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360 Decision framing and cognitive inertia
‘this development would be a technical impossibility’ often go unchallenged.
As we saw earlier, the US automobile industry assumed that
the changeover time between car models could not be reduced below
6–8 hours and they framed their decision accordingly. Similarly, many
of Thomas Edison’s inventions were thought to be infeasible by the
scientific establishment of the day.
False assumptions can also rule out the consideration of courses of
action which, in retrospect, would have been highly desirable. After the
Polaroid camera was invented, Kodak assumed that customers who had
purchased their films and cameras in the past would still be prepared to
wait to have their photographs developed. They ruled out the option of
moving into instant photography until it was too late and lost billions
of dollars as a result. A similar mistake was made by manufacturers of
Swiss watches who assumed that their market for mechanical watches
was unassailable when Japanese companies started making electronic
quartz watches in the late 1960s. They did not respond to the challenge
and sustained huge losses in market share and jobs.
Narrow bracketing of decisions
The way we mentally bracket groups of decisions together often influences
how much risk we are prepared to take when making each
decision. In companies, when projects are evaluated one at a time,
rather than part of an overall portfolio there is likely to be an extreme
unwillingness to take risks. Taking a broader view by looking at
all of the projects together can act as an antidote to this excessive
risk aversion.
For example, Richard Thaler, 5 a US professor, was teaching a group of
executives from one firm, each of whom was responsible for managing a
separate division. He asked each whether he or she would be willing to
undertake a project for the division if it has a 50% chance of generating a
return of $2 million and a 50% chance of losing $1 million. Only three of
the 25 executives accepted the gamble. However, when the company’s
CEO was asked whether he would like to undertake a portfolio of 25 of
these investments he nodded enthusiastically. From the CEO’s perspective,
losses on some of the projects would be more than compensated by
the gains on others.
In the strategic decision-making literature, frame-blindness is closely
linked to what has been termed ‘cognitive inertia’. Consideration of