This essay discusses the key cognition biases that affect the decision making of a person and arrived at a conclusion that how people can avoid these biases during effective decision-making process. It also explains the importance of rational behaviour in decision-making.
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Running Head: Biases in Decision Making and Rational Behaviour Managerial Decision Making Essay System04104 9/26/2019
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Biases in Decision Making and Rational Behaviour 1 Introduction Decision-making are the important part of human life and every person takes some kind of decision in their daily life when a problem arises in life.A person normally involves in a decision-making process when the person come to the action that he/she want to take. However, the decision-making process is based on several factors like critical thinking and cognitive biases. The purpose of this work is to discuss several key cognition biases that affect the decision making of a person and arrived at a conclusion that how people can avoid these biases during effective decision-making process. Understandingof rationality in decision-making process is really important, because it generally refers as the fundamental assumption when calculating or evaluating the behaviour of an individual to build an economic theory.Rationality plays a major role in decision-making and it is well described by Simon in his work that bounded awareness is a psychological state of mind where an individual faces the situation where all psychological process leads to a common type of error (Simon, 1972. Causes of Biases in Decision-making It is human nature that decision-making of a person influenced by many personal beliefs and thoughts. The people always try to seek out information based on their own thoughts, opinions, or beliefs. The personal though and stereotype of people leads to error in actual decision-making and required decision-making (Maitland & Sammartino, 2015). Even people often take wrong decisions becauseof their personalor cognitive biases, which are based on past experiences or personal thoughts. There are various factors that can cause biases in decision-making, such as over confidence, stereotype thinking, framing of mind, confirmation, selective perception, representation, availability, or sunk costs etc. (Montibeller, & Von Winterfeldt, 2015). These factors directly lead to biases while decision making and can emerge errors while taking some important decisions to solve a problem. The decisions making process generally take place in an individual’s life when he/she try to find out solution of a complex problem. Heuristics decisions are those mental decisions, which are taken by individual in order to find out a solution of a critical or complex problem.However, this type of decision-making generally taken by people in quick time and these decisions are not based on any certain rules and regulations for takingdecisions (De Boer, 2017). In such scenario, the chances of errors
Biases in Decision Making and Rational Behaviour 2 of judgemental errors increased while taking such type of decisions. While in the process of rational decision-makings is based on the choices where the output ofdecision is beneficial one, which could not be measured in the monetary benefits. However, the role of rational behaviour is really crucial while one pursuing about achieving the self-goal or try to find out the solution of a complex problem (Grant & Quiggin, 2013). Bounded Rationality and Three Biases (Availability, Representativeness, and Conformation) Bounded rationality is a crucial factor that plays an important role in decision-making. Bounded awareness is a psychological state of mind where an individual faces the situation where all psychological process leads to a common type of error (Simon, 1972). For example, in an industry and business environment, employees who are facing bounded awareness generally do not found the easily accessible and highly relevant information for their decision-makings because of their bounded awareness (Grant & Quiggin, 2013). However, bounded awareness always leads to the biases or errors while making decisions in the organisation and avoid the people to access the relevant information. However, it can be said that behaviour of person while making decision under bounded awareness needed various alternatives to find out solution of a complex problem. However, Simon states that a decision maker need to analyse all the alternative option to reach the solution or final results (Schiliro, 2013). The decision maker also evaluate and measure all the relevant or available alternatives and find and also compare the consequences of all the alternatives for evaluation of final result if the problem (Baba & HakemZadeh, 2012). Heuristic Approach in decision making The Heuristic approach of decision-making is based on the easy way of finding solution of a problem or taking smart decisions in quick time. However, the success of such type of decision-making is based on the probability of percentage basis. It is really important for an individual to make quick decision but making decision without nay criteria may affect the decision-makings and causes several errors because of individual biases such as stereotype, past history, perception, of any kind of framing. TheAvailability heuristic approachof decision-making can be considered as the mental short cuts, which is based on the probability basis and based on some past experiences. which is generally done in pressure situation or where decision is required in
