How to Minimize Biases and Increase Objective Decision Making

MGT 362

WEEK 1 ASSIGNMENT

Introduction

By our nature, human beings are not perfect, we are affected by many things far beyond our control, but which we are either not aware off, or we tend to ignore time. the business environment is currently being treacherous with fast moving technology, globalization, and increasing numbers of competitors ready to move in on your turf. This requires that business decisions are precise and accurate, so that the goals of the organization can be achieved, tools and resources are maximized, and opportunities and threats are promptly addressed.

” A heuristic is a mental shortcut that helps us make decisions and judgements quickly without having to spend a lot of time researching and analyzing information” (Dale, 2015). Biases are our prejudice for or against something or someone. biases as those in which judgments are influenced by the desirability or undesirability of events, consequences, outcomes, or choices (Montibeller & Winterfeldt, 2015). Heuristics and biases are useful in everyday life to help us act in a timely manner. Otherwise, we would spend the whole day analyzing minor details of simple decisions to death until we are stuck in indecision by “analysis paralysis’. They are like the autopilots of regular life.

Therefore, it must be said that these have their place in life, and in some instances, in the business world. Depending on what the decision is and the frequency with which we make such decisions, the outcome can be successful or a failure. However, when the future of an organization depends on the outcome of a decision, then, heuristics and biases have no place in the decision-making process. There must be a conscious effort to recognize these tendencies as they creep into the decision-making process and eliminated.

Framing bias is the tendency of decision makers to be influenced by the way that a situation or problem is presented (principles of management). For example, department stores have figured out that people react to “sales” and are using that tactic to draw in window shoppers. They mark up the products 100 percent, then put up signs that say 80% off, and a lot of customers will interpret that as getting a bargain, when if fact they are paying the true price of the item. It is better to say 80 percent off than marked up 20 percent. Or when people prefer 90 percent lean meat over 10 percent fat. It feeds into their desire to have less fat better than the 10percent fat.

Anchoring bias refers to when the decision maker puts a lot of weight on one piece of information to the neglect of others even as new information come to light. The decision relies too much on that piece of information and he/she refuses to adjust course or discard the idea when new information renders the first one invalid. For example, if a company wants to embark on investment and expansion activity. The manager in charge of the decision is given information that the economy is doing well, consumer confidence has been steadily rising, and the manager decides to go ahead with the plan even though new information shows that the area the new plant will be located is experiencing population decline, and there might not be workers to staff the plant.

Overconfidence bias is a person’s tendency to have confidence in their own judgements, accuracy, and abilities, then what is objectively reasonable. Study shows that when people have had successes in the past, they tend to expect that subsequent decisions will also end in success (Tilson, 1999, as cited in principles of management). Overconfidence bias “occurs when the decisionmakers provide estimates for a given parameter that are above the actual performance (overestimation) or when the range of variation they provide is too narrow (overprecision)” (Montibeller & Winterfeldt, 2015). It could also be a result of excessive optimism, when estimates and forecast are glossy to the point of being “Pollyannaish” (Gibbons, 2015).

The first step to avoiding any of the decision-making pitfalls is to recognize it. Accept that these biases can affect anybody, so there has to be conscious steps taken to overcome it. To overcome framing biases, the decision maker has to audit past decisions. This will serve as a learning experience to learn from past mistakes. Also, consulting with experts in the field will clue you in to the other sides or alternative ways to frame the issue, so that you can determine whether the decision is based on intuition or facts. Other colleagues may bring also bring other perspectives since different people perceive the same thing differently. This is helpful in a heterogenous group where it is more likely to go against popular assumptions. An impartial advisor to review whether there is framing bias is also another way to overcome framing errors. (V.N. Bhattacharya, (2010).

To overcome anchoring bias, first acknowledge it, and be open to adjusting your thinking as new, more pertinent information comes to light. It is also prudent to search for objective sources of information, so that you can get the broader view to choose from.

As with any other bias, recognizing and acknowledging the fact that theses biases are possible, and it is easy to be susceptible to them is the first step. for overconfidence, it is best to make decisions in a slow, measured way. fast decisions tend to be borne out of overconfidence in our knowledge and qualification o make that decision. A manager should surround him/herself with people that are not afraid to raise a counter point. Also, having a designated devil’s advocate to point out flaws in any decision will help.

Conclusion

Decision makers are not exempt from biases that lead to faulty thinking, regardless of their knowledge and past experience. It is not a matter of if, but of when they will show up to affect the d3cisions we make. It is therefore prudent to learn about these biases, and in which forms they show up, so that we can be better prepared to overcome them when they come.

References

Bhattacharya, V. N. (2010) “Overcoming decision flaws from framing”, Journal of Indian

Business Research, Vol. 2 Issue: 1, pp.66-69, Retrieved on May 31, 2018 from https://doi-org.contentproxy.phoenix.edu/10.1108/17554191011032956

Montibeller, G., & Winterfeldt, D. (2015). Cognitive and motivational biases in decision and risk

analysis. Risk Analysis, 35(7), 1230-1251. doi:10.1111/risa.12360

Principles of management. Retrieved on May 30, 2018 from https://doi.org/10.24926/8668.1801

Dale, S. (2015). Heuristics and biases: The science of decision-making. Business Information Review, Vol 32, Issue 2, pp. 93 – 99. Retrieved on May 31, 2018 from

Stanovich, K. E., & West, R. F. (2008). On the relative independence of thinking biases and

cognitive ability. Journal of Personality and Social Psychology, 94(4), 672-695. doi:10.1037/0022-3514.94.4.672