17 Feb Overcoming Organizational and Individual Biases
Rational Decision-Making Process
1) Define the problem
2) Determine criteria
3) Gather Data
4) List & Evaluate Alternatives
5) Choose & implement solution,
6) Follow up
Degree of Acceptable Risk: decisions are made in the context of risk therefore all business decisions are probability decisions.
• Risk propensity – low risk takers: may collect & evaluate more; could become paralyzed considering too much information
– high risk takers: may jump to decisions too quickly & with too little information
Individual Cognitive Biases
1) Confirmation Bias: seeking information that confirms early beliefs and ideas – the more time you have the more likely you can overcome confirmation bias – have someone play devil’s advocate and be aware you can fall into this trap.
2) Escalation of Commitment Bias: not treating past investments (time, effort, & money) as sunk-costs when deciding to continue an investment – ppl continue projects that already have a lot of time and money invested in them.
3) Availability Bias: Relying too much on information that is easy to recall from memory (ex. lottery winners, medically diagnosing yourself).
4) Anchoring Bias: Emphasizing too much the first number or value encountered – Set an anchor around which you make your decision (ex. selling a home)
5) Framing Bias: Making decisions based upon how the problem is presented.
6) Representativeness Bias: Tendency to make decisions based on how similar something is to a preconceived category – description fits a preconceived notion that we already have (not necessarily statistically correct)
7) Small Sample Bias: Relying too much on information from a small sample of all possible data. (ex. focus groups)
8) Overconfidence Bias: Believing too much in our own ability to make good decisions. (ex. MBA students, small bus owners, professors)
– Overcome biases by using rational decision-making model
– As much as possible, put systems into place that force you to gather data and run the numbers before making decisions.
Group Decision Biases
1) Groupthink: Premature consensus due to conformity pressures – symptoms include: self-censorship, pressure, unanimity, rationalization, invulnerability, mindguards, morality, stereotypes – particularly prevalent in groups that are cohesive – can happen when you think you’re wrong or you think you’re right but don’t want to cause any waves.
2) Risky Shift: Choosing a riskier course of action due to diffusion of responsibility
3) Common Information Bias: Discussing only information that everyone already shares – overemphasizing information held by a majority & failing to be mindful of information held by one or a few group members.
4) Diversity-based Infighting: Diverse ideas fracture the group and create ill will – can happen when no mechanisms exist to channel disagreement in productive ways or when individuals feel strongly about their idea.
Techniques for Overcoming Group Biases
1) Nominal Group Technique: where individual members meet to pool their judgments in a systematic but independent fashion – a) indivs silently and w/o discussion write down their ideas, b) each member presents one idea at a time until all are presented w/o discussion, c) ideas then discussed to clarify and evaluate, d) silent & independent vote or ranking of alternative choices
2) Devil’s Advocacy:indiv or subgrp argues against the recommended actions and assumptions put forth by other members of the group – overcomes tendency of grp to avoid conflict when evaluating alternatives – not typically good when there’s diversity-based infighting because this tends to produce more fighting
3) Dialectical Inquiry: debate between very different sets of recommendations & assumptions to encourage full discussion.
– Use the rational decision-making model!
– Decisions made by grps are often better than decisions made by indivs
– Groups are prone to social biases that may reduce the quality of their decisions
– The use of specialized group decision-making techniques can reduce the effects of the biases