Justin Fox

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <h5>The Context</h5>
  <p>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.</p>
  <h5>The Complications</h5>
  <p>Behavioral economics is just one perspective on decision making. Formal decision analysis has less sex appeal, but it’s just as important. What’s more, sometimes the much-maligned cognitive biases embody useful rules of thumb.</p>
  <h5>The Synthesis</h5>
  <p>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.</p>
 </div>
</article-ideainbrief><p>When we make decisions, we make mistakes. We all know this from personal experience, of course. But just in case we didn’t, a seemingly unending stream of experimental evidence in recent years has documented the human penchant for error. 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. Its practitioners have had a major influence on business, government, and financial markets. Their books—<span class="mediatitle">Predictably Irrational;</span> <span class="mediatitle">Thinking, Fast and Slow;</span> and <span class="mediatitle">Nudge,</span> to name three of the most important—have suffused popular culture.</p>

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<p>When we make decisions, we make mistakes.</p>
<p>We all know this from personal experience, of course. But in case we didn&#8217;t, a stream of experimental evidence in recent years has documented the human penchant for error. This line of research is probably best known for its offshoot, behavioral economics. Its practitioners have played a major role in business, government, and financial markets.</p>
<p>But that isn&#8217;t the only useful way to think about making decisions. The academic arena alone contains two other distinct schools of thought, one of which has a formal name&#8212;decision analysis&#8212;and the other of which can be characterized as demonstrating that we humans aren&#8217;t as dumb as we look.</p>
<p>Each school of thought brings vital insights to bear. 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.</p>
<p>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. Its aim is to make readers more-informed consumers of decision advice&#8212;which in turn should make them better decision makers.</p>
<p>HBR Reprint R1505F</p>

From &ldquo;Economic Man&rdquo; to Behavioral Economics

When we make decisions, we make mistakes. We all know this from personal experience, of course. But in case we didn’t, a stream of experimental evidence in recent years has documented the human penchant for error. This line of research is probably best known for its offshoot, behavioral economics. Its practitioners have played a major role in business, government, and financial markets. But that isn’t the only useful way to think about making decisions. 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. Each school of thought brings vital insights to bear. 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. 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. Its aim is to make readers more-informed consumers of decision advice—which in turn should make them better decision makers. HBR Reprint R1505F

From “Economic Man” to Behavioral Economics

Summary.

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