Background on Decision-Making Research
Welcome to the course!
My name is George Siedel, and I am a professor at the Ross School of Business, University of Michigan, and the author of Negotiating for Success: Essential Strategies and Skills. The lessons in this course are adapted from Chapter 7 of this book: “Use Psychological Tools—and Avoid Psychological Traps.” Other chapters in the book explain how to prepare for negotiation by completing a negotiation analysis, how to increase your power, and other topics that are essential to negotiation success.
Over the next ten days, you will learn about psychological tools that you can use in negotiation, which are also traps that you want to avoid when used by the other side. These tools are especially important because they are also useful in financial and leadership decision-making beyond negotiation. The lessons in this course serve as a checklist when you make all types of decisions.
Today we introduce the course with some background information on decision-making. If you are interested in this topic, the course cites several books that are highly recommended. The best of these books are:
• Judgment in Managerial Decision-Making by Bazerman and Moore
• Decision Traps by Russo and Schoemaker
• Influence: The Psychology of Persuasion by Cialdini
• Negotiating Rationally by Bazerman and Neale
The tools and traps covered in this course were identified in research that focuses on how humans make decisions. As noted by Bazerman and Moore, in making decisions we rely on simple rules of thumb called heuristics. Here is an example, similar to one in their book. Suppose that your company needs a financial analyst. You have decided to recruit only at the top ten MBA programs. That is your heuristic.
How can you criticize this heuristic? Without this heuristic, you might find that the best candidate for your job opening is not at one of the top ten schools. For a variety of financial and personal reasons, many talented individuals do not attend leading schools. And you might be able to hire this person at a lower salary than what a student at a leading school would demand.
How can you defend this heuristic? Over time, you are likely to find better candidates at the better schools. And by limiting the number of schools, you reduce your travel and other search costs.
The cost-benefit analysis used in developing a heuristic like this can help you navigate through a complex, uncertain world. The good news, as Bazerman and Moore point out, is that heuristics are useful. However, because heuristics can also lead to serious error, understanding them is important for negotiators and other decision-makers.
We now turn to the specific tools and traps that are based on decision-making research, some of which include research on human biases related to our use of heuristics. In the next lesson, we look specifically at the dangers of relying on the fixed pie assumption.
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