Beware of Decision Traps: The World of Uncertainty

Pekka Korhonen and Jyrki Wallenius
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Jyrki Wallenius: Aalto University School of Business

Chapter Chapter 6 in Making Better Decisions, 2020, pp 39-44 from Springer

Abstract: Abstract Managers often base their decisions on forecasts; forecasts (or estimates) of future costs, sales, revenue, or the likelihood of future events. For our decision-making, it is critical that such forecasts are as accurate as possible. Humans are notoriously not very good with probabilities. The technical term is that they are not necessarily well-calibrated probability assessors. The only way to improve oneself as a forecaster is to get feedback on, how you did in the past. Your past forecasts and estimates must be on record, so that we can double check how well you did in the past. How accurate have you been? Quite often estimates and forecasts involve probabilities. Besides the decision traps that we have discussed, there are many other traps, which distort our capability to assess (often) subjective probabilities. Some of the most common such traps are:

Date: 2020
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DOI: 10.1007/978-3-030-49459-9_6

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