Psychological Biasness in Organizational Decision Making
Discuss about the Politics of Organizational Decision Making.
Decision making is considered to be an imperative facet in order to plan a specific program that is beneficial for the organisation. Mostly, the management and the senior authority are responsible to take the decisions. In this regards, it can be argued that there are always risk factors that are responsible to influence the decision making process of the company (Blumenthal-Barby & Krieger, 2015). In this context, biasness is considered to be one of the most important risk factors. It can be argued that biasness is classified into a number of types such as psychological bias, behavioural bias and the cognitive bias. The psychological bias is based on the issues that are seemed to be illogical while taken into action (Dror et al., 2015). On the other hand, behavioural bias deals with the pattern of deviation in judgement which occurs in a particular situation. In addition to this the cognitive bias can be influenced by anchoring, over confidence and availability in decision making. Hence, the purpose of this essay is to distinguish different concepts of biasness and their nature in perturbing the process of decision making. Furthermore, the essay is carry forwarded by describing three distinct theories that can eradicate the each kind of biasness in decision making.
In order to understand the psychological approach of biasness, it can be argued that the concept was developed in the year 1970s (Montibeller & Winterfeldt, 2015). According to the psychologists it can be argued that psychological bias is a tendency to make3 decision or taken action in an illogical way. In fact, the psychological bias is identified as the just opposite of common sense and clear measured judgement (Voon, 2015). As a result of that misleading in decision making is a common feature. In this context, there are some common psychological biases that are very usual in organisational decision making.
The first bias is regarded as confirmation bias. It is related to seek information that are supported the existed beliefs of a decision maker. In this regards, it can be argued that the decision maker rejects the data that are not supported his concept. A study in 2003 opined that confirmation bias affects decision making when people are more inclined towards statistics (Shepherd, Williams& Patzelt, 2015). It is obvious that people have a trend to infer information from statistics that are supported their preconceive ideas.
Behavioural Biasness in Organizational Decision Making
Besides this, anchoring is considered to be another type of psychological biasness in decision making. It can be defined as an irrational judgment in the time of concluding a decision. In this context, biasness can be identified as a final judgement on information gained early on in the decision making process. In fact, it is influenced by the first impression of the person (Van Knippenberg et al., 2015).
In this regards, overconfidence is considered to be another important factor in this regards. This type of biasness can be seen in case of the person impose too much faith on acquired knowledge and opinions (Morewedge et al., 2015). Having a relation with the anchoring biasness it can be argued that unrealistic view on own decision making prevails a great deal of bias in making decision.
Gambler’s fallacy is relevant in this regards. It can be argued that gambler’s fallacy can be identified as the past events to influence the future. Therefore, in the long run the stronger the belief can be that things will change the next time. The gambler’s fallacy can be dangerous in a business environment because outcomes are highly uncertain. The number of successes has only a small bearing on the future (Goodwin & Wright, 2014).
Behavioural biases are the pattern of deviation in judgement which occurs in a particular situation especially during uncertain condition. In other words, behavioural bias is a tendency that a human would make some systematic error in a certain circumstances based on cognitive factor rather than evidence (Newell & Shanks, 2014). In this context, there is a number of behavioural biasness that can be occurred in the process of decision making. There are some patterns of behavioural biasness in the form of heuristics, overconfidence loss aversion and family bias.
Heuristic, also known as the rule of thumb, is the way of solving problem, learning and discovery. This concept is practised by most of the managers in order to avoid any kind of bias during the decision making process (Antons & Piller, 2015). However, the heuristic process is very difficult and complex in nature. In addition to this, it can be argued that in case of using heuristic in a wrong decision it delivers error and mistakes in decision making process.
In this context, overconfidence is also identified as a pivotal patter that can influence the process of behavioural bias in organisational decision making. Overestimation of ability and too much weight on the efforts always lead towards error in decision making (Antons & Piller, 2015). Furthermore, knowledge and skill are also manipulating the decision making in a great deal of manner.
Cognitive Biasness in Organizational Decision Making
Familiarity bias is the tendency that people believe in and prefer things that they are familiar with. In this regards, it can be asserted that most of the investors would like to invest their money in the familiar company because they think of the companies they are not familiar are riskier (Morewedge et al., 2015). In other words, investors like to invest something that they know. However, the market does not reward investors with risk premium for loyalty and familiarity.
