Discrete Concepts that Explain Bias in Decision Making

Running head: DISCRETE CONCEPTS THAT EXPLAIN BIAS IN DECISION MAKING 1
Discrete Concepts that Explain Bias in Decision Making
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DISCRETE CONCEPTS THAT EXPLAIN BIAS IN DECISION MAKING 2
Table of Contents
Introduction......................................................................................................................................3
Human Behavior and Decision Making..........................................................................................3
Discrete Concepts that Explain Bias in Decision Making...............................................................4
Anchoring Heuristics...................................................................................................................4
Availability Heuristic...................................................................................................................5
The Endowment Effect and Bias in Decision-Making................................................................6
Conclusion.......................................................................................................................................7
Case Application..............................................................................................................................8
BulderIn Company Case..............................................................................................................8
Endowment Effect and Poor Response to the New Houses.........................................................9
Availability and the Blame on Marketing Department..............................................................10
Anchoring scenario in Tendering Process.................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

DISCRETE CONCEPTS THAT EXPLAIN BIAS IN DECISION MAKING 3
Introduction
Human behavior is an area that has been widely researched by highly reputable scholars.
Herbert Simon, who is proclaimed as the prophet of bounded rationality, is one of the many
scholars that have consistently worked towards building a theory of human behavior. According
to Simon, what bridges the distance between behavior and rationality is the concept of “decision”
(Mallard, 2015).The agents of decision-making value rationality as a way of choice and for that
reason rationality are considered explaining the principle. According to Barros (2010), Simon
defines rationality as “relation of conformance (efficacy) between pre-established ends and the
means to reach them.” The effort to understand human behavior remains to be an area that is still
rich for research, as so many scholars seem to have different findings. However, most of the
findings tend to agree with Simon’s position that the human mind has a capacity that is smaller
than the size of the problem it is expected to solve (Weyland, 2006). It is due to this incapability
of the mind that most of the decision that people make tend to be inefficient.
Human Behavior and Decision Making
The concept of the criterion of efficiency is used about the choice of alternative “which
produces the largest result for the given application of resources" (Simon, 1947, p. 179). There is
the notion by global rationality that assumes decision makers are fully aware of all the available
alternatives that are required in the decision-making and are capable of making a rightful choice.
However, the experiences that decision makers go through is best explained by the bounded
rationality that depicts decision makers as those who have to look for alternatives because they
have incomplete knowledge of the possible outcome of their actions. The fact that there is no
adequate understanding of the consequences of actions and the incomplete comprehension of
alternatives makes it difficult to arrive at the most desired outcome (Spiegler, 2011). Unaided

DISCRETE CONCEPTS THAT EXPLAIN BIAS IN DECISION MAKING 4
decision processes are known to use the rule of thumb, which can also be called heuristics that in
most cases the conditions will always result in systematic errors (Samanez-Larkin & Knutson,
2015). Some people may consider decision bias as lack of knowledge or lapses of attention,
however, it is regarded as a systematic flaw that occurs in the individual's judgment, choices, or
desires and it is an internal relationship. Some of the discrete concepts such as different types of
judgment heuristics can be used to explain biases in decision-making.
Discrete Concepts that Explain Bias in Decision Making
Multiple concepts can be used to explain bias in decision-making, and one of the most
common ones is the heuristics. Heuristics have been used more often about the problem-solving
procedures that have been considered successful in solving daily problems. According to
Maqsood, Finegan, and Walker (2004), heuristics have been widely used in analyzing very
complex problems, however; it mostly leads to severe as well as systematic biases. Biases are
known to be common when decision tasks are highly complex and when performed under a high
degree of stress and deadline pressures. Human cognitive capacity is minimal which human
judgment to be susceptible to errors and biases (Maqsood, Finegan, & Walker, 2004). This
section explains two types of heuristics and the endowment effect and the way they explain bias
in decision-making.
Anchoring Heuristics
Anchoring is a commonly used in psychology to describe how human being tends to rely
more on a single trait or piece of information when confronted with a situation that requires
decision-making (Costa et al., 2017). People are not to have a focal point from where their
decision is expected to be anchored, and it is mostly the very first piece of information leaned.
Such a strong leaning on the first information can significantly affect the decision being made