Critical Analysis of Managerial Decision Making and Cognitive Biases

This assignment analyzes managerial decision-making processes and the cognitive biases that can influence them. The essay delves into three key concepts: bounded awareness, framing, and the impact of emotions on decision-making. It references Herbert Simon's work on bounded rationality, highlighting how human limitations and biases can lead to suboptimal choices. The essay provides detailed explanations of each bias, offering real-world examples to illustrate their effects on organizational decisions. The case study component further explores these biases by presenting specific scenarios where they manifest, examining how they are recognized, measured, and evaluated. The assignment aims to provide a comprehensive understanding of how cognitive biases affect managerial decision making, providing a valuable resource for students seeking to improve their decision-making skills and understand the complexities of organizational behavior.

Running head: MANAGERIAL DECISION MAKING AND BIASES
MANAGERIAL DECISION MAKING AND BIASES
Name of the student
Name of the university
Author Note

1MANAGERIAL DECISION MAKING AND BIASES
Introduction
According to Herbert Simon, human behavior while making an administrative decision is
not entirely rational instead it is "intendedly rational" (Simon 1991). In administrative decision
making process, the strategic decision is always taken by few individuals or a group. However,
this decision making process is inherently a complicated situation. Since the idea of rationality is
the central theme of Simon's decision making process, and it is important to elaborate on the
issue of rationality in decision making. It is to be considered that the choice of the rational
decision within the administrative set up is effected by the biases occurring which are internal
and external to the decision making process (Simon 1991). However, this seems to have a
substantial impact on the decision making the process of human beings (Tamir et al., 2015). This
paper will analyse three such issues of bonded awareness a, framing and emotions that might
cause bias in effective decision making process.
Bounded awareness
It is often argued that some people and mostly at the organizational setup, managers fail
to identify and perceive the issues, piece of information and process this inducement that are
readily available to them (Bazerman et al., 2016). This is what is known as “bounded
awareness”. It is further elaborated that such situation occurs when the people at the decision
making position make mistakes by overlooking the facts and piece of information (Carp et al.,
2016). It is argued that such behavior occurs when there is over-focus on one particular issue
than the rest. This leads to significant biases in the decision since the decision maker tends to
ignore the prime issue and takes a decision on other issues (Chen et al., 2018). This concept is
primarily applied to organizational decision taking where people are guided by the bounded
awareness, and this tends to happen more for the decision maker (Carp et al., 2016). According
to the psychologists, sharing some kind of information that is already known to the other
members tends to create a positive impact in the manner that everyone agrees to it (Haselton et
al., 2015). It is basically a psychological process where there are multiple reactions that this
entire lea to some kind of error in the decision making process. It is the complex process of
failure to understand the easily shared piece of information which could be quickly sought and

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used in the decision making process within the organizational structure of decision making
(Haselton et al., 2015).Referring to Simon, the capacity of the human in solving problems of
objective reality where the problems are more significant than the solvable ability of the person,
it could be said that this is primarily because decisions are marked by error and biases like
bounded awareness (Van Knippenberg et al. 2018). These biases are prevalent in decision
making since it is argued that by the process of limited focus, awareness and concern form the
vital information is distracted outside the focus. This situation is the reason behind many
business scandals where the decisions of the managers proved to have failed. Hence, it is entirely
justified to claim Simon’s viewpoint that the decision making ability sometimes remains outside
the required complexity of the objective reality. To take an example of the bounded awareness,
itnis to be argued that when one particular medicine was withdrawn from the market in U. S back
in 2004, many medical practitioners prescribed it without the knowledge of the ban and it led to
serious result. This happened due to the lack of awareness to seek, sought and use this
information in the right manner. This has been developed in the later section of the paper.
Framing in decision making
The second vital aspects of decision making with chances of bases are the situation of
framing. According to the scholar, framing is the situation where the decision maker tends to opt
one of the similar situations depending on the way the situation is framed before them. This
occurs in a situation where there are higher chances of identical options. According to the
groundbreaking theory of Tversky and Kahneman , people tend to choose between options on the
basis of their framed representation. This has been further elaborated in the case study (Jain et
al., 2015). According to the Prospect theory, framing will always come in some form of gain or
loss (Jain et al., 2015). This is particularly important to consider since the decision making
ability of the individual within a given situation will impact the future prospects for the
organization. Under this framing, there are chances that within a hierarchy of options and
choices, the decision maker will choose to take up the issue with higher gain and avoid the
probable loss attached to the second option (Zhang et al. 2015). This could be said that Simon
has rightly emphasized that the fact that decisions are motivated by the way the objective reality
is framed. This objective reality tends to affect the decision because it is shaping the decision by
presenting the objective reality in one or the other way. This is what creates distortions in the

