Common Decision Biases and Errors

Judgement Shortcuts: 8 Common Decision Biases and Errors

 

Introduction: This module is designed to introduce the 8 Common Decision Biases and Errors in Organizational Behaviour

Objective

Upon completing this module, you will be able to identify and comprehend the 8 Common Decision Biases and Errors in Organizational Behaviour.

Overview

Why is it that we sometimes make bad decisions?

To minimize effort and to avoid trade-offs, people tend to rely too heavily on experience, impulses, gut feelings, and convenient rules of thumb.

Judgement shortcuts such as these can be helpful, but they can lead to distortions of rationality.

The 8 Common Decision Biases and Errors include:

1. Overconfidence Bias                                          5. Escalation of commitment

2. Anchoring Bias                                                   6. Randomness Error

3. Confirmation Bias                                              7. Risk Aversion

4. Availability Bias                                                 8. Hindsight Bias

8 Common Decision Biases and Errors: This section of the module will examine the 8 Common Decision Biases and Errors in Organizational Behavior

Definitions

To learn what the 8 Common Decision Biases and Errors are hover over the link next to each concept!

1. Overconfidence Bias

"Error in judgement that arises from being far too optimistic about one’s own performance"

In a study of confidence intervals (educated guesses about some characteristic of population), it was found that when subjects were 90% confident that their answers were correct, their answers were correct only about 50% of the time. Level of expertise in confidence intervals didn't alter the results.  

Comprehension Question: Overconfidence Bias

Can you think of a situation at work where someone's judgement may have been influenced by the overconfidence bias?

2. Anchoring Bias

"A tendency to fixate on initial information, from which one then fails to adequately adjust for subsequent information"

The role of anchoring is prevalent in negotiations. Any time someone is to state a number, the other person's ability to ignore that number is compromised. For example,  when a prospective employer asks you how much you were being compensated at your previous job, this number usually anchors your new employer's offer. 

Comprehension Question: Anchoring Bias

Can you think of a situation at work where someone's judgement may have been influenced by an anchoring bias?

3. Confirmation Bias

"The tendency to seek out information that reaffirms past choices and to discount information that contradicts past judgements"

According to the rational decision-making process, it is assumed that we gather information objectively- but in truth we selectively gather it. We tend to seek out information that are typically biased towards the views we already hold, and gravitate towards sources most likely to tell us what we want to hear. We are most prone to confirmation bias when we have good information and strong opinions about a matter. 

Comprehension Question: Confirmation Bias

Can you think of a situation at work where someone's judgement may have been influenced by the confirmation bias?

4. Availability Bias

"The tendency for people to base their judgements on information that is readily available to them rather than complete data"

Recent research indicates that information that is readily available along with any prior experience to similar information has a strong impact on our decision making. Recent events that are vivid in memory or cause emotional turmoil tend to cause us to overestimate the likeness of improbable events such as that of being in a plane crash. 

Comprehension Question: Availability Bias

Can you think of a situation at work where someone's judgement may have been influenced by an availability bias?

5. Escalation of commitment

"An increased commitment to a previous decision despite negative information"

This refers to staying with your decision even when there is clear evidence that it is wrong. We tend to search for and evaluate information that justifies our dedication, even after an initial failure. In a study conducted in 2012, it was found that escalation of commitment is most likely to occur when you see yourself as being responsible for the outcome of your decision or when the choice you made is open to inspection by others. 

Comprehension Question: Escalation of Commitment

Can you think of a situation at work where someone's judgement may have been influenced by escalation of commitment?

6. Randomness Error

"The tendency of individuals to believe that they can predict the outcome of random events"

Decision making suffers when we try to create meaning in random events, particularly when we mistaken imaginary patterns for superstition. Superstitious behavior can become debilitating if it affects your daily judgments or biases major decisions such as not attending important meetings on Friday the 13th. 

Comprehension Question: Randomness Error

Can you think of a situation at work where someone's judgement may have been influenced by randomness error?

