Cognitive Biases and Their Influence on Management Decisions

This essay critically examines cognitive biases in managerial decision-making, focusing on overconfidence, heuristics and bounded awareness. It begins by outlining the impact of biases on decision-making processes, citing Simon (1957) to emphasize the limitations of human rationality. The essay delves into overconfidence bias, differentiating between overprecision, overestimation, and overplacement, and detailing their effects on judgment. It then explores heuristics, including availability, representativeness, and confirmation heuristics, and their associated biases. Finally, the essay discusses bounded awareness, emphasizing its impact on information processing and decision-making, and its implications for team dynamics. The analysis underscores how these biases hinder effective decision-making and organizational growth. The essay uses the BUMGT5980 course material to discuss the concepts and their effects in a business context.

Running head: BIASES
BIASES
Name of the Student:
Name of the University:
Author Note:

1BIASES
The aim of this essay is to discuss the different types of bias which affect the growth
of the leaders in a competitive world of business. This paper will be analysing the bias of
overconfidence, biases and heuristics and bias of bounded awareness. All of these biases
gradually aft the decisions making process as most of the people while making decision
cannot understand their blind areas. The biases when in the management level affect the
growth of the organisation by changing the course of action in many ways. In some cases, the
bias does not allow the other factors to be judged and the definition of truth matters to
everyone in a different way. Sometimes the persons who are in charge of decision making do
not think about other prospective of the decision making therefore their decisions affect the
organisation in a negative way and in some cases, the blind spots are not paid proper heed
which thus affect the decision making process of the managers in an organisation.
According to Simon (1957), bias prevent the mental and rational growth of man and
make them ineffective in the effective decision making process. The more the person is
biased the less he can decide. In addition to this, bias can also lead to the wrong decision
making process which on the contrary harm the other people associated with the person. In
the case of administrative decision making there is no scope for biasness because this blind
the persons effectively preventing the capability to see various factors which directly connect
the effective administrative decision making. This makes people overconfident over the
things they see or hear. Biasness create impact in the minds of the people in such a way that
leads to manipulation of the proper understanding of the situation.
Impractical judgement of the manager directly harm the employees, the customers and
all types of actions of the company. This is due to the fact that they know the consequences in
every bit but due to biasness they often recruit wrong persons in the company, answer
wrongly to the queries of the customers and deal in a negative way to a particular set of
suppliers. These often lead to imprecise judgement about how the common situations take

2BIASES
place but relates to the fact that the most important information or knowledge can be
overlooked when a person is making decision.
Bias of overconfidence:
There are three kinds of overconfidence that include over precision, over estimation
and over placement. This is one of the most well established bias in which is related to the
subjective confidence of person where his reliability is greater than the objective accuracy of
their judgement when the confidence is relatively high. Over confidence is miscalibration of
subjective probabilities. Here the person overestimates the actual performance, every
placement his performance to the others and show over precision unwarranted certainty on
the accuracy of the belief of one (Benoît & Dubra, 2011).
Over precision leads to the bias that what the person knows is actually and the
ultimate truth. In this respect, the person remains overly certain about the accuracy of the
facts. This is the reason why he lacks interest of testing the aspects of his own assumptions
and dismisses all the evidence which suggest the estimates that are incorrect.
Over estimation is related to the ability to control of the self in a particular situation.
Over estimation is the process of thinking oneself to be superior to the others. This limit the
ability of the persons to find out type weaknesses in them which will be later transformed into
their strength. In this regard, the persons are not capable to see any flaws in their attitudes and
knowledge. This actually create problem as this leads to conflict among the employees and
management. Both of these parties do not accept that they can be wrong in decision making
or biased for that matter. The bias of over placement is a false belief that the person is better
than the others in the group. This types of bias prevents people to work effectively in the
competitive scenario. When a person believes in the over placement process he obviously
lose the competition because the strength is actually not understood by the person properly.

