Common Biases and Errors in Decision-Making Process

COMMON BIASES AND ERRORS IN DECISION-MAKING PROCESS In addition to prosecute in bounded rationality, an accumulating body of research tells us that decision makers provide systematic inclinees and errors to creep into their judgments. These come forth of attempts to shortcut the decision process. To diminish effort and suspend difficult trade-offs, people tend to rely alike heavily on experience, impulses, gut feelings, and convenient a? rules of thumb. a? In many instances, these shortcuts are helpful. However, they can lead to severe distortions from rationality.The following highlights the close common distortions. Overconfidence BiasItas been said that a? no problem in judgment and decision making is much everyday and more than potentially catastrophic than overconfidence. a? When weare given real questions and asked to judge the probability that our answers are correct, we tend to be far in like manner optimistic. For instance, studies have found that, when people say theyare 65 to 70% confident that theyare right, they were actually correct only about 50% of the time. And when they say theyare 100% sure, they tended to be 70 to 85% correct.From an musical arrangemental standpoint, one of the more interesting findings related to overconfidence is that those individuals whose intellectual and interpersonal abilities are weakest are most probable to overestimate their performance and ability. So as mangers and employees become more knowledgeable about an issue, the less likely they are to display overconfidence. Overconfidence is most likely to sur feeling when organizational members are considering issues or problems that are outside their area of expertise. Anchoring BiasThe primeing bias is a tendency to fixate on initial training as a starting point.Once set, we then fail to adequately adjust for subsequent schooling. The anchoring bias occurs because our mind appears to give a disproportionate amount of furiousness to the first kn owledge it receives. So initial impressions, ideas, process, and estimates carry undue incubus relative to schooling received later. Anchors are widely used by professional people such as advertising writers, managers, politicians, real state agents, and lawyersawhere persuasion skills are important For instance, in a mock board trial, one set of jurors was asked by the plaintiffas attorney to make an demo in the range of Rs. million to Rs. 25 million. other set of jurors was asked for an pose in the range of Rs. 25 million to 75 million. Consistent with the anchoring bias, the normal awards were Rs. 5 million versus Rs. 25 million in the two conditions. allot the role of anchoring in negotiations and interviews. Any time a negotiation takes place, so does anchoring. As soon as someone states a number, your ability to objectively ignore that number has been compromised. For instance, when a prospective employer asks how much you were making in your prior job, your answer ty pically anchors the employeras offer.Most of us understand this and upwards a? adjusta? our previous salary in the hope that it will come on our employer to offer us more. Anchoring can distort employment interviews. The initial information you might get interviewing a job candidate is likely to anchor your assessment of the applicant and unduly influence how you interpret information that you retain later. Confirmation BiasThe rational decision-making process assumes that we objectively gather information. provided we donat. We selectively gather information.The information bias represents a specific causa of selective perception. We seek out information that reaffirms our past choices, and we discount information that contradicts past judgments. We also tend to accept information at face value that confirms our preconceived views, while being critical and skeptical of information that challenges these views. The information we gather is typically biased toward supporting view s we already hold. This tab bias influences where we go to collect tell apart because we tend to seek out places that are more likely to tell us what we want to hear.It also leads us to give too much clog to supporting information and too little to contradictory information. Availability BiasMany more people suffer from fear of flying than fear of driving in a car. The reason is that many people think flying is more heartbreaking. If flying on a commercial airline was as dangerous as driving, the equivalent of two 747s filled to capacity would have to butt in every week, killing all aboard, to match the risk of being killed in a car accident.But the media give a lot more aid to air accidents, so we tend to overstate the risk of flying and minimize the risk of driving. This illustrates an example of the availability bias, which is the tendency for people to base their judgments on information that is readily open to them. Events that evoke emotions, that are particularly vivi d, or that have occurred more recently tend to be more available in our memory. As a result, we tend to be prone to overestimating unconvincing events like an airplane crash.The availability bias can also explicate why managers, when doing annual performance appraisals, tend to give more weight to recent behaviors of an employee than those behaviors of six or nine months ago. Escalation of Commitment ErrorAnother distortion that creeps into decisions in practice is a tendency to intensify committal when a decision stream represents a series of decisions. Escalation of commitment refers to staying with a decision even when there is clear evidence that itas wrong.An example of this is of my friend, who has been dating a woman for about four years. He admitted that things werenat going too well in their relationship he informed me that he was going to marry the woman. A bit surprise by his decision, I asked him why. He responded a? I have a lot invested in the relationship a? It ha s been well documented that individuals come out commitment to a failing course of action when they view themselves as a responsible for the failure. That is they a? throw good money after(prenominal) bada? o demonstrate that their initial decision wasnat wrong and to avoid having to admit they made a mistake. Escalation of commitment is also congruent with evidence that people try to appear consistent in what they say and do. increase commitment to previous actions conveys consistency. Escalation of commitment has obvious implications for managerial decisions. Many an organization has suffered large losses because a manager was determined to prove his or her original decision was right by continuing to commit resources to what was a lost cause from the beginning.In addition, consistency is a characteristic often associated with useful leaders. So managers, in an effort to appear effective, may be incite to be consistent when switching to another course of action. In reality, e ffective managers are those who are able to differentiate between situations in which doggedness will pay off and situations in which it will not. http//www. citeman. com/384-common-biases-and-errors-in-decision-making-process. html