7. Risk Aversion

"The tendency to prefer a sure gain of a moderate amount over a riskier outcome, even if the riskier outcome might have a higher expected payoff"

Risk averse employees will stick to an established way of doing their job rather than take a chance with more innovative methods. This may minimize risk but will lead to stagnation. Employees at risk for dismissal or having their power taken away tend to be more risk averse; at times, compromising good investment opportunities or strategies for their organization. 

Comprehension Question: Risk Aversion

Can you think of a situation at work where someone's judgement may have been influenced by risk aversion?

8. Hindsight Bias

"The tendency to believe falsely, after an outcome of an event is actually known, that one could have accurately predicted that outcome"

When an outcome is  accurately known, we seem to be good at concluding that it was obvious all along. The hindsight bias reduces our ability to learn from the past, and makes us falsely confident by believing we are better predictors of an outcome than we actually are. 

Comprehension Question: Hindsight Bias

Can you think of a situation at work where someone's judgement may have been influenced by the hindsight bias?

Reducing Biases and Errors in Decision Making

4 Steps to Reducing Biases and Errors in Decision Making:

1. Focus on Goals

- clear goals make decision making easier and more consistent with your interest

2. Look for Information that Disconfirms your Beliefs

- challenge your tendency to think you are smarter than you actually are

3. Don't Create Meaning out of Random Events

- ask yourself if patterns can be explained meaningfully or if they are just coincidence

4. Increase your Options

- by expanding the variety and diversity of your alternatives, the better your chances are of finding an outstanding one


Summary of Key Points

Takeaway: 

Judgement shortcuts can be a fast and convenient means to making a decision, but it may not always be the best decision. As we discussed in this section, it can result in the omission, ignorance or falsification of valuable information; information which could potentially benefit the productivity and profitability of an organization. 

By following in the 4 steps outlined in this module, decision making in organizational behaviour can be made more rational and the influence of systematic biases and errors minimized.


Assessment: This section of the module will test your understanding of the 8 Common Decision Biases and Errors in Organizational Behaviour

Multiple Choice

  • by providing employees with annual performance reviews
  • by setting up unrealistic sales targets for the team
  • by practicing an open dialogue relationship
  • by being punctual
  • by having daily team meetings
How might a manager demonstrate the overconfidence bias in an organization?

Can You Match Each Concept with its Definition?

  • Overconfidence Bias
    Error in judgement that arises from being far too optimistic about one’s own performance
  • Anchoring Bias
    A tendency to fixate on initial information, from which one then fails to adequately adjust for subsequent information
  • Confirmation Bias
    The tendency to seek out information that reaffirms past choices and to discount information that contradicts past judgements
  • Availability Bias
    The tendency for people to base their judgements on information that is readily available to them rather than complete data
  • Escalation of commitment
    An increased commitment to a previous decision despite negative information
  • Randomness Error
    The tendency of individuals to believe that they can predict the outcome of random events
  • Risk Aversion
    The tendency to prefer a sure gain of a moderate amount over a riskier outcome, even if the riskier outcome might have a higher expected payoff
  • Hindsight Bias
    The tendency to believe falsely, after an outcome of an event is actually known, that one could have accurately predicted that outcome

True or False?

  • True
  • False
In a study conducted on the overconfidence bias, experts on confidence intervals were more accurate in predicting the accuracy of their answers.

Multiple Choice

  • Hindsight
  • Anchoring
  • Availability
  • Confirmation
Mary has been asked to evaluate her performance in a performance review in relative to her coworkers. She rates her contribution to be higher than that of the others. What bias is Mary demonstrating?

Question: Decision Bias and Errors in Everyday Life

Can you think of a time when a new experience challenged one of your previously held perceptions? Has the experience affected or changed your perception on the matter?

Multiple Choice

  • Risk Aversion
  • Put your answer option here
  • Anchoring
  • Confirmation
  • Availability
All of the following are types of bias, except for:

Congratulations! You have successfully completed the module on the 8 Common Decision Biases and Errors in Organizational Behaviour!

References

1. Langton, N., Robbins, S.P., Judge, T., Breward, K. (2016). Organizational Behavior: Concepts, Controversies, Applications (7th ed.). Toronto: Pearson.

2. All images were sourced from www.google.com