Common Biases and Errors in Decision-Making Process

COMMON BIASES AND ERRORS IN DECISION-MAKING PROCESS In addition to kind in bounded demythologizedity, an accumulating body of research tells us that decision makers allow systematic biases and errors to creep into their assessments. These come out of attempts to shortcut the decision process. To minimize private road and avoid difficult trade-offs, people hunt to rely too heavily on experience, impulses, gut feelings, and convenient a? rules of thumb. a? In many instances, these shortcuts atomic number 18 helpful. However, they can lead to severe distortions from rationality.The following highlights the most common distortions. Overconfidence BiasItas been said that a? no problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence. a? When weare bewildern factual questions and asked to judge the probability that our answers ar correct, we tend to be far too optimistic. For instance, studies have found that, when people labe l theyare 65 to 70% confident that theyare right, they were actually correct precisely about 50% of the time. And when they say theyare 100% sure, they tended to be 70 to 85% correct.From an organizational standpoint, one of the more interesting findings related to overconfidence is that those individuals whose happy and interpersonal abilities are weakest are most likely 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 surface when organizational members are considering issues or problems that are outside their area of expertise. Anchoring BiasThe anchoring bias is a determination to fixate on initial development as a starting point.Once set, we then fail to adequately adjust for subsequent tuition. The anchoring bias occurs because our straits appears to give a disproportionate amount of emphasis to the first information it receives. So initial impressions, ideas, process, and estimates carry undue weight relative to information accredited later. Anchors are widely used by professional people such as advertising writers, managers, politicians, real estate agents, and lawyersawhere persuasion skills are important For instance, in a mock jury trial, one set of jurors was asked by the plaintiffas attorney to make an award in the range of Rs. million to Rs. 25 million. another(prenominal) set of jurors was asked for an award in the range of Rs. 25 million to 75 million. Consistent with the anchoring bias, the median awards were Rs. 5 million versus Rs. 25 million in the devil conditions. Consider 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 an swer typically anchors the employeras offer.Most of us understand this and upwardly a? adjusta? our previous salary in the hope that it will encourage our employer to offer us more. Anchoring can distort employment interviews. The initial information you might induce interviewing a job candidate is likely to anchor your assessment of the applicant and unduly influence how you interpret information that you obtain later. Confirmation BiasThe rational decision-making process assumes that we objectively gather information. But we donat. We selectively gather information.The information bias represents a specific case of selective perception. We explore out information that reaffirms our past choices, and we discount information that contradicts past judgments. We as well as tend to accept information at face value that confirms our preconceived views, while being overcritical and skeptical of information that challenges these views. The information we gather is typically biased tow ard supporting views we already hold. This confirmation bias influences where we go to collect evidence 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 weight 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 dangerous. If flying on a commercial airline was as dangerous as driving, the uniform of two 747s filled to capacity would have to crash every week, killing all aboard, to match the risk of being killed in a car accident.But the media give a lot more attention to air accidents, so we tend to overstate the risk of flying and understate 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 available to them. Events that evoke emotions, t hat are particularly vivid, or that have occurred more recently tend to be more available in our memory. As a result, we tend to be prone to overestimating unlikely events like an airplane crash.The availability bias can also explain 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(prenominal) distortion that creeps into decisions in practice is a tendency to escalate commitment 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 qualifying too well in their relationship he informed me that he was going to marry the woman. A bit surprised by his decision, I asked him why. He responded a? I have a lot inv ested in the relationship a? It has been well documented that individuals escalate commitment to a failing melt down of action when they view themselves as a responsible for the failure. That is they a? throw good money after 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. Increasing 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 effective leaders. So managers, in an effort to appear effective, may be motivated to be consistent when switching to another co urse of action. In reality, effective managers are those who are able to differentiate between situations in which persistence will pay off and situations in which it will not. http//www. citeman. com/384-common-biases-and-errors-in-decision-making-process. html