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decision since the way the reality is framed is or presented before us (Jain et al., 2015). It is
important to note that framing is the process where the reality before us is presented. An
economist for long believed that framing the situation one or the other does not matter while
making the decision. However, in this field have found that decision making gets biased with
framing representation of the objective reality and this leads to the situation of confusion. (Jain et
al., 2015) For example, there might be a situation where the decision maker chooses to react in a
certain way for financial decision depending on the investment deals are presented before them.
This issue is deep rooted in the human mind where there is a tendency to avoid cases that include
higher risk factors. If there are two options presented before the individual decision maker, there
are higher chances that the decision maker would be taking the decision based on the positive
representation of the issues (Marusich et al., 2016). For example, an individual would invest in
the financial bonds in the market depending on the way it is represented on how much risk each
one of the bonds carries. This framing effect involves the risk of being tricked to the certain
decision by adopting the option which looks more favorable than other (Marusich et al., 2016). It
can also be pointed out that in the dental care advertisements, companies tend to use catchy lines
like “a health smile makes a person beautiful”, this helps to generate positivity in the consumer’s
mind and this way framing could be used for gaining certain things. Hence, it can be argued that
Simon’s opinion about the inability of the human mind to take a particular decision because the
objective reality tends to be more complicated than the capacity of the individual decision
making faculty proves to be true. It is to be mentioned that to avoid the inability of making a
decision about the objective reality which seems to be complicated, and the decision has to be
made by considering the awareness of the presence (Marusich et al., 2016).
Emotions in decision making
The third and the most important bias in the decision making is the issue of emotions.
Emotions are guided by the sudden expression of the individual mind, and this includes sadness,
anxiety, embarrassment, excitement or anger (Davis et al., 2018). These emotions can persuade
an individual to get carried away and prompt them to make decisions that may not be appropriate
in the given situation. For example, excitement has the chance of overestimation of success. If a
station of complex reality is presented before the individual decision maker, it is imperative that
the decision maker keeps a balance between the logic and emotions (Davis et al., 2018). Any

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situation of higher emotional outburst can actually lead to a situation of a wrong decision. It is to
be kept in mind while making a decision that decision making in the given context of an
organization is always complicated, messy and indeed a stressful situation (Davis et al., 2018).
Hence decision making in such situations have higher chances of being affected by the emotional
turbulence of the decision maker. According to a neurologist, Dr, Damasio, the effect of
emotions are not always negative rather it is seen to have made a specific positive impact (Davis
et al., 2018). It is argued that decision making becomes more effective when they are guided by a
balanced emotional quotient (Quiggin 2016). Even it is also argued that while making an
important decision, the decision maker tends to choose on the basis of certain emotions that are
guided by the past experience. However, it is also argued that decision making based on
emotional consideration is actually not advantages under challenging situations (Davis et al.,
2018). For example, the decision maker tends to make a fuzzy and quick decision in less time
without even knowing the reason behind certain decisions (Flach et al., 2017). Such decisions are
backed up by rational reasons in order to justify the hurried decisions. Moreover, the immediate
and messy emotions also have the risk of creating extremely reckless decisions. It is to be
considered that there are two sharp differences between the emotional decision making and the
logical decision making. In case of a complicated situation, the decision maker should be making
decisions based on logic and not emotions because emotional led decisions tend to make biases
in the decision making process (Morvan et al., 2017). According to Simon, since decision
making in the complex objective reality is beyond the human ability, it can be argued that human
mind in many cases is guided by these emotions which tend to limit the scope of the individual to
make rational choices from the full range of option (Santos et al. 2015). Emotion in this situation
restricts the rational decision making faculty of the individual (Morvan et al., 2017). Even
according to some researchers, people tend to make better decisions in the first half of the day
since there are lesser chances of getting affected by emotions. It is to be considered that decision
making is the complex process that includes consideration of multiple data and information than
taking an intuitive approach. In the famous book “thinking fast and slow” (Montibeller et al.,
2015), the author mentions there are primarily two sets of thinking prices, one is intuitive, and
other is rational logic based decision making (Morvan et al., 2017). Hence, it is critical to note
that decision making is the complex process involving multiple facts; however, it is imperative to
note that decision making is the isolated process of data and facts rather emotions have a more

