Decision Framing

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• Decision Framing
• and
• Cognitive Inertia

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

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Moves to attain the goal state in the 2nd
water-jug problem
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The nine-dot problem
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• 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?

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• Problems with framing decisions

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Solving the wrong problem

• Example
• Frame blindness almost destroys US
• automobile industry

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Get hooked on complexity Overlooking simple
options

• Examples
• Complaints soar at airport over speed
• of baggage handling
• Garrulous callers cost Red Telephone
• Company thousands

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Imposing imaginary constraints and false
assumptions

• Examples
• Theyll always buy Swiss watches
• Who wants instant photographs?

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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

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Non-rational escalation of commitment

• We cant stop now weve already spent 1.1
  billion

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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)

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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)

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Russo and Schoemakers 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?

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The relationship between the perceived business
environment and the strategic decision process
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Solution to the nine-dot problem