Decision Making Biases and Pitfalls Case Paper Leadership

Leadership: Decision-Making Biases and Pitfalls Case Paper

Globalization and profuse technological infusion have created complexities in the business environment that have posed a major challenge for business managers. Decision-making has become intricate due to the transformation of processes and operations and the market’s uncertainties, competition, external forces, and target market preferences (Acciarini et al., 2020). This paper discusses some of the commonly known decision-making or cognitive biases relevant to the given cases.

Case Scenario 1

In the first scenario, the Chief Financial Officer (CFO) is a victim of ‘anchoring bias.’ It is said that she relied heavily on one piece of information and disregarded various other factors that might have caused the failure of marketing efforts (Ezzeddine, 2014). Other critical factors that could have caused marketing failure might include technological or political/legal changes. Jumping straight to the conclusion afterward by depending on the data of one year, which was also several years old, is not a true depiction of intelligent decision-making. The bias resulted from dependency on the data that was not only outdated but also happened only once.

Also, another scenario of cognitive bias comes from the employee from whom the CFO asked whether the drop in sales came from cutting marketing costs. The employee said, ‘no.’ ‘Overconfidence bias’ could be the reason as the employee wanted to show that she is good at her work and that she knows only marketing would make the reason (Hammond et al., 1998). She relied too heavily on her work experience and the field she was related to. Hence, she might have overlooked other possibilities. Again, taking a piece of old data information too seriously cost the company that appeared only once, which could have been other unexpected market factors.

Prevention of anchoring bias is easy with a simple solution. Letting others sometimes take charge in giving suggestions from all directions (Hammond et al., 1998). Organizations welcome diversity since perspectives of different background people help the company see through different directions. The tentative decisions could lead to more well-developed future frames, working like a counseling session. Also, it could be seen in the form of negotiations between the leader and subordinates, where their proposal would be weighed across several costs and benefits. The final defensible position should then be made, for which consent of all the negotiators or subordinates must be taken. When approval of the maximum number of employees is gained, it could be estimated as the most favorable decision for the company to produce a magnified positive impact for all employees.

Case Scenario 2

The CEO presents a prime example of overconfidence bias since he thinks he knows how to overcome the odds when the mergers fail. He seems to rely blindly on his capabilities to handle tough times despite others telling him that it might not be a good decision (Hoffman, 2012, p. 16). He thinks his skills and successes in the past have supported him well and that he could not do wrong this time. He ignores the information provided by others that includes a warning that the company would have to suffer huge debts if they go for a merger with a rival.

The only way to avoid this bias is to first. Stop relying on skills and expertise so leaders become open to suggestions. He should not feel self-contained in his worth and consider various other possibilities. Sometimes, the subordinates who have updated knowledge, skills, and information about the market trend might give useful information that could later save the company from bad decision-making. Imagining the circumstances from several aspects helps the managers adjust the range of possibilities and their respective results (Hammond et al., 1998). Giving oneself reasonable doubt and a second chance to look at the available information would also assist the manager in falling into the prudence trap (Hammond et al., 1998). Overemphasizing one’s capabilities for assuming the role better than the others might become costly for the firm as adjustments cannot be made. It shows the adamant nature of the leader where the leader is unwilling to make changes and is stubborn about his skills. The reasonable range to believe that gap might exist and make an assessment for such impacts is then found missing.

Case Scenario 3

The third case scenario is close to framing bias since the CEO relies on how information is presented in contrast with scrutinizing the facts and weighing the outcomes (Berthet, 2022). Balancing profits and losses in selecting factories A and B seems to be misleading as he only sees the success rate of Factory A, which the owner told him was 94%. If he had worked around the given facts himself, factory B could have been a better option as, despite his 5% defect rate, the success rate is 95% after doing the Math. The CEO seems to be misguided by the framing of perspectives. Gains and losses are sometimes weighed wrongfully by the decision-makers, which impacts the final decision significantly. The turbulence resulting from such a decision is impactful for the entire organization and the employees.

To avoid framing bias, it is suggested that before believing the initial framing presented to the manager, he should consider the same frame in other directions as well (Hammond et al., 1998). Before making the final decision, the problems should be observed from different angles so that distractions can be eliminated that might lead the manager to a worse decision in place of the better available one. Another advantage of doing so would be the presentation of facts from different dimensions so that certain combinations of facts and stats present the manager with numerous scenarios to better engage in cost and benefit analysis. The reference points available help frame the particular lens of looking at the same case with a slightly different perspective that could make a huge difference for the company and its people.

Case Scenario 4

The fourth scenario is an evident example of sunk-cost bias. The manager thinks that since a considerable amount of money has been invested in an endeavor, it cannot be abandoned (Hammond et al., 1998). The time and effort put in are so much that he or she overlooks the costs the business goes through afterward. The automobile company CEO thinks that the costs would be irrecoverable and that it is unwise to abandon the project as it has taken heavy financial investments in research and development.

To avoid sunk-cost bias, managers must be good listeners (Hammond et al., 1998). They should not rely profoundly on their own decisions and deem that it is irreversible after a decision has been made. Listening to subordinates which might be good in their fields and have relevant knowledge should allow them to share their opinions. Shunning their input there would show a bad motivational trait from the manager or leader. The employees might be fearful of voicing their perspectives, which might land the company in hot waters due to bad decision-making solely by the leader. Rewarding employees should remain an important part of the organizational culture as they put in their time and effort in helping the leader to reach a final and more sensible decision (Hammond et al., 1998). It would help them feel included in the organization and feel like belonging. They would be encouraged to work for the company with integrity and honesty. The encouragement needs to be continuous from the leader, either extrinsic or intrinsic rewards.

Conclusion

Although all of the biases mentioned earlier lead the manager to make wrong decisions that could lead the company to suffer from heavy losses, processing the right information with as many possible alternatives is crucial. The faults should be identified promptly before the damage becomes irreversible. The human brain tends to work in complex ways, and each individual has a distinct way of processing situations. However, acute proximity is needed to reach the final and well-researched decision with clarity.