Skip to main content

Decision-Making Process — Avoiding Traps

Module: Module 3 — Strategy & Senior LeadershipCode: DMPDMTFaculty: Prof. Shruti TewariSessions: 2Status: ✅ Drafted

Big idea​

Managerial decision-making lives on a continuum from purely rational (perfect information, unlimited time, clear preferences) to bounded (Simon: limited cognition, satisficing rather than optimising). Daniel Kahneman's System 1 / System 2 distinction explains the failure modes: System 1 is fast, intuitive, automatic, and pattern-matching — brilliant in familiar territory and systematically biased outside it; System 2 is slow, deliberate, and effortful but lazy. The recurring decision traps are anchoring (over-weighting an initial number), confirmation bias (seeing only what supports the prior), availability (over-weighting easily-recalled examples), sunk-cost fallacy (throwing good money after bad), overconfidence (narrow confidence intervals), framing (same data, different choice depending on gain/loss framing), and groupthink (consensus-seeking suppressing dissent). The Heath brothers' WRAP process is the practical antidote: Widen your options, Reality-test your assumptions, Attain distance before deciding, Prepare to be wrong.

Key concepts​

  • Rational vs bounded rationality. Rational: complete information, unlimited time, clear preferences — a theoretical limit. Bounded (Simon): cognitive limits force satisficing (good-enough) over optimising. Describes how managers actually decide.
  • System 1 vs System 2 (Kahneman). System 1: fast, intuitive, automatic, low-effort, pattern-matching — brilliant in familiar territory, systematically biased outside it. System 2: slow, deliberate, effortful, attentive — but lazy and easily overridden by System 1.
  • The classic decision traps. Anchoring (first number dominates), Confirmation bias (seek confirming, ignore disconfirming), Availability (recent/vivid examples dominate base rates), Sunk-cost fallacy (past investment irrationally shapes forward choice), Overconfidence (90% confidence intervals miss 60% of the time), Framing (gain/loss frames flip the choice), Groupthink (consensus suppresses dissent).
  • The Heath brothers' WRAP process. Widen your options (avoid 'whether-or-not' framing; consider opportunity cost; vanishing-options test), Reality-test your assumptions (consider the opposite; ooch — small experiments; pre-mortem), Attain distance before deciding (10/10/10 rule; advise a friend), Prepare to be wrong (set tripwires; consider a range; bookend the future).
  • Decision hygiene practices. Pre-mortem (assume failure; work backward), Red team (designated devil's advocate), Decision journal (capture rationale; review later to calibrate), Reference-class forecasting (Kahneman: forecast by analogy to comparable past cases, not from inside-the-project view).
  • When to trust intuition. Klein-vs-Kahneman synthesis: trust System 1 in stable, high-feedback environments (firefighting, chess); distrust it in low-feedback, novel, or politically-charged decisions — use System 2 and structured processes there.

Self-check​

A leadership team has been pouring resources into a flagship project for three years; results are below target and competitive position is weakening. In the latest review, the CEO says: 'We've come too far to turn back now — we have to commit more.' Which decision traps are operating, and what is the WRAP antidote?

  • A. Need more data
  • B. Sunk-cost fallacy is dominant ("too far to turn back"); commitment escalation reinforces it; likely also confirmation bias filtering the review. WRAP antidote: Widen — consider what we would do if we were starting fresh today (the *Andy Grove* question); Reality-test — small experiments and a true pre-mortem; Attain distance — what would a new CEO do in their first 90 days; Prepare to be wrong — set tripwires for kill or pivot at the next milestone
  • C. CEO is right — persist
  • D. Need new metrics
System 1 vs System 2 (Kahneman)
System 1: fast, intuitive, automatic, low-effort, pattern-matching — brilliant in familiar territory, systematically biased outside it. System 2: slow, deliberate, effortful, attentive — but lazy and easily overridden. Most failures of judgement are System 1 operating where System 2 should engage.

Click the card to flip

1 of 4

Continue learning​

📄HBR · ReadPerforming a Project Premortem (Gary Klein)Klein's short HBR piece on the pre-mortem — the highest-leverage decision-hygiene practice, in a five-minute read.📄HBR · ReadBefore You Make That Big Decision (Kahneman et al.)Kahneman, Lovallo & Sibony's 12-question checklist for stress-testing a recommendation before approval. Practical, structured, immediately usable.🎥TED · WatchDaniel Kahneman — The Riddle of Experience vs MemoryKahneman's TED on the experiencing self vs the remembering self — a key piece of context for why our recall-based decisions go wrong. 20 minutes.📖Heath Brothers · BookDecisive — The WRAP ProcessThe Heath brothers' practical toolkit for the four decision-trap antidotes (Widen, Reality-test, Attain distance, Prepare to be wrong) with rich case material.
🪞 Apply it — reflection prompts
  1. Pick a recent significant decision you regret. Which of the classic traps (anchoring, confirmation, availability, sunk-cost, overconfidence, framing, groupthink) was operating — and how would WRAP have caught it?
  2. Run a 30-minute pre-mortem on your next major commitment. What three risks surface that the prospective view had been suppressing?
  3. Start a decision journal for your three largest decisions this quarter — capture the rationale, the predicted outcome, and the range. Review in 6 months; calibrate.

📝 Going deeper. Daniel Kahneman, Thinking, Fast and Slow (2011) is the canonical reference on System 1 / System 2 and biases. Chip & Dan Heath, Decisive (2013) is the most useful practitioner toolkit (WRAP). For the calibrated-decision discipline, Annie Duke, Thinking in Bets (2018).