Decision Making - Problem Framing

Always frame your problem statement wisely!

Prospect theory is a behavioral economic theory that describes the way people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known.

Frame is point of view, a mental model about how thinks work in the world, the way a problem is framed seems affect the decision making process of individuals.

The notion of loss vs gain ( or opportunity vs threat ) has an impact, people react differently when problem is framed with portential loss than potential gain and the definition of the problem (the language) dictates outcome!.

Potential loss kindoff makes us take more risk.

Consider a situation and following senarios

Unusual desease is spreading, about 600 people might be killed uless something is done about it. Scientists have come up with a few solutions, choose a solution in each of the senarios below.

Senario - 1

• A : The solution A will save 200 people
• B : With the solution B there is 1/3^rd probability that 600 will be saved OR 2/3^rd probability that no one is saved.
• Your Answer : ( Remember what you choose )

Senario - 2

• C : If we choose solution C, 400 will die
• D : If we choose solution D. 1/3 probablity that No one Dies, but 2/3 probability that > 600 people die
• Your Answer : ( Compare with what you choose above )

Organizations tend act rigidly when faced with threats. But, act much more flexibly if problem is faced as opportunity. Frame balancing is needed with respect to organization.

• Threat -> brings focus and resources are channalised
• Opportunity -> Promotes lateral thinking and open to new ideas.

Some times mental models become hard to shake, can get outdated, irrevelant with time needs to get challenged. Look into the assumptions behind mental models and challenge the assumptions. Try not to oversimplify situation while framing the problem

Better if we have competing frames to look at the problem. Power of competing frames is immense