Heuristics and Biases in Strategic Decision-Making

The paper delves into the intersection of cognitive psychology and business strategy, focusing on how heuristics and biases affect decision-making processes within organizations. By examining existing literature and case studies, it identifies common cognitive shortcuts used by managers and evaluates their influence on strategic outcomes. The analysis reveals that while heuristics can expedite decision-making in complex environments, they often introduce systematic errors or biases that may lead to suboptimal strategies. The paper proposes methods for mitigating these biases, advocating for a balanced approach that leverages the efficiency of heuristics while minimizing their potential drawbacks. Ultimately, it underscores the importance of awareness and critical evaluation in strategic decision-making processes.

Running head: MANAGEMENT IN GLOBAL ENVIRONMENT
Management in global environment
Name of the student
Name of the university
Author note

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Executive summary
The aim of this report is to discuss about the various factors that can get generated from the
initiation of the decision making process. Moreover, this report also discussed about the biases
that will get emerged during the process of the decision making. This report discussed about the
steps to be taken by the decision makers in order to have an ideal decision making process and to
speed up the effectiveness of the process. It is being discussed in this report that, determination
of the availability of the resources is one of the key steps to be taken by the decision makers
prior to the initiation of the decision making process. From the discussion, it is being concluded
that, determination of the availability of the resources is important due to the reason that, it will
enable the decision makers to have the fair idea about the resources that are being available and
initiating the decision making process accordingly.
This report also discussed about some of the key social influences that will affect the decision
making process. These factors are being discussed in this report due to the reason that, in the
current business scenario, there are various social influences emerge, which will have negative
impact on the decision making process. One of the key social influences being identified in this
report is the age group of the decision makers. Critical analysis is being done in this report with
the help of some of the articles. It is being concluded that, decision making process of the
decision makers from the younger age groups will be more aggressive and will have more risk
taking ability. This report also discussed that; decision makers from the older age groups will
have lower risk taking ability in their organization. Common biases that can get originated from
the decision making process are also being discussed in this report. It is being concluded that one
of the key and most probable biases is the self interest of the decision makers. It is being
discussed in this report that, in the current business scenario, the competition is high and the

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desire for success is also increasing at a rapid pace. Thus, in accordance to that, decision makers
are being influenced by their personal choice of organizational success and initiate the decision
making process. Thus, it is being recommended in this report that, decision makers should
refrain themselves from instigating their personal interest in the organizational decision making
process. In addition, this report also concluded that, initiation of the decision making without the
influence of self interest will have favorable impact on the organizational stakeholders. This is
due to the reason that, considering the greater interest of the organization will help the decision
makers to have an ideal and effective direction for their subordinates. Thus, effective
implementation of the steps being discussed in this report will help the decision makers to reduce
the barriers in the decision making process.

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Table of Contents
Introduction......................................................................................................................................4
Decision making heuristics:.............................................................................................................5
Common biases while making decisions.........................................................................................9
Biases Resulting from Attention:.................................................................................................9
Biases Resulting from Under processing...................................................................................11
Social factors in determining the decision making process...........................................................12
Age group of the decision makers.............................................................................................12
Masculinity of the society..........................................................................................................13
Location and country of origin..................................................................................................14
Conclusion.....................................................................................................................................15
Reference.......................................................................................................................................17

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Introduction
In the current business scenario, decision making process is one of the key aspects to be
considered by the contemporary business organizations in order to have an effective internal
management. This is due to the reason that, the current business scenario is witnessing various
challenges. One of the key challenges being faced by the contemporary business organizations is
the increase in the rate of competition in the market. In addition, it is also to be noted in the
present era of the globalization, majority of the business organizations are operating and catering
to different markets around the world (Bond and J. O’Byrne 2014). Thus, it is important for the
contemporary business organizations to have the effective decision making process in order to
initiate the organizational decisions effectively. Moreover, it is also important to consider that
despite having the fact that, contemporary business organizations are having different elements
and factors to be considered in their business operation, decision making process is the most
important and key element for the organizational success.
This is mainly due to the reason that, the more effective will be the decision making
process, the more will be the efficiency of the organizational operation (Ford and Richardson
2013). However, in having an effective and ideal decision making process, there are various
factors to be considered by the contemporary business organizations. One of the key factors is
the origination of the biases from the decision making process. Biases refer to the barriers in the
decision making process, which are being intentionally or unintentionally being generated in due
of the decision making process (Oliver et al. 2014). Thus, it is important for the business
organizations and their key decision makers to initiate activities in order to reduce the generation

