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Trident University Cognitive Biases in Business Decision Making Paper

Trident University Cognitive Biases in Business Decision Making Paper

Trident University Cognitive Biases in Business Decision Making Paper

Description

Even the most intelligent manager is prone to personal biases andpitfalls that can lead to bad decisions. We all carry biases based onour personal experiences. And we can all fall into various traps thatlead to decisions that seem perfectly logical at the time but inretrospect, we see that we should have known better.

In the background materials, including Bolland and Fletcher (2012);Kourdi (2003); and Hammond, Keeney, and Raiffa (2008); several specificdecision-making biases and pitfalls are discussed. Collectively theseare known as cognitive biases. Some of the common pitfallsand biases discussed in these readings include overconfidence bias,confirmation (self-confirming) bias, sunk-cost bias, framing bias, andhindsight bias.

Carefully review all three of these readings and make sure youunderstand the different types of biases. Then read through thescenarios below and think about what kind of biases are demonstrated ineach scenario. For each scenario, carefully explain which specific biasor biases is demonstrated by the decision and what can be done to avoidthis bias in the future. Make sure to pick at least one specific biasthat you read about for each scenario, and explain your reasoning. Usereferences to at least one of the three required readings from thebackground materials in your discussion of each scenario below. Yourpaper should be 4–5 pages in length:

  1. The Chief Financial Officer (CFO) of a corporation is of the strongbelief that marketing is not a good use of the company’s money. Someoneshows her data from several years ago showing that during a period ofhigh spending on marketing, sales did not go up. She says, “See, I toldyou marketing is not a good use of our budget!” and cuts the marketingbudget to almost zero. Following the cut in the marketing budget, salesalso start to drop dramatically. When asked by an employee if the dropin sales is due to the cut in the marketing budget, she says, “No!” andinsists there must be a different explanation. What kind ofdecision-making bias do you think this represents, and why? What stepswould you recommend to this CEO to reduce this kind of bias? Supportyour answer with references to at least one of the three backgroundreadings.
  2. A CEO decides that he wants to greatly expand the company’s marketby purchasing a major rival. This acquisition would double the company’smarket share. However, several of his top managers warn him that such apurchase would require the company to take out a huge amount of debt tofinance this merger, and that many of these large mergers have failed.They also point out that the organizational culture of the other companyis very different and that managing this merger would be verydifficult. Nonetheless, the CEO insists that he can overcome the oddsand plans to go through with the merger. What kind of decision-makingbias do you think this represents, and why? What steps should thisleader take to avoid this bias? Support your answer with references toat least one of the three background readings.
  3. A CEO wants to purchase a new factory. He is currently decidingbetween two factories. The owner of Factory A brags that 94% of productsproduced at the factory are free of defects. The owner of Factory Bcautions that his factory has a 5% defect rate but management and staffare working very hard to reduce the rate. The CEO decides to purchaseFactory A citing its strong 94% rate of success in producing defect-freeproducts even though Factory B actually has a 95% rate of success. Whatkind of decision-making bias do you think this represents, and why?What steps should this leader take to avoid this bias?
  4. A CEO of an automobile company decides to introduce a new hybridvehicle using cutting-edge technology. A huge amount of money is spentin research and development as well as advertising. But when the car iscompleted sales are very slow and the price has to be cut so low thatthe company is losing money on every hybrid vehicle sold. She is advisedto simply abandon the car to avoid further losses in profits, and focusher energy on selling profitable vehicles. However, she insists it isunwise to abandon the hybrid vehicle given that so much money hasalready been put into the project. What kind of decision-making bias doyou think this represents, and why? What steps should this leader taketo avoid this bias? Support your answer with references to at least oneof the three background readings.
  5. Conclude the paper with a discussion about which one of thedecision-making biases you think is the most dangerous to a leader, andexplain your reasoning.

Lombardo, J. (2014). Common Biases and Judgment Errors in Decision Making Organizational Behavior. Education Portal https://www.youtube.com/watch?v=cAbdmV3VOwA

Now go through the following three readings to get a deeper understanding:

Bolland, E., & Fletcher, F. (2012). Solutions: Business problemsolving. (Available from Trident Online Library. Read only the relevantchapters.)

Kourdi, J. (2011). Chapter 10: Avoiding the pitfalls and developing an action plan. Effective Decision Making: 10 Steps to Better Decision Making and Problem Solving. London: Marshall Cavendish International [Asia] Pte Ltd. [eBook Business Collection]

Hammond, J. S., Keeney, R. L., & Raiffa, H. (1998). The hidden traps in decision-making. Harvard Business Review, 76(5), 47-58. [Business Source Complete]

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