Decision-Making, Bias, and Influence

• Decision-Making, Bias, and Influence
• Clarissa Cortland, PhD.

Review Questions

• On average, individual pay incentives lead to decreases in productivity, satisfaction, and motivation: False.
• Match various motivations with their corresponding theories:
• Perceptions of fairness match Equity Theory.
• Seeking roles to fulfill basic drives/preferences matches Needs Theory.
• The power of beliefs matches Expectancy Theory.
• What motivates and demotivates us is not necessarily the same matches Two-Factor Theory.
• Believing your morning OB class is smarter than your afternoon class and subsequently finding that the morning class performs better is attributed to self-fulfilling prophecy.

Rational Analysis Model of Decision-Making

• The process involves:
• Identifying criteria.
• Articulating options.
• Weighing options by criteria.
• Picking the highest scoring option.
• An example is deciding which master's program to attend by weighting ranking, cost, location, and faculty.

Limits of the Rational Analysis Model

• Bounded Rationality Model of Decision-Making:
• It is bounded by uncertainty and ambiguity, due to the extensive information required often being inaccessible.
• It is bounded by imperfections of the mind because of systematic biases affecting how we gather, process, and evaluate information.
• A first alternative that meets the minimum threshold is accepted instead of choosing the best option.

Decision-Making Biases

• Decision-making biases are cognitive shortcuts.
• "Experts are usually correct."
• "Price signals quality."
• "More is better."
• These biases simplify complex information and can be adaptive and functional.
• Over-application of these shortcuts can lead to decision-making errors or biases.

Confirmation Bias

• Tendency to seek confirming evidence and disregard disconfirming evidence.
• It impacts how people search for, interpret, and remember information.

Potential Solutions

• Actively seek disconfirming information.
• Involve an outsider.
• Ask diagnostic rather than confirming questions.

Anchoring Bias

• Fixating on an initial anchor and then adjusting from it.
• Estimates made with an anchor are too close to it, with insufficient adjustments.
• Anchors influence decisions, even when irrelevant, and expertise is no cure.

Potential Defenses

• Awareness of the bias.
• Collect various estimates.
• Avoid allowing a single estimate to have too much impact.
• Step back and re-anchor the decision.

Overconfidence Bias

• Unwarranted faith in one's perceptions and judgments.
• People consistently overrate their abilities, knowledge, and skill.
• The Better-Than-Average Effect exists.
• The Dunning-Kruger Effect is when the least knowledgeable people are the most overconfident.
• Planning fallacy is the tendency to underestimate task completion time and costs.

Potential Solutions

• Be aware of the overconfidence bias.
• Keep objective records.
• Recognize that more information does not necessarily result in better information.
• Seek disconfirming information.

Availability Bias

• Judgments are based on readily available information.
• Ease of recall is used as a cue for likelihood, and it is affected by vividness, primacy, or recency.
• Frequent events are easier to recall than rare events.
• Easily recalled cases unduly influence judgments.
• Awareness and training are key to overcoming this bias.

Escalation of Commitment Bias

• Also known as the sunk cost fallacy, where sunk costs influence decisions to continue with a failing course of action.
• Escalation of commitment involves:
• Resources committed to an initial course of action.
• The initial course of action does not produce the desired return.
• More resources are committed to "turn things around".
• The cost of failure increases as escalation of commitment continues..
• More money is allocated to failing projects/divisions than successful ones, especially if personally responsible for the original investment decision.

Reducing Escalation of Commitment

• Be aware of escalation of commitment bias.
• Focus on the future, not the past
• Separate initial decision-makers from decision evaluators.
• Hold people accountable for the decision-making processes, not solely the outcomes.

Loss Aversion

• Strong preference for avoiding losses over acquiring gains.
• Some studies find losses are twice as psychologically powerful as gains.
• Examples include losing £50 vs. gaining £50, or praise vs. criticism.
• Because of loss aversion, people are more risk-seeking when faced with a loss.
• The endowment effect refers to placing more value on things that are owned.
• The loss of an object is perceived as more negative than gaining the same object is positive
• Acquiring something is viewed as a gain, whereas giving it up is considered a loss.
• Reframing an option as a loss changes decisions.

Solutions

• Be aware of loss aversion bias.
• Reframe to highlight any potential gains of a transaction.
• View losses in perspective and consider the worst possible outcome could be.

Case Study: Gourmet Food

• Marketing consultant William Chan's new client is a well-recognized local gourmet food company.
• The company had a new line of frozen foods not selling well.
• William's firm initially uses magazine ads that failed, and the money spent was gone.
• William then negotiated with grocery stores for more visible product with placement by offering monetary incentives, which was successful, but also ultimately failed to boost sales.
• William proposed expensive TV ads without reassessing and the client ended the relationship with William.