In this context, loss aversion is associated with the concept of prospect theory. It can be ascribed that individual has stronger desire to avoid losses than experience comparable gains. Loss aversion implies the way investors make their choices between two alternatives involve risk. The empirical evidences opine that loss weighed almost about twice as heavily as gains for the investors (Voon, 2015). In this context, it can be seen that investors could try to avoid negative choice and the loss aversion leads them to take bias decisions.
As a matter of fact, the cognitive biasness is referred to be one of the most significant factor that can influence the decision making process in a great deal of manner. For an instance, in most o the disasters and tragedies, cognitive biasness is considered to be solely responsible for this. An error in judgement is primarily responsible for tragedies and disasters (Dror eet al., 2015). It can also implacable in the case of everyday decision making process. In addition to this, cognitive biases in the form of projection can distort judgements. Humans are often poor judges of current and future events. In this regards, the negligence of the denominator is an example4 of a task for which the biasness can be occurred.
The simplification biases are motivated by comprehending g reality, reflect information process and are related to cognitive ability and cognitive styles. For an example, 1,286n cancer incidents out of the 10,000 indicate a higher likelihood of cancer than 24.14 incidents out of 100 (Goodwin & Wright, 2014).
Verification biases are determined by the desire to achieve consistency, self reflection process and are related to core self evaluation. Examples are false consensus and learned helplessness acting due to prior experiences in which actions have not helped even when actions would help in the current situation (Morewedge et al., 2015).
As a matter of fact, the regulation biases are motivated by the desire to approach pleasure and avoid pain, reflect decision making process and are related to a person’s approach. Moreover, the trait factors are also seemed to be important in this regards. In fact, there are other state of factors that can affect decision making and susceptibility to cognitive biases. It can be identified as physical fatigue, sleeplessness and emotional fatigue as well (Goodwin & Wright, 2014). With respect to the trait and cognitive bias factors it seems reasonable that in an individual differences framework their relationship could be fruitfully explored with potentially more powerful explanatory variables form an information processing perspective such as working memory, executive attention and inhibitory control.
Factors Affecting Decision Making
It is obvious and evident for decision making in an organisation to get affected by the risk elements like bias. Managers and the senior authorities are also kept in mind of the possible creation of bias in judgements. In this regards, they are opted for some mechanisms that can reduce the chances of bias in decision making process. In fact, these mechanisms are also based on experience and probability. As a result of that opting a wrong method can jeopardize the entire process of decision making and solving. To get an idea about different kinds of decision making it can be ascribed that the decision making process is a complex process as well as has a number of risks while implementing it. As a matter of fact, biasness is considered to be a part of the decision making process. Therefore, it can be concluded that there are a number of factors that can influence the decision making and the managers or the individuals must possess the ability to resolve it.
The first example that can be provided based on the process of decision making in the real life organization is based on the scenario that was created in Whole Foods. The decision making scenario was mainly based on the decision that was to be taken by Mackey. The CEO of the company Mackey had said in an interview that he has tried to take decisions that are based on the ways by which the organization can be developed in the future. The CEO has further tried to take the consensus or the confirmation of the employees based on the important decision that has been taken by him. The disagreements of the employees are thereby expressed in the meetings that were held based on the likes of the employees (Heyler et al., 2016). After the disagreements of the employees are addressed the CEO is able to take better decisions that are based on the improvement of the company in the future. The involvement of the employees in the process of decision making has been helpful for the organization to create better place to work for the employees. The various types of opinions that are provided by the employees thereby lead to the process of better decision making the management of the company. The CEO had thereby been able to find better ways by which the decisions can be taken in an effective manner. This process further helped the CEO to create decisions that are best for the organizational operations (Romiszowski, 2016). The CEO of the company tried to provide enough space to the employees so that they are able to take the decisions in an effective manner. The various organizational processes have also gone through changes under the leadership of Mackey. The issue based on confirmation bias has been addressed in this situation with the help of the consensus that has been obtained from the employees based on the decision that needs to be taken. The process of decision making has further helped the CEO in reducing the time that is required for the purpose of taking certain decisions for the company and the employees. The addressing of the bias has thereby been the major part of the entire organizational process of decision making. The organization has therefore benefitted a lot from the decision making based process that has been followed by the CEO and the members of the organization as well (Conrado et al., 2016).