Biases in Decision Making and Rational Behaviour 3 quick time. Therefore, calculation of outcome and know the probability of success of end results is essential before making any decision. One of the common causes that affect the decision making process of individual is stereotype thinking. It is generally referred to the thinking of a person, which is influence by the teammates or group members. The thinking of person is generally determined by his or her past experiences.In decision-making process, the perception and thinking or belief of person has really a great impact on the outcome of the decision-making. It is considerable that end results is most important for a decision maker that is based on his rational decision which is biases free and it is really crucial for the people to understand that biases may leads to several error in decision makings (Blumenthal-Barby, 2016).Apart from this, Simons clearly defined in the administrative behaviour; the decision maker requires anticipating about the consequences. Under the administrative behaviour, Simons mentioned that people should measure all the consequence and outcomes of the alternatives and should take the appropriate one for finding the solution of problem (Schilirò, 2012). However, the problem is that there is a limitation of human skills and efficiency to evaluate the result or outcomes of every alternative decision-making and it will again affect the result of the decision making by evaluating and measuring all alternatives, which is available for the decision making (Friston, Schwartenbeck, FitzGerald, Moutoussis, Behrens, & Dolan, 2014). Another type of heuristic is calledrepresentative heuristic, which is also a mental short cut for decision-making. The representative heuristic approach of decision-making can be considered as the mental short cut, which is generally done in pressure situation or where decision is required in quick time.In heuristic approach of decision-making does not consider the logical thinking or any perceptual mapping for making decisions rather decision is taken by the people based on given circumstances. However, this is against thethought of Simons who stated in presented the conceptsthat people should take the decision on rationality and should avoid the perceptual error or biases while making decisions (Hortal, 2017). The rational decision-making helps the person to achieve the desired results through the rational thinking and cognitive decision-making. From the rational decision-making, people can also get satisfactory results that fulfil their desires. The third approach of decision-making is based on the confirmation in which are person take decisions on easy reasoning or on some set standards to take decisions in a complex situation. In this approach of decision-making, the person take decisions based on
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Biases in Decision Making and Rational Behaviour 4 their instincts and intuition or emotional reactions and the output of decision is based upon these three factors.The Simon also mentioned the limitation of human mind while solving complex problems. Simon States that people’s thinking is limited and is affected by many biases or external factors while people try to solve complex problems. According to Simon, procedural rationality is generally includes two important terminology such as computation and satisfaction (Bazerman & Sezer, 2016). Under this type of behaviour, a person must evaluate all the results and outcomes of the alternatives and must select the alternative, which is best suited for the decision-makings and gives appropriate outcomes. This theory also states that people have very less or few ideas about the future result or consequences and in such scenario, a person must have to take rational decision that will give more appropriate result and great deal of satisfaction (Blumenthal-Barby & Krieger, 2015). Conclusion In conclusion, the present work deals with the importance of rational behaviour in the decision-making. It is also considerable that rational behaviour plays an important role in making decision when people have limited skills, knowledge, or efficiency. The role of rational behaviour when people have limited knowledge or skill is very important to achieve the desired goals or get the solution of a complex problem. There are various limitations of an individual while making decisions and that factor affects the rational behaviour while making decisions to get thedesired results. However, it can be said that due to limited skills and knowledge of people, it is really difficult to assess the probability or values of results in future context. It is also tough for an individual to evaluate the impact of probability that affects the outcomes of decision-making in finding solution of a complex problem.
Biases in Decision Making and Rational Behaviour 5 References Baba, V. V., & HakemZadeh, F. (2012). Toward a theory of evidence based decision making.Management decision,50(5), 832-867. Bazerman, M. H., & Sezer, O. (2016). Bounded awareness: Implications for ethical decision making.Organizational Behavior and Human Decision Processes,136, 95-105. Blumenthal-Barby, J. S. (2016). Biases and heuristics in decision making and their impact on autonomy.The American Journal of Bioethics,16(5), 5-15. Blumenthal-Barby, J. S., & Krieger, H. (2015). Cognitive biases and heuristics in medical decision making: a critical review using a systematic search strategy.Medical Decision Making,35(4), 539-557. De Boer, L. (2017). Procedural rationality in supplier selection: Outlining three heuristics for choosing selection criteria.Management Decision,55(1), 32-56. Friston, K., Schwartenbeck, P., FitzGerald, T., Moutoussis, M., Behrens, T., & Dolan, R. J. (2014). The anatomy of choice: dopamine and decision-making.Philosophical Transactions of the Royal Society B: Biological Sciences,369(1655), 20130481. Grant, S., & Quiggin, J. (2013). Bounded awareness, heuristics and the Precautionary Principle.Journal of Economic Behavior & Organization,93, 17-31. Hortal, A. (2017). Empiricism in Herbert Simon: Administrative Behavior within the evolution of the Models of Bounded and Procedural Rationality.Brazilian Journal of Political Economy,37(4), 719-733. Maitland, E., & Sammartino, A. (2015). Decision making and uncertainty: The role of heuristics and experience in assessing a politically hazardous environment.Strategic Management Journal,36(10), 1554-1578. Montibeller, G., & Von Winterfeldt, D. (2015). Cognitive and motivational biases in decision and risk analysis.Risk analysis,35(7), 1230-1251.
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