Archives for March 2011

No.8 – “Avoiding the Traps”

In any situation of this kind, there are a number of so-called psychological traps to watch out for. I‟ve outlined some of the most common below, along with illustrations of how they present themselves and tips on what to do to avoid them.

From the examples shown, it will be evident that these Traps can appear in a wide range of situations, whether you‟re negotiating a major deal, deciding on a new purchase, or implementing some form of change…

1. The Status Quo Trap – keeping on keeping on

Symptoms

  • Any bias towards comfort with the status quo, or defaulting to what already “is”
  • Catching yourself saying “Leave it the way it is” or, “Maybe I’ll rethink it later”
  • Even stronger when you‟re faced with multiple alternatives , because it requires more effort

Examples

Imagine you have just inherited 100 shares that you would never have bought yourself in a blue-chip company. Do you sell, or keep them? Most people will, even if there is an immediate opportunity to sell them with minimal commission charges, hold on to those shares, often saying something like “I‟ll consider that later.”

In 1989 J L Knetsch described a simple experiment in the American Economic Review 79, entitled “The Endowment Effect and Evidence of Nonreversible ndifference Curves…

A group of people were randomly given either a decorated mug or a large bar of Swiss chocolate. They were then offered the effortless opportunity to swap their gift for the opposite gift … We might reasonably predict that around half would make the exchange but, in fact, only 10% did so.

What to do about it

  • Remind yourself of your objectives/desired outcomes
  • Identify other options or counterbalances that are available to you
  • Ask yourself whether you would choose the status quo if it were not the status quo
  • Avoid exaggerating the effort and/or cost of change
  • Subject the status quo to rigorous testing

2. The Sunk-Cost Trap – protecting earlier (now irrelevant) choices

Symptoms

  • Justifying previous choices even when the previous choice is no longer valid
  • Unwillingness to face a mistake

Example

Three months ago you replaced the engine on your eight year-old car for about £2000. Unfortunately there is now a very unpleasant noise coming from the transmission and your garage estimates the repairs at around £850. If you sell the vehicle as it is, you will get approximately £650. What do you do now? Would you make the same choice if the earlier engine replacement had been done free of charge?

What matters is the current condition and value of the car, not what has already been spent.

What to do about it

  • Remember choices only affect the future
  • Take advice from those not involved in the earlier decision
  • Ask “What is the effect of admitting an error?”
  • Consider how you will explain your choice to someone else

3. The Overconfidence Trap – being too sure of yourself

Symptoms

  • Focusing on too narrow a range
  • Focusing on mid-range possibilities to the exclusion of the extremes

Example

Imagine you are the Chief Executive of a company about to launch a new product into the market place. Your Brand Manager says that there is only a 1% chance that you will sell less than 35,000 units in the first year. You then ask “What would have to have happened for us to only sell 20,000 units?” The reply is that the major competitor could have launched an upgrade of its equivalent product. “What are the chances of that happening?” you ask. “About 10%” is the reply.

If there is a 10% chance of only selling 20,000 units then there is certainly a greater chance than 1% of selling less than 35,000!

What to do about it

  • Avoid being anchored by any initial estimate
  • Consider the extremes when making a forecast or judging probabilities
  • Challenge your own extreme figures
  • Challenge any advisor‟s estimates

4. The Wrong Question Trap –a question presupposes the structure of its answer!

Symptoms

  • Recognising what is presupposed or assumed in the question
  • Framing as gains vs. losses
  • Framing with different reference points which influence the decision


Examples

A novice monk asks the Abbott “Can I smoke while praying?” “Absolutely not!” comes the immediate reply. Later that day the novice spots one of the older monks praying and smoking. When asked why he was allowed to do this when permission had been refused to the novice, the older monk says “Ah, I asked the Abbott if I could pray while smoking and he told me it was fine to pray at any time.

In 1993 E J Johnson, J Meszaros and H Kunreuther described a case involving state car insurance in the US in the “Journal of Risk and Uncertainty”…

With the objective of reducing car insurance costs, two neighbouring states, New Jersey and Pennsylvania, made apparently similar changes to their laws. Each state gave drivers an opportunity to take a limited right to sue in exchange for reduced premiums. In New Jersey, you automatically got a reduced right to sue unless you specified otherwise. In Pennsylvania however, the choice was framed such that you automatically received the full right to sue unless you specified the limited right to sue. In New Jersey c 80% chose the new option whereas in Pennsylvania only c 25% did so. The difference was that Pennsylvania failed to gain $200 million in expected insurance and litigation savings.

What to do about it

  • Remember your fundamental objectives
  • Avoid automatically accepting the initial frame – ask yourself “what else could this mean?”
  • Look for distortions created by frames
  • Pose problems in a neutral way combining gains and losses or with different reference points
  • Ask yourself how your thinking might change if the framing changed and challenge the way people frame a problem or solution

5. The Memorability Trap – focusing on dramatic events

Symptoms

  • Any dramatic or memorable event that may be distorting thinking
  • Effect of recency

Example

In a 1974 study by Amos Tversky and Daniel Kahneman published in “Science 185”, lists of well-known men and women were read to different groups of people. The actual numbers of men and women were always equal in the lists. However, where the male names in the list were better known than the women, results consistently showed that people believed there were more men than women on the list. Equally, when the women‟s names were more famous, the reverse was found.

What to do about it

  • Examine your assumptions
  • Get actual statistics where possible
  • Build your own assessment based on known figures

6. The Base-Rate Trap – neglecting relevant information

Symptoms

  • Generalisations made that affect the decision or strategy

Example

Donald Jones is either a salesman or a librarian. His persona can best be described as ‟retiring‟. What are the odds that he is a librarian? This question was posed in „Money Magazine‟ (1990) by Daniel Kahneman and Richard Thaler. A typical response would conclude that it must be nearly 90% certain that he will be a librarian because of the behavioural description. However, if you consider that salespeople outnumber librarians at least 100 to 1, then this will shift the actual odds significantly. The 1 in 100 is the real base rate.

What to do about it

  • Identify any hidden assumptions made
  • Keep different types of probability statements separate
Conclusions

From these examples it becomes obvious that awareness is the single most important form of protection against psychological traps in all forms of negotiation and conflict resolution. If you are alert to the possibility that a certain statistic, measure or framework may be being used for a less than helpful purpose then you are forewarned and have some choice in your response.

Equally, if you are seeking to increase your own influence in certain circumstances, attention to these anchoring and framing techniques can increase the options available to you

Sources: The examples above are drawn from two excellent books covering this topic and much more:

“Smart Choices” by John S Hammond, Ralph L Keeney and Howard Raiffa; HBS Press, 1999
“Age of Propaganda” by Anthony Pratkanis and Elliott Aronson; W H Freeman and Co, 2001