Chapter 11.2: DECISION-MAKING BIASES: RULES OF THUMB OR "HEURISTICS"

Confirmation bias

Pertains to how we selectively gather information and has two components. The decision maker (1) subconsciously decides something even before investigating why it is the right decision—for example, making a snap decision to purchase a particular smartphone-and (2) seeks information that supports or confirms the decision while discounting information that does not. This bias leads us to collect information that supports our beliefs or views. A tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence

Framing bias

Relates to the manner in which a question is posed or framed. It leads us to change the way we interpret alternatives. The tendency of decision makers to be influenced by the way a situation or problem is presented to them Note: In general, people view choices more favorably when they are framed in terms of gains rather than losses.

Escalation of commitment bias

Tendency to hold to an ineffective course of action even when it is unlikely the bad situation can be reversed. Decision makers increase their commitment to a project despite negative information about it

Anchoring bias

When decision makers are influenced by the first information they receive about a decision, even if it is irrelevant.

Hindsight bias

When knowledge of an outcome influences our belief about the probability that we could have predicted the outcome earlier. The tendency to believe, after learning an outcome, that one would have foreseen it

Overconfidence Bias

Overestimating our skills relative to those of others, such as our driving ability, and overestimating the accuracy of our predictions.

Heuristics (rules of thumb) fall into eight categories:

1. Availability Bias 2. Representativeness Bias 3. Confirmation Bias 4. Anchoring Bias 5. Overconfidence Bias 6. Hindsight Bias 7. Framing Bias 8. Escalation of commitment Bias.

Availability bias

A decision maker's tendency to base decisions on information readily available in memory. Because the information is recent, we overestimate its importance. The tendency for people to base their judgments on information that is readily available to them

Judgmental Heuristics

Cognitive shortcuts or biases that are used to simplify the process of making decisions. Rules of thumb or shortcuts that people use to reduce information processing demands

Representativeness bias

Leads us to look for information that supports previously formed stereotypes. A faulty heuristic strategy based on the presumption that once people or events are categorized, they share all the features of other members in that category. A manager, for example, may hire a graduate from a particular university because the past three people hired from this university turned out to be good performers.

Heuristics

Mental shortcuts or "rules of thumb" that often lead to a solution (but not always).