The predictable and systematic departure of humans from rationality
Humans are not always perfect decision maker. They are not perfect in decision making, but they depart from rationality and perfection in systematic and predictable way. The understanding of this predictable and systematic departure is the core field of judgment and for making and kind of managerial dcision. Simon’s concept of judgment making in terms of bounded rationality talks about the judgment deviation from rationality (Velupillai & Kao, 2014). Simon’s quote’s can be explained through some discrete concept. These concepts demonstrate the occurrence of biases in decision.
The rationality approach through biased method has elaborated several decision making biasness by using heuristics. As per ‘fast and frugal approach’, it is quite rational to use the heuristics through fast and frugal methods. This is because it allows human beings towards adapting with the environment. People often use heuristics for making judgment. Likewise, business executives and managers often rely on simplified reasoning and logic for making difficult decisions. As per Abatecola, (2014), mind is considered to have two components for making any decision or judgment. In system 1 component, managers are prone to make intuitive decision on the basis of associated memory, emotional reaction and images. In situation, the experts of decision maker are more likely to select only the most appropriate options and disguise irrelevant options. Selectivity is possible for the experts, as previous knowledge allows them towards selecting relevant options and ignoring irrelevant options in decision making (Suppes, 2016).
With the results and output from System 1, monitoring is actualized through System 2. It can often override the system 1, when the result of system 1 conflicts with probability, logic and other decision making rules. This confliction is the sign of bias in the decision making process. Decision making experts search deepening strategy through progressive method. They always return to the options that have been already analyzed in system 1 for discovering new details. Simon has identified some weak heuristics for like ‘mean-ends analysis and satisficing’. Satisficing implies the way of constructing an expectation through finding a solution in reasonable way (Blumenthal-Barby, 2016). This method stops the searching process, when the options satisfy the expectation. Mean end analysis finds the gap between the distance and the goal, then set intermediate goal to be attained for achieving the final goal. The bias in decision making occurs, when system 2 becomes lazy. As per Maitland and Sammartino, (2015), decision making experts most often tend to adjust their heuristic with the complexity level of the decision and time available. According to Herbert Simon, the complexity of decision making united with restricted time, lethargy and scarce mental power of computation reduce the power of decision maker to a state the rationality according to bounded nature. However, the use of weak heuristics often can create judgmental bias and can lead to bad choice in the decision making.
Critical examination of four discrete concepts
Bounded awareness indicates such an observation that is well documented, which individuals usually neglect imperative information at the time of decision making process. Bounded awareness is subject to occur, when decision making experts not succeed to observe the information within which they are surrounded and eventually they get focused on some other irrelevant issues (Dick, 2015). The prime cause of bounded awareness commonly gets credited due to over focusing. Vital information and responsiveness outside of the range of focus often leads to restricted focus. Moreover, people generally have tendency to become overly focused. In this way, the overly focus limits the knowledge and central information external to the range. Such information can be missed out during vital decision making process. As per the cognitive scientist people are intrinsically incompetent of noticing certain things. People can detect the pattern of the things, which they can see, but people are limited with the extent of their imagination for the things, which they cannot see (Marusich et al., 2016). It is very tough to imagine the things, which is not there. In this way, due to blind spot, the decision makers often miss out things and their mind replaces the things, which they have not seen (Halevy & Chou, 2014). Hence, bound awareness can hinder the ability of the people for seeing the things, which are expected to experience. More often, the managers of the organizations often become slow to recognize the needs of development of their periphery for the business, which is strategically important.
As per the studies of Simon, unexpected information is highly prone to miss out. Changes, which occur slowly, are not actually accepted until it is quite late. In this way, miss out of important information can often lead to business scandal. At certain times, information is known, but it is not acted upon in reality. Lack of group dynamics can be the reason for increasing bounding awareness, due to lack of information sharing (Quiggin, 2016). Teams often convey and discuss the information, which is widely known to all. However, they do not discuss information, which is uniquely known to single team. In this way, bounded awareness or miss out of important information can lead to bias in decision making.
The gap between the decision and result is recognized, when the initial budget does not come into play. Some decision makers deny the significance of gap and the need for the strategy towards minimizing the gaps. Most often, the decision makers identify the gaps and define the problems indicated by the gaps, which do not require any changes in the strategy. Studies demonstrate that when people commit to invest significant amount of money to a specific project, they tend to invest more money, when feedback received for the failure of the project than the feedback received for the success of the project. The feeling of personal responsibility for chosen project leads the decision makers to remain with the project despite of the evidences, which is not paying off. According to Hafenbrack et al., (2014), weaker tendency to escalate commitment in subject can be viewed with the people, who do not make commitment initially but deal with the commitment made by the earlier decision makers.