Decision-Making Checklist

• Checklists of biases that exist.
• Allow enough time to evaluate information thoroughly.
• Focus on situations and contexts (not just individuals).
• Focus on broad samples of data (not just single experiences).
• Present information in multiple ways, and avoid framing effects.
• Minimize situations in which people's egos are at stake.

Influence and Persuasion

• Influence and persuasion are unavoidable in the workplace.
• Sometimes leads to discomfort, but it can be used for good, such as nudging healthier behaviors.
• It's important to avoid being influenced for bad, such as cults.
• The Central Route of Influence is logical, rational, and conscious.
• The Peripheral Route of Influence = emotional, indirect, normative, usually not conscious.

Persuasion Tactic #1: Reciprocity

• People comply more after receiving something.
• Universal norm of turn-taking and exchange.
• Can be resources, services, or even concessions.
• It could be perceived as brown-nosing or bribing.
• Defenses include refusing the initial gift or reframing it as a sales ploy.

Persuasion Tactic #2: Liking

• People comply more with requests from people like (and who seem to like us).
• It's beneficial to trust people we like
• Compliments, ingratiation, similarity, attractiveness
• Beware: similar to reciprocity, could be seen as brown-nosing.
• Defense: separate the person from the request

Persuasion Tactic #3: Commitment & Consistency

• People comply more to requests that seem consistent with prior commitments/behaviors.
• Norms of consistency make it easier to fall back on previous positions.
• Commitments need to be public, effortful, and internally motivated.
• Beware of moral licensing, where previous good/moral behavior makes people more likely to engage in bad/immoral behaviors.
• Recognize sunk costs; consistency for consistency’s sake isn't always wise.

Persuasion Tactic #4: Authority

• We comply with people who appear to be authorities or have expertise.
• Authorities are often right, and expertise indicates knowledge.
• Signals of authority include titles, clothing, and cars.
• There is a dark side with authority because it can get high compliance for unethical behavior.
• Defenses include asking yourself whether the person is a real expert.

Persuasion Tactic #5: Social Proof

• People often do what others are doing.
• The widespread thing is often the right thing – norms, information, etc.
• Similarity to reference groups is key; more compliance when uncertainty is high.
• Beware: People don't like to feel manipulated.
• Defenses include probing for validity; not necessary to comply with the crowd.

Persuasion Tactic #6: Scarcity

• People tend to prefer something that is limited, disappearing, or unavailable (in high demand).
• Lack of availability signals higher quality; people don't like having their choice limited.
• Scarcity works with both goods and information.
• One caveat is to not want to make people feel too helpless.
• When feeling panic, you can reconsider you need what offered.

Ethical Issues in Influence & Persuasion

• Ethically defendable: using peripheral route techniques to supplement a strong argument that the central route would also support.
• Ethically dubious: using peripheral route techniques to distract the central route from a weak argument it wouldn't support, also unlikely to work in the long run.
• Ensure that your audience would not be upset if the ynew about your use of peripheral-route persuasion techniques.

Hiring Exercise

• The purpose of the hiring exercise is to recommend a candidate for "Senior VP of Finance / CFO".
• This is an activity in which you will work to make a hiring decision in a group with assigned roles:
  • Senior VP of Marketing.
  • Senior VP of Human Resources.
  • Senior VP of Operations.
  • Senior VP of Sales.
  • Senior VP & General Counsel.
• A timeline is provided:
  • 10 minutes: Individual review + Initial Preference (take notes).
  • 20 minutes: Group Meeting (notes only) + Team Decision.
  • 30+ minutes: Class Debrief + Discussion.
• Common Information Effect: Teams tend to discuss information already known to all group members, and to ignore information unique to individual team members.

Why Do Group Members Fail to Share Information?

• Differences in underlying goals.
• Assumption that others have the same information.
• Feel uncomfortable about speaking up.
• Uncovering common information confirms its importance and relevance.
• Hiring Exercise Takeaways:
• Information is often withheld because groups decide on the first acceptable alternative instead of looking for the best alternative.
• People distort information to fit with their preferences.
• The structure of group decision-making processes can prevent groups from considering all the information available.
• Suggestions for reducing information withholding:
• Encourage each person on the team/group to give all info before anyone votes or indicates a preference.
• Focus the team goal on making a decision that's best for the organization, rather than on having their own candidate "win."
• Set a norm that team members are open to other points of view, and provide reinforcement of this norm when unique information is shared.
• Have a "last chance" meeting – is this really the best decision?
• After the debrief, discussion should be opened for to how people began the meeting, what was their group's process, and let's talk about Nancy Larson.