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of biases. However, other than the generation of the biases, there are other key factors to be
considered by the decision makers in having effective decision making process.
Another important influencing factor is the social influence of the decision makers in the
process of decision making. Social influence is important to be considered due to the reason that,
the approach of the decision makers in dealing with certain business situation will be different in
different social environment. On the other hand, there will be differences in the approaches
between the decision making process of the decision makers belonging from different social
backgrounds. Thus, it is important for the business organizations to identify the common biases
and social influences that determines the effectiveness of the decision making process.
However, with the challenges being faced by the decision makers in initiating effective
decision making process, there are various effective solutions being generated. Implementation
of these steps will help the decision maker in reducing the barriers in the decision making
process along with speeding up the process of decision making. Thus, apart from determining the
barriers and influencing factors in the decision making process, it is also important to identify the
steps to be taken to enhance the effectiveness of the decision making process.
This report will discuss about the various barriers of decision making process including
the social factors and common biases. Moreover, the factors that will help the decision makers in
speeding up the process of decision making will also be discussed in this report.
Decision making heuristics:
Heuristics are some general decision making procedures that are widely used by the
people. These are based on little information but correct. It is a psychological short cut method
which people use to reduce intellectual burden related to their decision making process

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(Toplak,West and Stanovich 2017). According to the theorists, heuristics reduce pressure of
work in decision making in many ways by assisting people to scrutinize some signals as well as
alternativechecks in the procedure. Heuristics helps in diminishing the task of retrieving along
with storing information in the memory of an individual. It helps in the rationalisation of the
decision making procedure by dropping the amount of integrated information important to make
the choice as well as passing judgement(Maitland and Sammartino2015).
According to the Blumenthal-Barby and Krieger (2015), heuristics serves numerous
functions and range from very general to very particular. In case of the price heuristics, where
the individuals judge high priced materials to have greater quality than the low priced things.
This specifies specific consumer patterns. In case of outrage heuristic,when deciding the
punishment people ruminate how disgracefula crime is. The three most importantheuristics are
representative, availability and adjustment heuristics.
While making decision the people rely on various heuristics for speed and opportuneness.
One of the most important heuristics is the representative one (RH) that is very much
economical. In the case where one of the two thing are identifiable, people definitely choose the
recognisable one, utilizing as well as reaching at a decision with the slightest amounts of
information (Toplak,West and Stanovich 2017). The research and information gathering in this
aspect is very contradicting. One set of researchers argue that recognised memory is observant,
reliable as well as more accurate than the chance alone and smaller amount of recognition results
in more accurate decisions. Another set of theorists found out that people utilize additional
information while using their RH because they do not depend only on the recognition alone
while making a decision. They also state that even when comprehensive recognition is
established, persons use supplementary information, in combining with the RH.

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Another important heuristic is availabilityheuristic in which people are more inclined for
retrieving information which is most voluntarily available for making the decisions. It is more
researched one as this is the foundation of many of people’s judgments as well as decisions. In
the arena of medicine, the missed or wrong diagnoses have been often attributable to various
heuristics among which, the availability heuristics is one of the responsible factor(Harrison,
Mason and Smith 2015).According to the scholars, heuristics are advantageousbecause these are
cognitively reasonable, but the clinicians or practitioners in medicines need to identify
whenavailability heuristic needs to be over-ridden in supporting more inclusive decision making
attitudes.
The adjustment heuristics are the basic decision making heuristics in the circumstances
where few estimates of value have beenneeded. In this specific heuristic, people initially use
some anchors or some estimates that surface initially as well asregulate their estimates till they
reach to the satisfactory answer. The research reveals that people, whenever asked any question
their anchoring and adjustment heurist are found to be used (Capraro, Jordan and Rand 2014).
The practical and actualapplication of the anchoring or adjustment heuristics are in the
negotiations aspect wherea person makes counter offergrounded on the anchor which is provided
to him. Peopleoftenincline to make estimates that tend to fall towards the anchor part, where real
values incline to be remoter away from the initially plantedanchors. Further, anchoring entails
effort therefore such works are significant in avoiding the anchor bias (Vuori and Vuori 2014).
According to the psychologists, most people are partly rational and typically irrational
and emotional at the time they make decisions.Heuristics hep in formulating as well as solving
most of the complex problems along with processing the information by receiving, storing,
recovering and transmitting that informationthus speed up the procedure. The psychologists have

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found a new kind of heuristics which is fast and frugal type of heuristics. This model they have
established can be logically applied in increasing the speed of the decision making process
(Beach and Lipshitz 2017). Fast and frugal heuristics are simple yet task specific judgement
strategies which are ecologically logical as well as balanced as these exploit the structures of the
information in environment. These are initiated in the changedpsychological capacities for
instance memory as well as the perceptual system. These are simple, fast and frugal yet enough
for operating effectively in case the time, information as well as computation are seem to be
limited andprecisesufficiently for modelling computationally (Maitland and Sammartino2015).
These heuristics are powerful enough for forming good reasoning. In the traditional
decision making procedure, all attributes need to be examined, scored then weighted for all the
options. Therefore, the classical processesprove to be complex as well as exhausting for the
decision makers incase the quantity of options or attributes increase. It slows down the decision
making procedure. On the otherhand, fast and frugal heuristics follows the method of trying to
take the best by ignoring the rest (Harrison, Mason and Smith 2015). This fast and frugal
decision model is based on matching heuristics that achieved almost as good results as the
logistic regression model, but are faster as well as more malleable in making decisions.
Maitland and Sammartino (2015), have identified the important zones of psychological
inquiry that was previously unkempt in the classical study of the human judgment and the
process of decision making. The different heuristics have greatly contributed in understanding
the real-world decision making process of the people under different environmental
constraints.There are theoretical arguments which discuss the decision making procedure under
the light of various factors such as the reasonableness, optimality and importance of general
experience in the procedure of decision making (Hoffrage et al. 2015). The heuristics incorporate

