Mgt 422 Scenarios

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Understanding the information available is an important issue in the business world. People generally gravitate toward higher values when looking at beneficial aspects and lower values when looking at a negative. An example would be wanting to see a high number for profits versus a low number when it comes to expenses. However, the terms in which the situation is presented can change the meaning entirely. This lopsided way of thinking is so engrained in the minds of many that people are often thrown off when the terms of the situation are reversed like in the scenario provided. The CEO sees the 94% defect free rate of company A and automatically views it as superior than the 5% defect rate of company B which obviously is not the case. Decision-makers rely on statistics and numbers on a daily basis. This can cause some confusion if the information is presented in a manner the decision-maker is not used to seeing. In order to avoid this the decision-maker needs to slow down and analyze the information provide to determine what the numbers actually mean. Furthermore, by getting numerous opinions on the matter could help clear some of the confusion faced by someone who suffers from the framing bias.

Scenario four

In the last scenario, a CEO is attempting to introduce a new hybrid with cutting-edge technology. There is a large sum of money that is spent on the project but sales are lagging, resulting in price cuts so low the company is losing money on each sale. The CEO refuses to abandon the car citing the amount of money spent on the project. This is an example of sunk cost bias. The sunk cost trap is one in which the decision-maker decides to stay with a current decision due to the costs already incurred. This can be crippling as the company is not witnessing the desired results but refuse to adjust because of the money already tied up in the decision. One of the most important aspects of decision making is, knowing when to cut ones loses. If a decision-maker stays with a current decision strictly due to the amount of money spent or loss they are inhibiting a culture that is too slow to adapt and correct problems which are hurting the company. One typically validates this bias by claiming they don’t want the money invested to go to waste, or that they are waiting for the market to respond in a previously predicted manner in order to justify their original decision. This can lead to big problems down the road as the customers respond negatively to the company on a whole rather than one product or venture. A company must be flexible and willing to adjust to differences in perception and reality.

Most decision-makers biases can be avoided by simply having and actively listening to multiple views which offer different insight to the situation. Kelly E. See, Elizabeth Wolfe Morrison, Naomi B. Rothman, and Jack B. Soll (2011) write, “Previous research has shown that the quality of decision making declines when people hew too much to their own beliefs and discount too readily the advice of others; outside information helps “average out” the distortions that can result when people give a great deal of weight to their own opinions and first impressions”. Everyone has some biases which affect the decision-making process. People are often too quick to judge a situation without thinking of the situation objectively before making a decision. This more often than not leads to an incorrect assessment of the situation and skewed decision