Question 1: What is meant by the phrase biases in judgment heuristics? Response: A bias is a predisposition to think or act in a certain way based on past experience or values (Bazerman, 2006). The term bias is often cast in a negative perspective and is sometimes used to connote prejudice and is considered the basis of discrimination. In the context of decision making, a bias is simply a way of processing information and making a decision. All people have a bias against putting their hand on a hot stove. It is obvious from this fact that not all biases are negative or harmful. Individuals can make many decisions based on bias, such as not eating at a certain restaurant because of a bad experience on a previous visit. In judgment heuristics, people use biases in making final decisions. There are specific biases for the three types of judgment heuristics: availability, representative, and affect (Bazerman, 2006). Question 2: What are the three biases of the availability heuristic? Response: The biases associated with the availability heuristic are the following: ease of recall, retrievability, and presumed associations (Bazerman, 2006). Ease of recall might be based on factors such as vividness of the experience and time proximity to the past event. Ease of recall is also affected by retrievability, which is a function of memory structure (Bazerman, 2006). Events, which people understand in proper context, are easier to retrieve than events that are not understood properly. This phenomenon might explain why memories from early childhood are often few and far between while most adults can remember events that happened to them as younger adults or teenagers from 20 years ago or longer with little difficulty. Memory does not necessarily deteriorate with age but is a function of memory structure and understanding (Tversky & Kahnemann, 1973). Presumed associations may be based on valid assumptions, or they may be flawed. In considering the link between reckless driving and drinking alcohol, a person might consider whether the two are linked, but there are at least four groups that must be considered in making this association: drivers who drink and drive recklessly drivers who drink but do not drive recklessly drivers who do not drink but do drive recklessly drivers who neither drink or drive recklessly Not everyone rationally considers all of the different groups that must be considered before making a judgment (Bazerman, 2006). Decisions based on availability heuristics can be faulty or accurate depending on the biases above. Question 3: What are the five biases of the representative heuristic? 1
Response: The biases associated with the representative heuristic are as follows (Bazerman, 2006): insensitivity to base rates insensitivity to sample size misconceptions of chance regression to the mean conjunction fallacy Consider the following example that incorporates these biases: Mary recently received a PhD degree in history, although at one time, she was interested in writing for a newspaper. What is the likelihood that Mary will take a job at newspaper or teach history at a local college? According to Bazerman, most people would assume that Mary will take the job writing for the newspaper. This is despite that fact that the majority of history PhDs will be more likely to teach history at a local college. This is an example of not being sensitive to base rates (Bazerman, 2006). Likewise, insensitivity to sample size occurs because people do not consider sample size in their basic intuition, thus people assume two businesses of greatly different sizes are likely to have the same rate of unpaid accounts, when in fact it is statically more likely that the smaller business will have the higher rate of bad debt (Tversky & Kahnemann, 1973). People consistently misconceive chance as well, which can be observed in gamblers who believe that every time they pull the lever on a slot machine the closer they are to hitting the jackpot. From a probability standpoint, each pull is completely independent of the pull preceding it and will not have any cumulative effect on the probability of winning (Bazerman, 2006). Exceptional performance in one period does not necessarily mean that the exceptional performance will continue in future time periods because all human performance tends to regress to the mean (Bazerman, 2006). Bazerman describes the fallacy of conjunction as the tendency to overrate the probably of two events in a manner that is out of proportion to other equally likely events. For example, John is not more likely to be a salesman who is active in his church choir than simply a salesman who is not active in the church choir because the probability of the latter includes the probability of the former. The key to avoiding mistakes based on using the representative heuristic is to examine all cases individually and to more carefully evaluate assumed similarities, which may be the minor at best. Question 4: What are the five biases of the affect heuristic? Response: The five biases of the affect heuristic are the following: 2