3BIASES
Biases and Heuristics:
The heuristics biases are related with the metal shortcuts that help people to solve all
the problems thus make their judgements very quickly as well as efficiently. There are three
types of heuristics present that include availability, representative and confirmative.
Availability heuristics leads to develop two types of biases like ease of recall and
retrievability. Representative on the other hand leads to develop five types of biases like
intensity of base rate, intensity of sample size, misconceptions of chance, regression to the
mean and the conjunction fallacy. The confirmation has the confirmation trap, anchor and
conjunctive and disjunctive bias (Chugh & Bazerman, 2007). All of these are associated with
heuristics biases that lead people to make wrong decisions at times and suffer for that.
Heuristics leads to speed up the problem solving capabilities and support the decision
making process but leads to error. Just because some shortcut has worked in past cases cannot
mean that this will work every time, in addition to this that depending upon one particular
heuristics can make situation complicated for seeing other alternatives or coming up with the
other new ideas. Heuristics often leads to imprecise judgement about how the common
situations take place and how the illustrative particular things may be. In addition to this, the
heuristics may also leads to develop stereotypes and prejudices for which the decision
making process gets biased. People with mental shortcut categorise and classify people as
well as overlook the more relevant information. Thus they create stereotyped categorisation
which does not have any connection with the reality. Finally, it can be stated that heuristics
involves the process of making choices which are strongly predisposed by the emotions
which the person making decision is feeling that very moment. Therefore in most of the
cases, the decisions become biased and leads to risky situations for which a new negative
condition arises.

4BIASES
Bounded Awareness:
This is an occurrence which encompasses the diversity of psychological processes all
of which can leads to the same problems. This leads to failure to see, see, seek and share the
most important as well as relevant information which usually can be seen, shared and used
(Bennis & O’Toole, 2005). Due to this reason the persons fail to see the information related
it the environments clearly because of being overly focussed on the some other issues of what
is out there. This relates to the fact that the most important information or knowledge can be
overlooked when a person is making decision. The over focusing process actually leads
persons to make this type of biases and wrong decisions. The awareness as well as the vital
information away from the range of focus limit the focus. Therefore, most of the leaders often
comes under this type of biased ignore some of the essential factors to be counted when they
make decisions. This type of bias also create impression of slow changes. This type of small
or slow changes often s in the blind area of the decision making.
Bounded awareness affect the team dynamics also and prohibit the act of sharing
information. For example in a group discussion most of the members only talk about the
issues about which they know and other also knew (Kumar & Chakrabarti, 2012). This
discussion therefore automatically produce positive acceptance by all the group members.
Hence the arousal of innovative thoughts that might have changed the decision could not be
aroused as new ideas are set aside which prove to be more helpful in this process of decision
making. These are the reasons why the managers in the responsibility of organisational
decision making must be more aware about the bounded awareness that can change the
course of the organisational growth.
Therefore, it can be concluded that bias is effective factor in the decisions making
process that directly harm the growth of the organisation. The three types of biases affect the

5BIASES
understanding of the situation and reaching the conclusion. In many cases, the managers do
not reach the right decisions because many of them are prevented by their pre-existing ideas
that they do not or cannot overcome in any way. These biases often lead to imprecise
judgements regarding how the common happenings take place and how the typical particular
things may be. All types of bias create negative impression of slow changes and manipulate
to beilev one set of understanding. The knowledge they gather from their experience and
from their learning process all go wrong when the managers are biased. Hence the mangers in
the business organizations need to set their pre-existing knowledge aside and then think of
making new decision. More importantly before they make any decision and think every
aspect of their decision making because their decision can either support the company or ruin
them effectively.

6BIASES
References:
Bennis, W. G., & O’Toole, J. (2005). How business schools lost their way. Harvard
Business Review, 83(5), 96-104.
Benoît, J. P., & Dubra, J. (2011). Apparent overconfidence. Econometrica, 79(5),
1591-1625.
Chugh, D., & Bazerman, M. H. (2007). Bounded awareness: What you fail to see can
hurt you. Mind & Society, 6(1), 1-18.
Kumar, A., & Chakrabarti, A. (2012). Bounded awareness and tacit knowledge: revisiting
Challenger disaster. Journal of Knowledge Management, 16(6), 934-949.
Simon, H. A. (1957). Models of man; social and rational.