Managerial Decision Making - Biases
Managerial Decision Making
Kristen Betts
March 27, 2011
There are several biases that affect the judgment of managers, however, here are just a few that are relatively common; availability heuristic, representativeness heuristic, the affect heuristic and the positive hypothesis testing. It is truly intriguing to understand how each of them affects reasoning and judgment. The Availability heuristic is when individuals look for frequency of information, likely causes or even probability to an event and it occurs quickly and readily available in their memory. An occurrence where emotions are involved will be easier to retrieve than one without emotion. Events that happen with more frequency are also easier to retrieve since they are easily remembered.
Another bias is called the Representativeness heuristic in which people will look for similar traits which relate to stereotypes already formed. Managers use this bias by analyzing an employee’s traits, experience and performance by placing them in a category of other individuals who have fit the same mold. This can be very useful but it can also create false biases where discriminations can be called to play unintentionally.
Positive Hypothesis Testing occurs when people analyze a situation by basing on their previous experience of either being in that situation before or knowing of that situation occurring. This brings about conclusions being made without evidence being present. This brings about another group of biases. The Confirmation bias is where individuals “will search for and interpret evidence in a way that supports the conclusions we favored at the outset.” (Bazerman, p.9) Anchoring can also be brought about when the answer is based on a set of information that sways judgment. Overconfidence and Hindsight biases occur when a person believes too highly in how accurate their beliefs are and when asking how things could have turned out, respectively.
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Kristen Betts
March 27, 2011
There are several biases that affect the judgment of managers, however, here are just a few that are relatively common; availability heuristic, representativeness heuristic, the affect heuristic and the positive hypothesis testing. It is truly intriguing to understand how each of them affects reasoning and judgment. The Availability heuristic is when individuals look for frequency of information, likely causes or even probability to an event and it occurs quickly and readily available in their memory. An occurrence where emotions are involved will be easier to retrieve than one without emotion. Events that happen with more frequency are also easier to retrieve since they are easily remembered.
Another bias is called the Representativeness heuristic in which people will look for similar traits which relate to stereotypes already formed. Managers use this bias by analyzing an employee’s traits, experience and performance by placing them in a category of other individuals who have fit the same mold. This can be very useful but it can also create false biases where discriminations can be called to play unintentionally.
Positive Hypothesis Testing occurs when people analyze a situation by basing on their previous experience of either being in that situation before or knowing of that situation occurring. This brings about conclusions being made without evidence being present. This brings about another group of biases. The Confirmation bias is where individuals “will search for and interpret evidence in a way that supports the conclusions we favored at the outset.” (Bazerman, p.9) Anchoring can also be brought about when the answer is based on a set of information that sways judgment. Overconfidence and Hindsight biases occur when a person believes too highly in how accurate their beliefs are and when asking how things could have turned out, respectively.
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Cited: Bazerman, M. H. (2009). Judgement in Managerial Decision Making. Hoboken: John Wiley & Sons Incorporated.