Business 3161 Chapter 1 Decision Traps

Decision Traps

1. What is a decision trap? “Situations in which individuals or groups embark on a promising course of action that later becomes undesirable and difficult to escape from”. – Traps are always characterized by a lure - usually a potential gain – In traps, the costs of a course of action eventually exceed the gains

2. Ignorance traps: Instances in which a promising course of action is undertaken because of a lack of awareness of the negative long term consequences. – Examples?

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2. Ignorance traps: Instances in which a promising course of action is undertaken because of a lack of awareness of the negative long term consequences. – Examples? • Pesticides • Investments • Occupations

3. Ignorance traps: Instances in which a promising course of action is undertaken because of a lack of awareness of the negative long term consequences.

• Blockbuster video (BBI) • A good investment in the early 2000s?

3. Ignorance traps: Instances in which a promising course of action is undertaken because of a lack of awareness of the negative long term consequences.

• Blockbuster video (BBI) • A good investment in 2002? • Price/share in 2002 was almost $30 • Peak of 60,000 employees in 2009

3. Ignorance traps: Instances in which a promising course of action is undertaken because of a lack of awareness of the negative long term consequences.

• Blockbuster video (BBI) • A good investment in 2002? Price/share in 2002 was almost $30 • Peak of 60,000 employees in 2009 • Revenues began diminishing sharply. Why?

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5. Relative of ignorance traps: deterioration traps 4. Ignorance traps: Instances in which a promising course of action is undertaken because of a lack of awareness of the negative long term consequences. • Instances in which the favorableness of the costs and benefits of an initially rewarding course of action diminish over time. • A form of ignorance traps – people are often ignorant of the diminishing rewards • Examples?

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