SECURITIES INDUSTRY INSTITUTE
CRITICAL THINKING
Roch Parayre, Ph.D.
Decision Strategies
International
[email protected]
(610) 234-0800
www.DecisionStrat.com
Copyright Decision Strategies International
2012
The Decision Process
Framing the
Issues
Learning from
Experience
Gathering
Intelligence
Choosing
Between
Alternatives
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Optical Illusions
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3
Step 1:
Frame it Right
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2012
Breaking Old Frames
“Hey, they’re
lighting their
arrows…
Can they DO
that?”
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2012
Framing – Version X
Question 1
You’ve decided to see a local play and have bought a $150 ticket. As you enter the theater, you realize
you’ve lost your ticket. You can’t remember the seat number, so you can’t prove to the management that
you bought a ticket. Would you spend $150 for a new ticket?
Question 2
A large car manufacturer has recently been hit with a number of economic difficulties, and it appears as if
three plants need to be closed and 6,000 employees laid off. The vice-president of production has been
exploring alternative ways to avoid this crisis. She has developed two plans:
Plan A: This plan will save one of the three plants and 2,000 jobs.
Plan B: This plan has a 1/3 probability of saving all three plants and all
6,000 jobs, but has a 2/3 probability of saving no plants and no jobs.
Which plan would you select?
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2012
Framing – Version Y
Question 1
You’ve reserved a seat for a local play for which the ticket price is $150. As you enter the theater to buy
your ticket, you discover you’ve lost $150 from your pocket. Would you still buy the ticket? (Assume you
have enough cash left to do so.)
Question 2
A large car manufacturer has recently been hit with a number of economic difficulties, and it appears as if
three plants need to be closed and 6,000 employees laid off. The vice-president of production has been
exploring alternative ways to avoid this crisis. She has developed two plans:
Plan A : This plan will result in the loss of two of the three plants and 4,000 jobs.
Plan B: This plan has a 2/3 probability of resulting in the loss of all three
plants and all 6,000 jobs, but has a 1/3 probability of losing no
plants and no jobs.
Which plan would you select?
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2012
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2012
Slide 8
Which Horizontal Line is Longer?
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2012
Strategic Reframing
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2012
Slide 10
Step 2:
Gather the Right Intelligence
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2012
Overconfidence Defined
“What do you mean, ‘Your guess is as good as
mine?’
My guess is a hell of a lot better than your
guess!”
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2012
They Believed It:
“The phonograph...is not
of any commercial value.”
Thomas Alva Edison
(inventor of the phonograph, c. 1880)
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2012
They Believed It:
“We don’t like their sound.
Groups of guitars are on
the way out.”
Decca Recording Company
turning down the Beatles in 1962
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2012
They Believed It:
“No matter what happens,
the U.S. Navy is not going
to be caught napping.”
Frank Knox (U.S. Secretary of the Navy)
December 4, 1941
just before the Pearl Harbor attack
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2012
They Believed It:
“They couldn’t hit an
elephant at this dist...”
General John B. Sedgwick
1864 (last words, Battle of Spotsylvania)
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2012
Overconfidence
For each of the questions, enter a
range (low and high boundaries) for
which you are 90% confident you are
correct.
Best
HIGH GUESS
LOW GUESS
Guess
90% Confidence Range
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2012
Overconfidence Quiz
Question
1. Length of the Nile river (in miles)?
2. Year in which John Steinbeck won the Nobel Prize for literature?
3. Average gestation period (in days) of female Asian elephant?
4. Level of the Dow Jones Industrial Average on July 1, 1985?
5. Martin Luther King’s age when he was assassinated?
6. Air distance between London and Tokyo (in miles)?
7. Weight in tons of an empty Airbus plane (Model A340-600)?
8. Year of Wolfgang Amadeus Mozart’s birth?
9. Number of books in the Old Testament?
10. Surface area (in square miles) of the Mediterranean Sea?
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Low
High
Which kills more people
annually in the USA?
A.
Stroke
All accidents
B.
Lung Cancer
Motor Vehicle Accidents
C.
Emphysema
Homicide
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Anchoring bias
Making estimations by adjusting away
from a convenient starting point
Anchor
Target
X
Next year’s
budget
This year’s
budget
Problem: Insufficient adjustment
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