Biases in Decision Making and Rational Behaviour

Running Head: Biases in Decision Making and Rational Behaviour
Managerial Decision
Making
Essay
System04104
9/26/2019

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. Understanding of 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 because of their personal or 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 taking decisions (De Boer, 2017). In such scenario, the chances of errors

Biases in Decision Making and Rational Behaviour
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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 of decision 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.
The Availability heuristic approach of 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