Decision-making biases and errors

Starting with the name of Allah the most beneficial and the most merciful. Assalam o Alaikum, My name is Zeeshan Haider(your name) and I am here to present a topic which is Decision making biases and errors. Now first of all we have to understand that what the decisionmaking is. It can be regarded as the mental processes resulting in the selection of a course of action among several alternatives. It means that we have different choices and we have to choose the best among them. The output can be an action or an opinion of choice. Although there are many decision-making errors and biases but most commonly errors and biases can be;

Overconfidence Bias
Because the manager who is making some particular decision is also a human being and finally he has to make a decision so if he has something in his mind like I m always right this is called the overconfidence bias. The manager holds the positive views about himself and always thinks that I know every thing. I can never be wrong and similarly the decision that I am going to make, would generate the desired results whether it may be actually not true. But he does the mistake of making that decision because he thinks that I have made and it can never be wrong so it is called overconfidence bias.

Immediate gratification bias

Immediate gratification as the name signifies is a bias in which manager makes the decision on the basis of the outcome by making that choice which will give him the immediate or quick rewards. He ignores the future outcomes and simply give importance to those decision choices which have the quick outcomes.

Anchoring Effect
Now lets talk about the anchoring effect. It is basically the human tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions. Normally they rely heavily on the initial information and that information carries a lot of weight for them and further information has not so much importance for them. This can cause a lot of problems in decision making. For example a rise in income has only a small and temporary effect on happiness and well-being, but people consistently overestimate this effect.

Selective perception bias

Selective perception is the bias in which the decision maker selectively organizes and understands the events based on his selective perception or according to his own awareness, this is called selective perception bias. If I ask u the question that how many shops u see while coming to our college, different students will give different answers based on their priorities and interests. For example the student who likes food very much would have always noticed the food shops while coming from the home to college and would have always ignored the other shops. So this is his selective perception. Similarly the when the managers make some decisions, they keep in mind that events and those influence the information as well the problem that managers identify. So this causes them to make some biased decisions.

Confirmation bias
Actually people are biased towards confirming their existing beliefs. Confirmation bias is that the manager favors the information that actually confirms his fixed ideas without keeping in mind that whether the information is true or not. Another proposal is that people show confirmation bias because they are logically assessing the costs of being wrong, rather than investigating in a neutral, scientific way.

Framing effects
It is said that a single word is enough to narrow or to close one of your mental windows. Or we can say that to give a biased presentation or formulation that diverts the attention towards an intentionally highlighted specific or one-sided interpretation. ("the half empty or half full glass") So framing effect is basically that the decision maker excludes certain aspects of a situation and includes some of them for making decision making. This is called the framing effect. As the name also signifies.

Availability bias
The decision makers tend to remember the events that are most recent and bright in their memory. This also causes the bias in decision making. For example, the number of people who die in the road accidents is very high. But people think the having a journey in the plane is more dangerous because of the reason that the airplane crash incident is very recent in our country so people overestimate this incident. This is a good example of availability bias.

Representation bias
Here the managers assess the likelihood of an event based on its closeness to the other events, it is called representation bias. Managers see identical situations where they dont exist. For example they say, When xyz company was in this situation, they did this and this without keeping in mind the situation of their own company.

Randomness bias
This is when the decision makers try to create meaning out of random events. They do this because most decision makers have difficulty dealing with chance even though random events happen to everyone and theres nothing that can be done to predict them. Having no definite aim or purpose; not sent or guided in a particular direction; made, done, occurring, etc., without method or conscious choice; disorganized. Closely connected, therefore, with the concepts of chance, probability, and information entropy, randomness involves a lack of predictability.

Sunk cost error

Sunk costs are costs that are irrecoverable. Its something that you already spent and that you wont get back, regardless of future outcomes. In the basketball game ticket example, the point is that the money is already gone, so now you are better off doing what pleases you best. So, unless you can sell the ticket, just forget about what you paid for it. You are better off using it to help fuel the fireplace while you comfortably enjoy the game on TV. This is the examples of sunk costs. You cant get them back. The mind trap occurs when you foolishly consider those sunk costs when making decisions about the future. In this example, the only important factors are those that lie in the future, and not what youve done in the past. Despite being fully aware of this deceive, manager still has a difficult time avoiding it himself many times.

Self serving bias

A self-serving bias occurs when people point their successes to internal or personal factors but attribute their failures to situational factors away from their control. The self-serving bias can be seen in the common human propensity to take credit for success but to deny responsibility for failure. Example of self-serving bias can be found in the workplace. Victims of serious occupational accidents tend to relate their accidents to external factors, whereas their coworkers and management tend to relate the accidents to the victims' own actions.

Hindsight bias
Hindsight bias is a documented psychological phenomenon in which people amplify the predictability of an event after it has already happened. Some psychologists refer to hindsight bias as the I knew that was going to happen effect. You can probably find a few examples of hindsight bias in a pub after a major sports event, with people claiming that the outcome was obvious and predictable. The hindsight bias is one of many such biases, and according to a study performed by the American Psychological Association in 2000, the hindsight bias actually helps people think more clearly sometimes, by helping the brain to retain correct and relevant information rather than incorrect information. For example, someone might generally observe that it looks like rain in the future, given his or her general knowledge of local weather patterns. If it rains shortly after this statement is made, the person might feel

that the prediction was stronger than it really was. Incorrect or inaccurate predictions tend not to be remembered as well as vaguely correct predictions, reinforcing the idea in someone's mind that his or her predictive skills are better than they really are.

Bandwagon effect
The tendency to do (or believe) things because many other people do (or believe) the same. Related to groupthink(think as others think). The bandwagon effect has been applied to situations involving majority opinion. People often do and believe things merely because many other people do and believe the same things.

Bias blind spot

The tendency to see oneself as less biased than other people. This is also one of the bias as well which can affect the decision making process.

Negativity bias
The tendency to pay more attention and give more weight to negative than positive experiences or other kinds of information is called negative bias. For example When given a piece of positive information and a piece of negative information about a stranger, people's judgment of the stranger will be negative, rather than neutral.

Outcome bias
The tendency to judge a decision by its eventual outcome instead of based on the quality of the decision at the time it was made. Or the outcome bias is an error made in evaluating the quality of a decision when the outcome of that decision is already known. On research was conducted and involved a surgeon deciding whether or not to do a risky surgery on a patient. The surgery had a known probability of success. Subjects were presented with either a good or bad outcome (in this case living or dying), and asked to rate the quality of the surgeon's pre-operation decision. Those presented with bad outcomes rated the decision worse than those who had good outcomes. So the outcomes were known but still the quality of decision was badly affected. This is called outcome bias.

Hallo effect
The halo effect is whereby the perception of one trait (i.e. a characteristic of a person or object) is influenced by the perception of another trait (or several traits) of that person or object. An example would be judging a good-looking person as more intelligent. This was all of my part thank you so much. If you have some questions, you may ask them.