Identifying decision-making scenarios for each concept
Liang et al., (2014) pointed out that when decision makers face severe commitment decisions, the escalating commitment affect the most in the earlier decisions and may not persist over time. It indicates that decision makers often decrease the assessment of probability for recovering losses with repeated failure. Hence, the perceptions of decision makers regarding the failure of the project seem to be extremely significant determinant for escalating commitment. As per Lee et al., (2015), escalating commitment is more likely to happen, when decision makers are vulnerable to job loss due to organizational resistance for a chosen reason.
Decision makers obviously perceive the discrepancies indicating the failure of the project, as they invest significant amount of money for the project. However, they do not use their perceived discrepancies for the needs to alert them to the needs for changing the strategy. The decision makers seem to interpret the negative feedback in a way of committing more funds for saving the project. In this way, bias in decision making is likely to occur. The decision makers are more likely to invest more money for saving the chosen project rather than finding flaws in existing strategies for changing them in future.
There is a close link between overconfidence and poor decision making. People often vary widely in their awareness regarding the things they know and they do not know and their meta- cognitive ability. People are general too confident when evaluating their performance. This confidence often leads to poor decision making having potentially disastrous consequences. People having higher order of thinking include active control over the mental process engaged in learning and generally overconfident in evaluating their performance (Jain et al., 2015). The more confident the people are about their performance, the more the activation of their brain areas like striatum, which is associated with reward processing. However, too much confidence is associated with lower level of metacognitive ability. Studies demonstrate that confidence entails reward-like component. However, overconfidence in turn undermines the decision making, which can lead to bias in judgment and decision making (Johnson et al., 2013). People having overconfidence in their decision tend to spend more time on easy part of the task and less time on hard part of the task. Little confidence can be helpful in decision making, but too much confidence can lead decision makers to have bad decision and miss out the opportunities to learn new things.
People having growth in mindset think intelligence is changeable quality and spend more time on hard part of their task. Consequently, their level of confidence is more in line with their abilities. On the other hand, people having fixed mindset about their intelligence are overconfident about their performance and lead to poor decision making with having proper learning interest. Johnson and Fowler, (2013) stated that overestimating the accuracy of the knowledge often can lead to error in critical decision making. The perceived overconfidence often leads to misleading interpretation for the critical decision making. The collection of limited information due to overconfidence may actually results in poor quality decision for important cases. On the other hand, Chen et al., (2015) opined that overconfidence often leads the decision makers towards overusing disconfirming information. In this way, disconfirming information can results in poor decision making without the objectivity of the world.
Recognizing and identifying biases in the scenarios
The concept of weak heuristics can be viewed in the business case scenario of 7 Eleven in Australia. With an intension to increase the profitability of the franchisees, the managers of such franchisees have taken quick decision to underpay the employees and increase their working hours. They even manipulated the payroll of the employees. However, such strategies had not any connection with the real logic and theory of making business profitability. The decision was only intended towards making instant profit from the business by lowering the business operational cost through reducing employee salaries. Moreover, the managers did not even think about the logic behind this scenario and the future complexity to be occurred from the scenario. Such quick decision without any logic has ultimately led to legal complexity for the organization in recent time (Ferguson, 2017).
While considering the concept of Bounded awareness, the scenario of Woolworths Limited can be explained. As per bounded awareness, bias in decision making is likely to occur, when there is limited focus in the unseen information related to the decision making process. In this way, the managers of this company have not noticed the actual demand of the customers from the service and products part. Moreover, the managers of the organization had completely missed out the important information regarding customer satisfaction. Furthermore, they have missed out the information regarding customer satisfaction in terms of freshness of products, store layout and other values of customer service. In this way, the bias in decision making has been found for overlooking the vital improvement for the organizational strategic improvement. The lack of important information regarding customer satisfaction has ultimately reduced the sales volume of the organization (NewsComAu, 2017).
One of the classic examples of escalating commitment in business world is Iridium project Motorola Inc. During 1980s, the coverage of phone all over the world was extremely weak. For instance, it could have taken hours to deal with through several telephone operators for getting a call through one area to others within countries. Therefore, there was a significant need for improving the phone access condition of the world by the business community. At that time, Motorola envisioned this need and solved the problem of phone access through using 66 low orbiting satellites, which enabled the user towards placing call directly to any location of the world. At the time of this idea development, the project was of highly sophisticate technology, advanced and dame financially sensible. Moreover, this project was capable of gaining competitive advantage through adding new features in phone coverage area for placing call in any location around the world.
Measuring or evaluating bias in the scenarios
In the year 1991, Motorola spun off Iridium as separate company. The researchers of this organization took 15 years for developing the products from idea to market release. However, the landscape of cell phone technology in 1990s was completely different from that of 1980s. Moreover, the widespread cell phone area coverage eliminated the projected customer groups of Motorola. However, the decision maker of the organization paid less attention to these developments of phone coverage. Instead, they released the phone in 1998. The cost of the phone was $3,000 and it was literally in the size of brick. Furthermore, the phone was not also possible to use in moving cars and inside any building. In this way, this project was a big failure for the organization. Escalation of commitment occurred, when decision makers spend huge time and cost in this project for recovering the losses (McIntosh, 2017).
