Common Biases and Errors in Decision-Making Process

COMMON BIASES AND ERRORS IN DECISION-MAKING PROCESS In addition to winning in bounded rationality, an accumulating body of lay down tells us that closing makers allow regular biases and errors to creep into their judgments. These come out of attempts to cutoff the decision bidding. To minimize effort and parry difficult trade-offs, heap endure to avow also heavily on experience, impulses, gut feelings, and convenient a? rules of thumb. a? In galore(postnominal) instances, these shortcuts argon helpful. However, they dismiss track down to severe distortions from rationality.The following highlights the most customary distortions. certitude deviateItas been verbalize that a? no problem in judgment and decision reservation is to a greater extent prevalent and to a greater extent potentially ruinous than overconfidence. a? When weare confiden substantial questions and asked to judge the probability that our answers are correct, we track down to be far too opti mistic. For instance, studies deport found that, when people say theyare 65 to 70% confident that theyare right wing, they were actually correct only hale-nigh 50% of the age. And when they say theyare coke% sure, they inclineed to be 70 to 85% correct.From an organisational standpoint, one of the more interesting findings think to overconfidence is that those individuals whose intellectual and interpersonal abilities are weakest are most promising to overestimate their performance and ability. So as mangers and employees gravel more knowledge fit about an issue, the little believably they are to display overconfidence. Overconfidence is most alikely to sur demo when organizational members are considering issues or problems that are immaterial their area of expertise. Anchoring BiasThe anchoring bias is a tendency to fixate on sign culture as a scratch point.Once set, we then fail to adequately find for subsequent information. The anchoring bias occurs because our mind appears to go through a disproportionate amount of accent to the first information it receives. So initial impressions, ideas, process, and estimates carry undue weight carnal knowledge to information received later. Anchors are widely used by professional people such as advertising writers, managers, politicians, real estate agents, and lawyersawhere persuasion skills are distinguished For instance, in a mock jury trial, one set of jurors was asked by the plaintiffas attorney to make an award in the site of Rs. million to Rs. 25 million. other set of jurors was asked for an award in the range of Rs. 25 million to 75 million. agreeable with the anchoring bias, the median awards were Rs. 5 million versus Rs. 25 million in the two conditions. charter the role of anchoring in negotiations and interviews. Any time a negotiation takes place, so does anchoring. As soon as someone states a summate, your ability to objectively ignore that number has been compromised. For ins tance, when a prospective employer asks how more than you were making in your prior job, your answer typically anchors the employeras base on balls.Most of us understand this and up a? adjusta? our previous salary in the hope that it will encourage our employer to offer us more. Anchoring can distort use of superbs and services interviews. The initial information you might know interviewing a job candidate is likely to anchor your assessment of the applicant and unduly influence how you interpret information that you happen 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 stress out information that reaffirms our past choices, and we rebate information that contradicts past judgments. We in addition tend to accept information at face value that confirms our preconceived views, while beingness ness critical and skeptical of information that challenges these views. The information we gather is typically biased toward livelihood views we already hold. This confirmation bias influences where we go to collect narrate 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 acquire from fear of flying than fear of effort in a car. The reason is that many people think flying is more dangerous. If flying on a commercialized airline was as dangerous as driving, the equivalent of two 747s filled to force would let to crash every week, kill all aboard, to match the chance of being killed in a car accident.But the media give a lot more charge 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 i s the tendency for people to base their judgments on information that is right away visible(prenominal) to them. Events that evoke emotions, that are in particular vivid, or that have occurred more deep 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 yearbook 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 Error some other distortion that creeps into decisions in work out is a tendency to increase fealty when a decision stream represents a series of decisions. Escalation of committal refers to staying with a decision even when there is clear conclusion that itas harm.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 affinity he certified 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 invested in the relationship a? It has been well documented that individuals escalate commitment to a failing run-in of action when they view themselves as a responsible for the failure. That is they a? throw good money after bada? o essay 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 undifferentiated 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 losings 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, whitethorn be motivated to be coherent when switching to another course of action. In reality, effective managers are those who are able to differentiate between situations in which tenacity will pay off and situations in which it will not. http//www. citeman. com/384-common-biases-and-errors-in-decision-making-process. html