Decision-Making Errors and Biases PDF

Exhibit 6–11 Common Decision-Making Errors and Biases 6–44 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors Overconfidence Bias  When a decision makers tend to think they know more than t...

Exhibit 6–11 Common Decision-Making Errors and Biases 6–44 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors Overconfidence Bias  When a decision makers tend to think they know more than they do or hold unrealistically positive views of themselves and their performance. Immediate Gratification Bias  Choosing alternatives that offer immediate rewards and that to avoid immediate costs. 6–45 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors (cont’d) Anchoring Effect  Fixating on initial information as a starting point and ignoring subsequent information. Selective Perception Bias  Selecting organizing and interpreting events based on the decision maker’s biased perceptions.  This influences the information they pay attention to, the problem they identify, and the alternatives they develop. 6–46 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors (cont’d) Confirmation Bias  Seeking out information that reaffirms past choices and discounting contradictory information.  These people tend to accept at face value information that confirms their preconceived views and are critical and skeptical of information that challenges thee views 6–47 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors (cont’d) Framing Bias  Selecting and highlighting certain aspects of a situation while ignoring other aspects.  Omitting other aspects, distort what they see and create incorrect reference points. Availability Bias  Losing decision-making objectivity by focusing on the most recent events.  Distort the ability to recall events in an objective manner and results in distorted judgments and probability estimates. 6–48 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors (cont’d) Representation Bias  When decision makers assess the likelihood of an event based on how closely it resembles other events, or sets of events.  Drawing analogies and seeing identical situations when none exist. Randomness Bias  Creating unfounded meaning out of random events.  Most decision makers have difficulty dealing with chance, even though random events happen to everyone, and there’s nothing that can be done to predict them. 6–49 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors (cont’d) Sunk Costs Errors  Forgetting that current actions cannot influence past events and relate only to future consequences.  Incorrectly fixate on past expenditures of time, money, or effort in assessing choices rather than on future consequences. Self-Serving Bias  Taking quick credit for successes and blaming outside factors for failures. 6–50 © 2007 Prentice Hall, Inc. All rights reserved.  Decision-Making Biases and Errors (cont’d) Hindsight Bias Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact). 6–51 © 2007 Prentice Hall, Inc. All rights reserved.