Question

Identify the biases that frequently cause managers to make bad decisions

Answer 1

The biases that frequently cause managers to make bad decisions are as follows:

1) Overconfidence Bias: Sometimes managers are excessively confident about their decisions. They think that their decisions are 100% right. But actually, they are not. Their decisions are right but not 100%, the correctness lies between 80-90%.

Overconfidence of managers' correctness can lead to bad decision making. Managers need to be careful about their overconfidence bias while taking any decision. They need to expand their knowledge level and improve interpersonal skills to keep themselves miles away from overconfidence.

2) Confirmation Bias: Confirmation bias is a type of bias that involves supporting information that confirms someone's existing beliefs or biases. For example, suppose a person holds a belief that smart and good looking people earn more than dull people. Whenever this person encounters an individual who is smart, good looking and earning a hefty amount, he gives more importance on this evidence that supports his existing belief. This person might collect more proof that further strengthens his belief.

Managers having confirmation bias often make bad decisions by trying to collect proofs that will support their existing beliefs, they do not want to look at the other side. They don't even listen to others' opinion against their existing belief system.

3) Representative Bias: Representative Bias occurs when similar objects or events confuses people in decision making process. Managers often make mistake of believing that two similar things are more closely correlated than they actually are. Sometimes managers make decisions about two similar events from their appearance rather than drawing a conclusion statistically or logically. This is representative bias.

4) Availability Bias: Managers often make decisions by using information readily available to them. They don't invest their time to look for more information. This results in bad decision as the information available to them are sometimes not adequate enough to draw a final conclusion.