© Phil Rosenzweig www.leftbrainrightstuff.com The Halo Effect Keys to Making Better Decisions Phil Rosenzweig Global HR Conference Seoul, Korea November 2014
Jun 26, 2015
© Phil Rosenzweig www.leftbrainrightstuff.com
The Halo Effect
Keys to Making Better Decisions
Phil Rosenzweig
Global HR Conference
Seoul, Korea
November 2014
© Phil Rosenzweig www.leftbrainrightstuff.com
Stages of Thinking about Decisions
1. Economic Rationality
2. Behavioral Decision Theory
3. New Frontiers in Decision Making
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Behavioral Decision Theory: Leading Researchers
© Phil Rosenzweig www.leftbrainrightstuff.com
Heuristics and Biases
“The way to block errors that originate in System 1 is simple in principle: recognize the signs you are in a cognitive minefield, slow down, and ask for reinforcement from System 2.”
Daniel Kahneman
Thinking, Fast and Slow, p.417
• Human cognition is limited
– “Bounded rationality”
• We often rely on shortcuts, or heuristics
– “System 1” is rapid but often leads to predictable errors, or biases
– “System 2” allows for reflection and accuracy
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a. Framing of Choice (1)
Which camera would you prefer? n = 69
Minolta S1 priced at $269.99, rated 6 out of 10 by Consumer Reports
Minolta S2 priced at $539.99, rated 8 out of 10 by Consumer Reports
42
27
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a. Framing of Choice (2)
Which camera would you prefer? n = 57
Minolta S1 priced at $269.99, rated 6 out of 10 by Consumer Reports
Minolta S2 priced at $539.99, rated 8 out of 10 by Consumer Reports
Minolta S3 priced at $839.99, rated 7 out of 10 by Consumer Reports
14
40
3
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b. Mental accounting (1)
You’re about to spend $ 30 for a watch strap.
As you reach for your wallet, the sales associate tells
you the same strap is on sale for $10 at another
branch of the store, twenty minutes away.
Would you buy the strap here, or would you go to
the other store? (Check one) n = 139
Buy it here:
Go to the other store:
52
87
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b. Mental accounting (2)
You’re about to spend $1,889 for a luxury watch.
As you reach for your wallet, the sales associate tells you
the same watch is on sale for $1,869 at another branch
of the store, twenty minutes away.
Would you buy the watch here, or would you go to
the other store? (Check one) n = 140
Buy it here:
Go to the other store:
109 31
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The Power of Experiments
“For social scientists, experiments are like microscopes or
strobe lights, magnifying and illuminating the complex,
multiple forces that simultaneously exert their influences
on us.
They help us slow human behavior to a frame-by-frame
narration of events, isolate individual factors, and examine
them carefully and in more detail.”
Dan Ariely
The Upside of Irrationality:
Defying Logic at Home and at Work
2010
© Phil Rosenzweig www.leftbrainrightstuff.com
In many experiments …
1. No ability to influence outcomes
– You make a choice or judgment, but cannot improve or change
2. Performance is absolute
– You make the decision that suits you, never mind anyone else
3. Cycle time is fast
– Decisions are rapid, with immediate results
4. Decisions made by individuals
– Acting alone, by themselves, without past or future
© Phil Rosenzweig www.leftbrainrightstuff.com
Whereas in managerial decisions …
1. Managers can shape outcomes – The mark of a good manager is precisely to influence
outcomes
2. Managers (often) have to think about competition – “Strategic decisions” involve rivalry, and performance is relative
3. Results are slow and hard to isolate
– Cause and effect is unclear
– Decisions are often concurrent and not consecutive
4. Managers make decisions in a social setting – Perception, credibility, reputation, all matter
© Phil Rosenzweig www.leftbrainrightstuff.com
Ebbinghaus Illusion
After Hermann Ebbinghaus, 1850-1909
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The Power of Positive Thinking
Is there a difference when golfers aim at a hole surrounded by many
small circles and a hole surrounded by fewer large circles?
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Harvard Business Review, Nov 2013
© Phil Rosenzweig www.leftbrainrightstuff.com
© Phil Rosenzweig www.leftbrainrightstuff.com
A curious paradox
• The first field is the ideal place to study human cognition
• The results are applicable for many decisions, such as
consumer choice and financial investments.
• But we should not apply those findings to situations that
are very different
• We conduct first field research but face fourth field
decisions
© Phil Rosenzweig www.leftbrainrightstuff.com
Beyond the First Field
• When we can directly influence outcomes, positive
thinking – even holding self-beliefs that are somewhat
elevated – can be useful.
• Leaders must at times convey positive thinking to inspire
and motivate others
• When performance is relative and highly skewed, such
an ability is not only useful but essential for success
© Phil Rosenzweig www.leftbrainrightstuff.com
Keys to Making Better Decisions
• Discern what sort of decision you are facing
• Develop versatility to respond to each kind
• For some, seeking to avoid biases is sufficient
– Rational, analytical, dispassionate, deliberate: “Left Brain”
• For managerial and strategic decisions, a different
mindset is needed
– Ability to inspire, push boundaries, convey optimism “Right Stuff”
© Phil Rosenzweig www.leftbrainrightstuff.com
Tom Wolfe’s The Right Stuff
• A willingness to undertake new challenges
and achieve new levels of performance
• Not recklessness or bravado
• Not risks at all costs
• Rather, a careful assessment of risks
• A willingness to push boundaries
• To do more than has been done
before calls for the Right Stuff
© Phil Rosenzweig www.leftbrainrightstuff.com
© Phil Rosenzweig www.leftbrainrightstuff.com
Summary for Global Human Resources
• Making good decisions is crucial for all levels of the
organization
– Not just for executive levels
• It is useful to teach our employees about decision errors
and common biases
• Even more important is to recognize how decisions vary
• Discern differences, and respond with versatility
© Phil Rosenzweig www.leftbrainrightstuff.com
Thank You