar
Messick, D., and Sentis, K. (1983). Fairness, preference, and fairness biases. In Messick, D. M. and Cooke, K. S. (Eds.), Equity Theory: Psychological and Sociological Perspectives. New York: Praeger.Google Scholar
Murphy, A. H., and Winkler, R. L. (1977). Can weather forecasters formulate reliable probability forecasts of precipitation and temperature?National Weather Digest, 2, 2–9.Google Scholar
Neale, M. A., and Bazerman, M. (1992). Negotiating rationally: The power and impact of the negotiator's frame. Academy of Management Executive, 6, 42–51.CrossRefGoogle Scholar
New York Times. (2004). Will This Idea Fly? Charge Some Travelers $10 for Showing Up. Technology News, August 25.
Nisbett, R. E., Fong, G. T., Lehman, D. R., and Cheng, P. W. (1987). Teaching reasoning. Science, 238, 625–631.CrossRefGoogle ScholarPubMed
Oskamp, S. (1965). Overconfidence in case-study judgments. Journal of Consulting Psychology, 29, 261–265.CrossRefGoogle ScholarPubMed
Ritov, I., and Baron, J. (1990). Reluctance to vaccinate: Commission bias and ambiguity. Journal of Behavioral Decision Making, 3, 263–277.CrossRefGoogle Scholar
Ross, M., and Sicoly, F. (1979). Egocentric biases in availability and attribution. Journal of Personality and Social Psychology, 37, 332–337.CrossRefGoogle Scholar
Russo, J. E., and Schoemaker, P. J. H. (1989). Decision traps. New York: Simon and Schuster.Google Scholar
Russo, J. E., and Schoemaker, P. J. H. (1992). Managing overconfidence. Sloan Management Review, 33, 7–17.Google Scholar
Samuelson, W., and Zeckhauser, R. (1988). Status quo bias in decision making. Journal of Risk and Uncertainty, 1, 7–59.CrossRefGoogle Scholar
Siegel-Jacobs, K., and Yates, J. F. (1996). Effects of procedural and outcome accountability on judgmental quality. Organizational Behavior and Human Decision Processes, 65, 1–17.CrossRefGoogle Scholar
Simon, H. A. (1956). Rational choice and the structure of the environment. Psychological Review, 63, 129–138.CrossRefGoogle ScholarPubMed
Simonson, I. (1989). Choice based on reasons: The case of attraction and compromise effects. Journal of Consumer Research, 16, 158–174.CrossRefGoogle Scholar
Simonson, I., and Nye, P. (1992). The effect of accountability on susceptibility to decision errors. Organizational Behavior and Human Decision Processes, 51, 416–429.CrossRefGoogle Scholar
Sloman, S. A., Over, D., Slovak, L., and Stibel, J. M. (2003). Frequency illusions and other fallacies. Organizational Behavior and Human Decision Processes, 91, 296–309.CrossRefGoogle Scholar
Slovic, P., Finucane, M., Peters, E., and MacGregor, D. G. (2004). Risk as analysis and risk as feelings: Some thoughts about affect, reason, risk, and rationality. Risk Analysis, 24, 1–12.CrossRefGoogle ScholarPubMed
Sporer, S. L., Penrod, S. D., Read, J. D., and Cutler, B. L. (1995). Choosing, confidence, and accuracy: A meta-analysis of the confidence-accuracy relation in eyewitness identification studies. Psychological Bulletin, 118, 315–327.CrossRefGoogle Scholar
Stael von Holstein, C.-A. S. (1972). Probabilistic forecasting: An experiment related to the stock market. Organizational Behavior and Human Performance, 8, 139–158.CrossRefGoogle Scholar
Stanovich, K. E., and West, R. F. (1998). Individual differences in framing and conjunction effects. Thinking and Reasoning, 4, 289–317.CrossRefGoogle Scholar
Staw, B. M. (1976). Knee-deep in big muddy: Study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16, 27–44.CrossRefGoogle Scholar
Staw, B. M., Barsade, S. G., and Koput, K. W. (1997) Escalation at the credit window: A longitudinal study of bank executives' recognition and write-off of problem loans. Journal of Applied Psychology, 82, 130–142.CrossRefGoogle Scholar
Strack, F., Martin, L. L., and Schwarz, N. (1988). Priming and communication: The social determinants of information use in judgments of life satisfaction. European Journal of Social Psychology, 18, 429–442.CrossRefGoogle Scholar
Strack, F., and Mussweiler, T. (1997). Explaining the enigmatic anchoring effect: mechanisms of selective accessibility. Journal of Personality and Social Psychology, 73, 437–446.CrossRefGoogle Scholar
Suroweicki, J. (2004). The wisdom of crowds. New York: Doubleday.Google Scholar
Synodinos, N. E. (1986). Hindsight distortion: I knew it all along and I was sure about it. Journal of Applied Social Psychology, 16, 107–117.CrossRefGoogle Scholar
Tetlock, P. E. (1983). Accountability and complexity of thought. Journal of Personality and Social Psychology, 45, 74–83.CrossRefGoogle Scholar
Tetlock, P. E. (2002). Social-functionalist frameworks for judgment and choice: Intuitive politicians, theologians, and prosecutors. Psychological Review, 109, 451–471.CrossRefGoogle ScholarPubMed
Tetlock, P. E., and Boettger, R. (1989). Accountability amplifies the status quo effect when change creates victims. Journal of Behavioral Decision Making, 7, 1–23.CrossRefGoogle Scholar
Tetlock, P. E., and Kim, J. I. (1987). Accountability and judgment processes in a personality prediction task. Journal of Personality and Social Psychology, 52, 700–709.CrossRefGoogle Scholar
Tetlock, P. E., Skitka, L., and Boettger, R. (1989). Social and cognitive strategies for coping with accountability: Conformity, complexity, and bolstering. Journal of Personality and Social Psychology, 57, 632–640.CrossRefGoogle ScholarPubMed
Thaler, R. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12, 183–206.3.0.CO;2-F>CrossRefGoogle Scholar
Tversky, A, and Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124–1131.CrossRefGoogle ScholarPubMed
Tversky, A., and Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211, 453–458.CrossRefGoogle Scholar
Tversky, A., and Kahneman, D. (1982). Evidential impact of base rates. In Kahneman, D., Slovic, P., and Tversky, A. (Eds.), Judgment under uncertainty: Heuristics and biases.Cambridge, UK: Cambridge University Press, pp. 153–160.CrossRefGoogle Scholar
Tversky, A., and Kahneman, D. (1983). Extensional versus intuitive reasoning: The conjunction fallacy in probability judgment. Psychological Review, 90, 293–315.CrossRefGoogle Scholar
Wagenaar, W. A., and Keren, G. B. (1986). Calibration of probability assessments by professional blackjack dealers, statistical experts, and lay people. Organizational Behavior and Human Decision Processes, 36, 406–416.CrossRefGoogle Scholar
Wason, P. C. (1960). On the failure to eliminate hypotheses in a conceptual task. Quarterly Journal of Experimental Psychology, 12, 129–140.CrossRefGoogle Scholar
Weldon, E., and Gargano, G. M. (1988). Cognitive loafing: The effects of accountability and shared responsibility on cognitive effort. Personality and Social Psychology Bulletin, 8, 226–232.Google Scholar

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×