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synergy and integration in the strategy selection so that the people need less time to make
decision at the time of urgency.
Common biases while making decisions
The researchers have identified several internal biases which often result in bad
decisions. These are inappropriate prejudgments, inapt experience, attachments and self-interest.
Prejudgment takes place when the decision makers select an option of action as well as ignore
any other advices and information which do not support their decision (Harris et al. 2016). Inapt
experiences help to explain the reason the people continue with the status quo against the face of
constantly changing customer demands in the global economy. An effective decision making
starts with an implicit understanding of the customer judgement as well as decision procedure.
The biases affect decisions process, as in the case of the current financial crisis (Koch,D’Mello
and Sackett2015).
Biases Resulting from Attention:
The attention or memory related restraints convey a strong impact on the judgment as
well as decision making process. In fact, as people’s attention or memory influences the decision
making. Therefore, unbiased decision taking becomes impossible because attention as well as
memory are prejudiced. People cannot attend all obtainable information relevant in the decision
but tend to emphasis on the information which are basically interesting, attention grabbing, easy
to understand as well as process(Koch, D’Mello and Sackett 2015). For instance, well-written or
well-organized documents receive exceptional attention than the ill written or ill organized
memos. Information which has instant or direct insinuations for decision making is more intense
as well as attention-drawing than the information which has distant or indirect implications.

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Judgments relating to one portion of information, object or a particular issue are
influenced by the other pieces of these factors which are present at the moment of decision
making. These factors influence judgment when they are irrelevant to the decision making task
(Montresor et al. 2015). In addition to this, the most common kinds of factors are contrast,
assimilation and the framing. The contrast takes the decisions away from the context. On the
other hand, as the two same objects are compared, the targets are displaced to the reference
point. Framing effect represents shift in the decision making procedure which occur at the time
when people focus on the different conceivable reference points (Chen, Moskowitz and
Shue2016).
People while indulging in making group decisions, more people take part in the
procedure and exchange different views and perspective but in reality there are little sharing of
unique information are shared. This is where most cases of biasness take place. This is known as
common knowledge influence on the other group members (Sassenberg, Landkammer and
Jacoby 2014). The effect of group polarization is also important aspect in this context where
group discussion increases extremity of preferences shared by a small number of group
members. Despite the fact that the traditional researchers disclose that more information used to
be shared through group discussions but the recent studies have revealed more negative aspects
about the undesirable options have proved to be more persuasive than the positive arguments
against the favoured options. These kinds of bias occurred in all kinds of groups but is more
distinct in the unanimous groups (Elbanna et al. 2017). The unwillingness for considering
preference-inconsistent information upsurges the group polarization as well as group thinking.

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Biases Resulting from Under processing
While the previous section focuses on the judgmental biases causing from the limitations
in people’s attentional as well as memory systems. Usually, people can attend or recall relatively
small amount of information in one time but not all of them are most diagnostic information. The
people’s over dependence on the cognitive heuristics or the strategies designed for simplifying
the judgment or decision making(Chen, Moskowitz and Shue 2016). The simplified decision
making strategies reduce the number of cognitive efforts needed for reaching the judgement.
This is called under processing(Sassenberg, Landkammer and Jacoby 2014). There are several
key cognitive heuristics among which representativeness, availability, simulation and anchor-
adjustment are important and record biasness in decision making. The representativeness
heuristic encourages the causal judgments or the decisions of category membership. Under
processing makes people to overlook important things for example the preceding probability or
the base rate of outcome. For instance, new products in the market may include all the needed
appearances in quality or success but they can still fail in case the base rate and incidence of
success in product category has been very low. Sample sizes are also neglected if people rely
heavily on representativeness or other heuristics (Shepherd and Rudd 2014). Quality of
information are often neglected by the people when they make decision as they rely heavily on
the heuristics. The reliability and validity or accuracy need to be judged before decision process.
Biases Resulting from Over processing:
Many decision makers become unmotivated as well as unable for considering every bit of
information which appears to be relevant to some particular judgments or decisions. Under such
circumstances, a comparatively small pieces of information are considered important as well as
the cognitive heuristics have been used for simplifying judgment or decision making procedure