![]() ![]() ![]() Its practitioners have had a major influence on business, government, and financial markets. This line of research-dubbed heuristics and biases, although you may be more familiar with its offshoot, behavioral economics-has become the dominant academic approach to understanding decisions. But just in case we didn’t, a seemingly unending stream of experimental evidence in recent years has documented the human penchant for error. We all know this from personal experience, of course. When we make decisions, we make mistakes. Managers need to understand when to make decisions formally, when to make them by the seat of their pants, and when to blend the two approaches. What’s more, sometimes the much-maligned cognitive biases embody useful rules of thumb. Formal decision analysis has less sex appeal, but it’s just as important. The Complicationsīehavioral economics is just one perspective on decision making. Research into how cognitive biases muck up decision making-a field perhaps best known for its offshoot, behavioral economics-is extremely popular among academics and the public alike. Its aim is to make readers more-informed consumers of decision advice-which in turn should make them better decision makers. This article briefly tells the story of where the three schools arose and how they have interacted, beginning with the explosion of interest in the field during and after World War II and continuing to the present day, when companies such as Chevron have hundreds of decision analysts on staff. Managers need to understand when to make decisions formally, when to make them by the seat of their pants, and when to blend those approaches. ![]() The academic arena alone contains two other distinct schools of thought, one of which has a formal name-decision analysis-and the other of which can be characterized as demonstrating that we humans aren’t as dumb as we look.Įach school of thought brings vital insights to bear. Its practitioners have played a major role in business, government, and financial markets.īut that isn’t the only useful way to think about making decisions. This line of research is probably best known for its offshoot, behavioral economics. But in case we didn’t, a stream of experimental evidence in recent years has documented the human penchant for error. ![]()
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