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Beware of Decision Traps: The World of Uncertainty

In: Making Better Decisions

Author

Listed:
  • Pekka J. Korhonen

    (Aalto University School of Business)

  • Jyrki Wallenius

    (Aalto University School of Business)

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:

Suggested Citation

  • Pekka J. Korhonen & Jyrki Wallenius, 2020. "Beware of Decision Traps: The World of Uncertainty," International Series in Operations Research & Management Science, in: Making Better Decisions, chapter 0, pages 39-44, Springer.
    • Handle: RePEc:spr:isochp:978-3-030-49459-9_6
    DOI: 10.1007/978-3-030-49459-9_6
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