The second example is based on the decision making process that has been followed by Robert S. Kaplan who is the CEO of the Bank of Dallas. The business owners always need to improve the process that is used by them for the decision making. This process first involves the ways by which the managers need to take advice from the employees and further take the decisions regarding the various organizational processes. The common problem that is faced by the leaders in case of making the decisions is based on the ways by which they are able to improve the imbalance between the power. The imbalance of power is mainly based on the ways by which the employees are able to work towards their future aspirations and growth (Karimi, Papamichail & Holland, 2015). The employees are thereby scared of providing their opinions and feedback to the managers based on issues that have taken place in the company. The managers thereby need to create an environment in the organization which can help the employees to provide their opinions in a fearless manner. The major part of this process of decision making is based on the ways by which the employees are able to provide their feedback regarding the various organizational processes. The managers are capable of solving this issue with the help of the sessions that are held with the employees. The sessions can help the employees to create a bond or positive relationship with the managers(Govindan et al., 2015). This can help the managers in enhancing the various organizational processes. The managers are thereby able to gain the opinions of the employees in such a manner which can help them in taking the various decisions easily. The perspectives and the opinions of the employees have proved to be valuable for the proper operations of the company in the environment. The opinions that are provided by the employees are thereby able to fill in the gaps that can be present in the decisions that have been taken by the managers (Karimi, Papamichail & Holland, 2015). The most important part of the entire organizational process is thereby based on the creation of a mind-set which is based on solving the problems that are faced by the company. The main part of the process of decision making is thereby related to the ways by which the employees are able to take part in the various processes of the organization. The bias that can occur in the decision making process can be helpful in the ways by which the objectives of the company can be achieved in an effective manner(Heyler et al., 2016). The bias has been seen in this situation is the familiarity bias. The most important part of the entire process is to remove the bias that has taken place in the decision making. The managers need to remove this bias the decision making process and create an unbiased environment in the organization. This process will help the managers to develop the organizational process and then take the decisions in a such a way which can help in the improvement of the employees and their work process in the future. The removal of bias from decision making is important for the achievement of the organizational goals(Karimi, Papamichail & Holland, 2015). The managers can also become much more connected with the employees after the bias has been removed from the entire organizational processes. This will be helpful in the creation of a different position of the company in the industry in which it operates in a successful manner (Karimi, Papamichail & Holland, 2015).
It can be argued that the real time situation has to be kept in the discussion to get a clear picture of the scenario. Bakers delight Holdings in Australia is the company in this regards. The company was established in the year 1980 by Roger and Lesley Gillespie at Hawthorn, Melbourne (Bakersdelight.com.au, 2018). The company is dedicated to bake fresh and delicious bread and delivered to a lot of happy customers. In fact, the mission and vision of the company is also corroborated the activities. However, recently the company is going to face issues regarding managerial decision making. The reason behind this problem was related to the change in the manufacturing items.
The Bakers Delight Company is going to establish their new store by introducing new items besides making good quality breads. In this context, it is important to acknowledge that the biggest bakery chain in Australia Bakers Delight has 587 stores in Australia only with an annual turnover of $600 million (Bakersdelight.com.au, 2018). Based on this dynamic business orientation, it is evident for the company to expand its business by introducing innovation into the production. Roger Gillespie is considered to be the Executive Chairman of the company. As a matter of fact, the Gillespie family owns 85 percent of Bakers Delight (Kohler, 2014).
The move towards expanding the business is identified as a significant decision made by the Gillespie family. Despite of that the dearth in the managerial decision making made the company fail to expand its market capitalisation. It can be argued that the psychological bias has played a pivotal role in this regards. To be specific, it can be argued that the gambler’s fallacy outplayed the efficiency of managerial decision making. It can be ascribed that in expanding its market orientation the company did not have the financial ability and man power to make it successful (Goodwin & Wright, 2014). Despite of knowing the facts, the Gillespie family pushed its marketing team to make it happen. Besides this, the behavioural theory of overconfidence also played a pivotal role in this regards. According to this theory, the managerial overconfidence leads towards organisational indecision (Dror et al., 2015). In this context, the higher authority of Bakers Delight, Gillespie family possessed a high ambition that required a strong marketing evaluation. Empowered by the overconfidence, the management did not realise the importance and took a bad decision.
In this regards, to prevent the fatal decision making process it requires primarily the knowledge and skill regarding the managers or the chief executives of the business organisations. Therefore, the same strategy has to be implemented in the Bakers Delight Company as well. The higher management of Bakers Delight must have the idea of the market scenario regarding the location of their expanding business. It is, in fact, essential to construct a plan to identify the customer segmentation and after that the company can introduce a new product based on the choice of the customers.
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