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significant role to play in decision making. The decision taken by Nokia to shift from their
product to manufacturing software and supporting the smaller businesses those who are in stress
is one such example of emotional decision making. This issue has been developed further in the
second part of the essay.
Hence, it is to be argued that decision making in real situations might become
challenging since the complexity of the issue in the objective reality can be more complicated
than the ability of the human mind (Morvan et al., 2017). Simon mentions the idea of bounded
rationality where the decision making is based on the process of pre-established ends and chosen
means, situation like this might restrict the decision making of the individual. It is also argued
that the rational choice of the individual becomes complex due to environmental factors. It can
be argued in this context that decision making is a complex process of consideration of multiple
factors and values; however, the external or ecological factors along with the internal elements
impact the rational choice of decision making, and it is right to argue that decision making
faculty of the individual is affected. This limits the scope and ability of the individual to make
the wise decision within the given context.
Case study scenarios
Case study 1: Bounded awareness
This is found in the real world situation of Merck withdrawing the pain relief drug from the
market after almost 100 million medical prescriptions have already been issued by the doctors in
U. S (2004). However, it is estimated that the total number of heart attacks and strokes associated
with the prescription of this drug is 25,000 (Morvan et al., 2017) The questions here arise about
the rationality of the doctor who prescribed this medicine. This situation could be argued by the
concept of bounded awareness. According to the author, this phenomenon is guided by what is
known as bounded awareness where the cognitive blinders do not let people see, seek or even
perceive the general information and it might have made the doctors blind about the actual
situation involving risk. This situation occurs due to three factors. The doctors in this situation
may have failed to acknowledge the issue since they were not aware of the effective relevance of
the medicine. It may also happen that doctors do not share any information regarding the
withdrawal of the medicine and this may have acted as a foundation on the awareness of the

6MANAGERIAL DECISION MAKING AND BIASES
organization. Thirdly, they must have failed to seek the information and this led to the failure in
sound judgment (Morvan et al., 2017). Moreover, the Citibank’s failure in Japan is another
example of bounded awareness. This is a clear example of how the company failed to see the
information presented in front of them and which restricted them from taking sound decision. It
is the depiction of the failure of the managers and the executive directors of the company to
avoid the legal violations. This is the result of bounded awareness where the company would
have saved itself from failures it would have taken sound decisions. In case of decision making
within a group, the mentioned information is accepted and considered as the general information
by all and this does not question the validity of the knowledge. This is based in the believe that
the shared information is true and overlook any specific unique piece of information. Both at the
individual and group level, bounded awareness are applied. When awareness is restricted a
decision maker whether individual or within a group become victims of wrong decisions.
Case study 2: Framing
Framing is one of the tools used in situations of advertising and marketing and it case of
financial bonds and equity, certain framed portrayal of the things can work as a positive benefit.
One such examples of framing is found in the famous work of the paper 1980’s Tversky and
kanheman who conducted a research by adopting a questionnaire which would analysis the
students response about the outbreak of a particular disease that can kill even 600 people, what is
astonishing to note that the division of people into multiple groups have given different response.
While over 200 people responded to the issue in a positive way, the other groups responded the
same in a very negative way. While over 72% chose the first option that included the questions
same as the rest of the group. While one majority of people chose the risk aversion answers, the
other half chose risk taking method. It is to be argued that the response is depended on the way
the question is framed. This framing effect is felt in our e everyday life mostly when we respond
to situations and in case of advertisement. (Pogarsky et al., 2017). Some more examples of
framing effects can be understood by referring to the issue of take away options in restaurants.
There are two situations of pick up option for restaurants where one mentions about the 10%
discount for the pickup while the other provides no take away discount but free 10% discount on
the next delivery (Pogarsky et al., 2017). It is found in such situations that maximum number of
people would be mind washed by the options like the second one. It is to be argued that framing
is the processes of using the words in the tricky way that cam actually influence people to adopt