While considering the concept of overconfident, the case of Brutish Petroleum can be considered. In the year 2009, the decision maker of British Petroleum downplayed with the risk associated with the business. Moreover, the decision makers overconfidently downplayed with the risk associated with the oil well located in the Gulf of Mexico. They assured regulators that it was virtually impossible for any accident to happen. After few months, an oil rig exploded, where 11 employees were killed and missive oil leaked, which spanned more than 1 mile underwater. Over confident decision makers underestimated the risk factors associated with the business and overestimated the effectiveness of business, which causes serious losses in the business outcome (Sherwell, 2017).
In case of the business scenario of 7-Eleven, the evidence of heuristics can be found in the business operation. Moreover, they decided to underpay the employees of Australian franchisees, which had no real connection with the actual business profitability methods. Therefore, the bias is the decision making process can be measured through the legality assurance of the business operation. The organization has faced several legal complications for this biasness in organizational decision. The biasness in organizational decision can also be evaluated through employee survey (Halevy & Chou, 2014). It will estimate the level of damage to the employees for the organizational decision.
In case of business scenario of Woolworths Limited, the evidence of bounded awareness can be found. In this scenario, the organization had limited focus on the actual information regarding customer satisfaction. Moreover, the organization missed out the information regarding the store pay and product freshness for the satisfaction of the customers. Therefore, the bias in the decision making process of this organization can be measured through evaluation of customer satisfaction (Abatecola, 2014). The information collected from the customers will give actual missing information in the organizational decision making process.
Strategies to address, ameliorate or overcome bias in the scenarios
In case of the business scenario of Motorola Inc, the evidence of escalating commitment can be found. The decision makers of the organization of this organization were highly committed towards recovering the losses occurred for the project of Iridium. They unnecessary invested time and money for the recovering the losses occurred from this project. Moreover, they gave less importance in changing their strategy for improving the phone coverage area. The less advancement in phone coverage area actually reduced customer base of the organization. Therefore, the bias in decision making process of this organization can be measured or evaluated through sales percentage of the organization for this particular project (Blumenthal-Barby, 2016). The reduced sale percentage can be the indicator for the bias in decision making.
In case of the business scenario of British Petroleum, the evidence of overconfidence can be found. The decision maker of the organization overconfidently underestimated the risk associate oil well located in Gulf Mexico. This overconfident had ultimately caused huge business loss through oil spill (Quiggin, 2016). Therefore, the bias in business decision can be measured through assessing the loss occurred in the business operation. The bias in decision making can also be evaluated through assessing the environment impact through the oil spill in Gulf.
While considering the business scenario of 7-Elven, it has been found that the managers has applied weak heuristics for gaining instant profit. They used to underpay the employees and increase their working hours for increasing organizational productivity with decreased cost. However, such decision has ultimately lead to legal complications for the organization. It has also caused decreased employee morale in the organization. Therefore, the organizational decision maker should immediately change their employee strategy and compensation package for the employees. Moreover, the payroll should be justified with the actual compensation package of the employees. On the other hand, the managers should also take decision about the paying all the overdue payment to the employees. It will help them towards avoiding the legal complications.
While considering the business scenario of Woolworths Limited, it has been found that the decision makers have missed out the important information regarding the actual demand of the customers for enhanced customer satisfaction. In this way, the limited focus on important customer information has led to decreased customer satisfaction. Therefore, the managers of this organization should conduct customer satisfaction survey for identifying the missed out information regarding the store layout and product freshness. Moreover, as per this survey, the manager should take decision about addressing the missed customer information and align the service as per the customer demand.
Bounded awareness: the missed imperative information
While considering the business scenario of Motorola, it has been found that the decision makers of the organization spent lot of times and money for the failure project of Iridium. This phone was having limited coverage area and inflexible to place call in moving cars and inside any building. It was not compatible with the advanced technology and phone coverage area. Moreover, such lack of advanced technology in phone coverage area and lack of attractive phone design has reduced the projected customer group of the organization. Therefore, the organization should change their strategy of making their phone more attractive to the customers. It can increase their customer base and sales volume for this particular phone.
While considering the business scenario of British Petroleum, it has been found that the decision makers of the organization are overly confident upon their business operation. Moreover, being overconfident, the decision makers of the organization have underestimated the risk associated with the oil well located in Gulf Mexico. This risk underestimation has caused oil spill in this area and caused huge business loss. Therefore, the decision makers of this organization should always used special risk assessment framework for assessing the business risk in the business operation. It can reduce the potentiality of causing business risk and huge business loss prior to happening.
References
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