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MindManager and Risk Analysis
Psychological Issues in Identification of Uncertainties
Decision and risk analysis is based on two fundamentals: statistics and psychology of judgment and decision-making. In 2002, Daniel Kahneman was awarded the Nobel Prize in economics "for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.” According to this theory, fundamental limitations in human mental processes cause people to employ various simplifying strategies or heuristics to ease the burden of mentally processing the information required to make judgments and decisions. In many cases, these heuristics or ‘rules of thumb” provide a correct judgment. However, under many circumstances, they lead to predictably faulty judgments or cognitive biases.
According to the availability heuristic, decision makers assess the probability of an event by the ease with which instances or occurrences can be brought to mind. For example, project managers sometimes estimate task duration based on similar tasks that have been previously completed. If they make judgments based on the most or least successful tasks they remember, it can cause inaccurate estimations. The anchoring heuristic refers to the human tendency to remain close to the initial estimate. For example, you started thinking about the duration for an activity that had an original estimate of five days. Anchoring causes your analysis to stay close the original estimate, so that after your analysis the five days will remain the most likely or average duration with a range from three to four days. The representativeness heuristic refers to how judgments concerning the probability of a scenario are influenced by the amount and nature of details in the scenario in a way that is unrelated to the actual likelihood of the scenario. Selective perception refers to instances where “you see what you want to see.” For example, this occurs when your estimate of a task’s cost are influenced by the intention to fit it into the project’s budget.
As we can see, we are making predictable mistakes when we assess risks and make decisions. The question is how can we mitigate negative impact of these heuristic and biases?
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