BUS 272 Chapter Notes - Chapter 12: Anchoring, Confirmation Bias, Bounded Rationality

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Ch. 12 – Decision Making, Creativity, and Ethics
- decision making can be improved thru systematic thinking & an awareness of common biases
- 6-step rational decision-making model
1) define the problem
 many poor decisions can be traced to decision maker over-looking problem/defining
wrong problem
2) identify criteria relevant to making decision
 brings decision maker’s interests, values & similar personal preference into process b/c
not all indivs will consider same factors relevant for any particular decision
3) allocate weights to criteria
4) evaluate alternatives
5) select best alternative
- rational decision-making model assumes decision maker has complete info, able to identify all relevant
options in unbiased manner, and choose option w/ highest utility
 most ppl content to find acceptable/reasonable solution to problem rather than optimal one
 choices tend to be limited to neighbourhood of problem symptom & current alternative
- bounded rationality = limitations on person’s ability to interpret, process & act on info
 ppl satisfice, seek solutions that are satisfactory & sufficient
 first acceptable choice we encounter
 not always bad, simple process may be more sensible & practical
 human mind cannot formulate & solve complex problems w/ full rationality, we construct
simplified models that extract essential features from problems w/out capturing all their
 we can then behave rationally w/in limits of simple model
 when we identify alternatives, we find the ones that are highly visible & represent familiar
criteria & tried-and-true solution
- least rational way of making decision = intuitive decision making (unconscious process created from
distilled experience)
 affectively charged, relies on links b/t disparate pieces of info
 intuition can complement rational analysis, is complex & based on years of experience &
 intuition can be useful to set up hypothesis
- judgment shortcuts helpful but can lead to distortions of rationality
 overconfidence bias = being far too optimistic in one’s own performance
 indivs whose intellectual & interpersonal abilities weakest most likely to overestimate
their performance & ability
 occurs more when org members considering issues/problems outside of their area of
 anchoring bias = tendency to fix on initial info, from which one then fails to adequately adjust for
subsequent info
 confirmation bias = tendency to seek out info that reaffirms past choices & discount info that
contradicts past judgments
 selective perception
 those who have a strong need to be accurate in making a decision less prone to
confirmation bias
 availability bias = tendency for ppl to base judgments on info that is readily avail rather than
complete data
 events that evoke emotions/recently occurred tend to be more avail in our memory
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