Decision Framing and Cognitive Inertia

Moves to attain the goal state in the 1st water-jug problem

Moves to attain the goal state in the 2nd water-jug problem

The nine-dot problem

The decision frame refers to how you mentally structure the decision problem.   E.g. * what must be decided? * what are the options? * what are the criteria for choosing between the options?

Problems with framing decisions

Solving the wrong problem Example ‘Frame blindness almost destroys US automobile industry’

Get hooked on complexity: Overlooking simple options Examples ‘Complaints soar at airport over speed of baggage handling’ ‘Garrulous callers cost Red Telephone Company thousands’

Imposing imaginary constraints and false assumptions Examples ‘They’ll always buy Swiss watches’ ‘Who wants instant photographs?’

Narrow bracketing of decisions When projects are evaluated one at a time, rather than part of an overall portfolio, there is usually an extreme unwillingness to take risks   Taking a broader view, i.e. looking at all the projects together, can act as an antidote to this excessive risk aversion

Non-rational escalation of commitment ‘We can’t stop now – we’ve already spent $1.1 billion’

Framing effects 1. Imagine that the country is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed.   Program A will lead to 200 lives being saved Program B will lead to a 1/3 chance of saving 600 lives and a 2/3 chance of saving no lives Which program would you choose? (Tversky & Kahneman)

Framing effects 2. Imagine that the country is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed.   Program A will lead to 400 deaths Program B will lead to a 1/3 chance of 0 deaths and a 2/3 chance of 600 deaths Which program would you choose?   (Tversky & Kahneman)

Russo and Schoemaker’s frame analysis worksheet The issue of issues the frame addresses is… What boundaries do we put on the question? What yardsticks do we use to measure success? What reference points do we use to measure success? What metaphors, if any, do we use in thinking about this issue? What does the frame emphasize? What does it minimize? Do other people in our industry think about this question differently from the way we do? Can we summarize our frame in a slogan?

The relationship between the perceived business environment and the strategic decision process

Solution to the nine-dot problem