7MANAGERIAL DECISION MAKING AND BIASES
certain things in a certain way. The individual responses of people are completely depended on
the particular way of a framed scenario. This can be deciphered from this process that framing
can lead to serious baises in to business decision since a situation can be framed in multiple way
and it can influence the decision maker to take up certain measures an avoid others. Framing is
most used in financial marketing where the customers are tricked in a way to opt for one option
and reject another only on the basis of framing. For example, if there are two financial shares to
be marketed, one says, in the next quarter, the earning per share would be $1.25 compared to the
$ 1.27, second if it is mentioned like in the next question, the earning per share would be $1.25
than the last quarter which was $1.21. In such situations, people are likely to choose the second
one. Hence, it is to be argued that framing makes an important change in the way people takes up
the decision and it is importance to find out this framed perspective to ignore any biased decision
(Pogarsky et al., 2017). Another example could be taken in case of politics; politicians try to
frame the other opposition party always in a negative tone while their own position is akways
portrayed in the positive outlook. This is important to note since, this helps them to fetch more
votes than the rest. What is important to note here is that framing an incident in a certain way can
act as a bias in the decision making process.
Case study 3: Emotions
Among the various decision making process, it is to be noted that emotional decision
making scenario is the most common biases that takes place. For example, Nokia’s emotional
decision has made fundamental changes in its operation.Nokia one of the major dominators in
the markets of mobile and connectivity has gone through changes in the last few years. This
company launched products when companies like Apple launched their phone. Nokia switched
to other modes of software manufacturing products as a result of the internal changes in the
board of directors. This bold step has been questioned under many circumstances. However it is
to be noted that the decision was driven by the emotional outlook of the managers and the broad
members. It is the new board appointed in 2012-2013 which raised the concern for the smaller
companies and empathized those under stress. What is important to note here is that this
emotional decision of the managers actually hampered the growth of the company, it also
diversified the manufacturing and the company suffered major setback in terms of loss and
reputation. It is wrong to be empathetic in situations however it is important to note that
emotional decisions at times can actually proved to be harmful for the company in the longer

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run. Situations like this can be explained by the decision biases create by emotions. Any forms of
emotions in the decision making phase can actually affect the future growth if the company and
cam make possible changes in their vision. This decision of Nokia did not reap any positive
results and it is important to note companies adopting emotional decisions in future can earn
from this example (Morvan et al., 2017). This is important to note emotions in forms of
excitement, anger, and anxiety can actually cause serious issues of bias in the decision making.
In the case of Nokia, it could be said the decision is completely emotions driven and such
emotions are not fruitful while making business decisions. Hence, it is to be argued that
emotional decision making is destined to fail since decision should not be guided by emotions
rather it should be based on considerations of knowledge and logic. Emotional decision can
impair the sound decision maker since the decision maker is not guided by logic rather intuition.
It could be argued that to understand anything, the importance of emotions are infallible
however, it becomes biased when a decision is being taken on the basis of this emotins. It is to be
said here that Simon is correct mentioning the inability of the human mind making decisions
since the problems to be addressed are more complex and requires reduction of all forms of
biases.
Conclusion
Decision making is a complex process, and it is essential to consider that there are certain
inherent biases that will affect the decision making internally or externally. These biases are
natural to the decision maker since they are not free from these elements. This is justified to
consider the fact that the decision may not always be within the capacity of the human mind
since the objective reality can be complicated and complicated at times. However, it is not to be
believed that a right decision is always guided by these biases instead there are shreds of
evidence where the decision is guided by the logical derivations of facts and information.

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