anchoring conjunctive and disjunctive bias overconfidence the confirmation trap hindsight and the curse of knowledge Anchoring occurs when two unrelated events are assumed to be related. For example, if one energy stock went from $10.00 a share to $100.00 a share, then it is erroneously assumed that a second energy stock, which was at $10.00, will likewise move to $100.00. The expectations of the second event are anchored to the first when these are two completely separate occurrences (Bazerman, 2006). Once the anchor is established, altering the bias is nearly an impossible occurrence (Nisbett & Ross, 1980). Conjunctive and disjunctive bias occurs because people consistently overestimate the likelihood of conjunctive events occurring while underestimating disjunctive events (Bazerman, 2006). Thus, a computer system failure is underestimated because the probably of failure in any one component part is small, but the probability of the system going down if multiple systems fail is high. Overconfidence occurs because people tend to overestimate their ability to solve difficult problems but underestimate their ability to solve problems with which they are familiar. The confirmation trap occurs when people prefer to hear only good feedback when, in fact, more critical feedback is of a higher value. The last affect heuristic bias is hindsight and the curse of knowledge. People tend to overestimate their prior knowledge of an event based on the outcome of that event. Thus, many people will say that they could have predicted the outcome of an event before it occurred (Bazerman, 2006). Question 5: What is the decision-analytic approach to alternative solution negotiations? Response: The decision analytic approach to alternative solution negotiations is based on the assumption that people are not necessarily focused, rational, or particularly smart when deciding upon alternative solutions. Three factors are useful in the decision-analytic approach: knowledge about each party s alternative to an agreement, knowledge about each party s interests in the various alternative solutions, and the degree of each party s interest in a particular solution. By knowing these three things, it is possible to develop a better decision-making atmosphere and to create and claim value in the negotiation of alternative solutions (Bazerman, 2006). Question 6: How do we claim value in negotiating alternative solutions? 3
Response: Claiming value in negotiating alternative solutions is dependent upon being able to frame a bargaining zone between competing alternative solutions. Extreme positions are often counter-intuitive because they frequently result in the inability to make a decision. It is better to seek out a point of overlap that might make a resolution more likely. Value can only be claimed when a resolution of choice between alternative solutions can be reached. An effective decision-making process is based upon an understanding of the value of all alternatives examined. There are no absolutely right or wrong alternatives (Bazerman, 2006). Question 7: How do we create value in negotiating alternative solutions? Response: Creating value in negotiating alternative solutions in the decisionmaking processes involves creating a win-win situation. All competing viewpoints need to have a buy-in to the decision being reached. Alternative solutions may be well-entrenched making it difficult for a consensus to be reached. Value can only be created when a resolution of choice between alternative solutions can be reached. An effective decision-making process is based upon an understanding of the value of all alternatives examined. There are no absolutely right or wrong alternatives (Bazerman, 2006). Thus reaching a consensus will create value and avoid problems in implementation of the decision reached. Question 8: What is meant by the framing of alternative solution negotiation judgment? Response: Framing is a technique that can be used to overcome biases in decision making. Humans prefer certainty over uncertainty and will even accept a false certainty over uncertainty. The most common reality is that people want to avoid uncertainty of gain and will avoid the certainty of a loss just as predictably. Framing the alternative solution in terms of loss avoidance or a certainty of gain can facilitate negotiating between alternative solutions (Bazerman, 2006). The key to success is to avoid untenable extreme positions, which can result in little or no progress toward selecting viable solutions in the decision-making process. Question 9: What are self-serving biases in alternative solution negotiations? Response: Self-serving biases arise in alternative solution negotiations when a decision maker defines as fair a position or compromise that favors one alternative solution to the detriment of all others. These self-serving biases tend to be based on a flawed understanding of the information available or on a lack of complete information being available to all participants in the decision- 4
making process. Biases of this nature make it difficult to reach a consensus in identifying the accepted alternatives solutions (Bazerman, 2006). Without a consensus, the ultimate decision will be harder to implement and will potentially fail in achieving it stated goals. Question 10: The values quadrant of liberty vs. equality and community vs. efficiency has corresponding management schools of thought: meritocracy (liberty), equalitarianism (equality), humanism (community), and behaviorism (efficiency). What are the characteristics of these four managerial schools of thought? Response: The four schools of thought in management reflect the extremes of the values quadrant of liberty vs. equality and community vs. efficiency. Meritocracy is based on the belief that a corporation should be based on the differences in the ability of people in terms of talent, drive, and willingness to work. Upward mobility and high rewards await those who perform at the highest level. This ties in nicely with the political belief in ultimate liberty to pursue and achieve anything that is desired. