The hidden traps in decision making

Bad decisions can often be traced back to the way the decisions were made--the alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighted. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage the choices we make. John Hammond, Ralph Keeney, and Howard Raiffa examine eight psychological traps that are particularly likely to affect the way we make business decisions: The anchoring trap leads us to give disproportionate weight to the first information we receive. The statusquo trap biases us toward maintaining the current situation--even when better alternatives exist. The sunk-cost trap inclines us to perpetuate the mistakes of the past. The confirming-evidence trap leads us to seek out information supporting an existing predilection and to discount opposing information. The framing trap occurs when we misstate a problem, undermining the entire decision-making process. The overconfidence trap makes us overestimate the accuracy of our forecasts. The prudence trap leads us to be overcautious when we make estimates about uncertain events. And the recallability trap leads us to give undue weight to recent, dramatic events. The best way to avoid all the traps is awareness--forewarned is forearmed. But executives can also take other simple steps to protect themselves and their organizations from the various kinds of mental lapses. The authors show how to take action to ensure that important business decisions are sound and reliable.     

The Distributional Impact of Direct Payments on Irish Farm Incomes

The objective of this paper is to analyse the distributional effects of the different income components of Irish farm income with a Gini comparison method and by disaggregating the overall Gini coefficient of income inequality by income source. Using individual farm data for 1992 and 1996, the impact on farm income distribution of the MacSharry CAP reform is assessed. In addition, the change in the Gini coefficient between these years is decomposed into the changes in the within‐source distribution of each income stream and the share of each income stream. The favourable movement in the Gini coefficient is found to be due to the introduction of direct payments, which target less well‐off farmers. Market income remains the single largest influence on deciding the income ranking of a farm while contributing less to total income than before.     

Strategic partnerships and the internationalisation process of software SMEs

This research investigates the nature of strategic partnering activities of software SMEs (small-to-medium-sized enterprises), their motivations to engage in strategic partnerships as part of the internationalisation process, the key benefits achieved and the main challenges encountered. It explores managers’ perceptions of partnership activities through a qualitative research methodology focussing on Irish indigenous firms. Findings suggest that strategic partnerships were initiated to take advantage of firm synergy, reputation and credibility advantages. Partnerships also served as an important foreign market entry mechanism allowing firms to accelerate sales cycles and reduce risk in overseas markets. Challenges facing firms included partner selection and issues of control. Directions for further research are highlighted.     

The Indirect Land Use Impacts of United States Biofuel Policies: The Importance of Acreage, Yield, and Bilateral Trade Responses

Recent analysis has highlighted agricultural land conversion as a significant debit in the greenhouse gas accounting of ethanol as an alternative fuel. A controversial element of this debate is the role of crop yield growth as a means of avoiding cropland conversion in the face of biofuels growth. We find that standard assumptions of yield response are unduly restrictive. Furthermore, we identify both the acreage response and bilateral trade specifications as critical considerations for predicting global land use change. Sensitivity analysis reveals that each of these contributes importantly to parametric uncertainty.     

WTO negotiations on agriculture and the distributional impacts for US rice farm households

The policies of wealthy countries have proven the most difficult to reform in the WTO Doha Round negotiations. Considerable emphasis has been placed on developing country impacts, but a gap in the literature remains on the stakes for rich country farmers despite the large role these countries play in global agricultural protection. The research here considers the particular case of US rice households and their sensitivity to Japanese market access reform. Using an applied general equilibrium model with multiple farm households we highlight the distributional impacts among these producers. We argue that concessions to Japan on market access make domestic reforms in rice a difficult political sale in the US since the wealthiest producers bear the largest losses. Improving our understanding of the distributional impacts and political realities of the richest countries is critical to informing the negotiating process because the gains to the world’s poor can only be realized with creative policy redress in these rich nations.     

Appraising the precautionary principle – a decision analysis perspective

The public and regulators are naturally concerned about any decision that has uncertain but potentially serious health and environmental consequences. When facing such decisions, some individuals say we should resolve significant uncertainties before taking expensive action that may be unnecessary. Others support the precautionary principle, which says that policy makers should err on the side of caution by acting now to avoid or limit potentially detrimental consequences. This paper appraises the precautionary principle from a perspective decision analytic point of view. We argue that neither the 'resolve uncertainties before taking action' nor the 'act now on the side of caution' are appropriate as general policies for all environmental decision problems. Instead, we conclude that policy makers need to conduct sound, in-depth analyses to resolve the pros and cons of acting now versus conducting more research on a case-by-case basis.     

Assessing Global Computable General Equilibrium Model Validity Using Agricultural Price Volatility

Computable General Equilibrium (CGE) models are commonly used for global agricultural market analysis. Concerns are sometimes raised, however, about the quality of their output since key parameters may not be econometrically estimated and little emphasis is generally given to model assessment. This article addresses the latter issue by developing an approach to validating CGE models based on the ability to reproduce observed price volatility in agricultural markets. We show how patterns in the deviations between model predictions and validation criteria can be used to identify the weak points of a model and guide development of improved specifications with firmer empirical foundations.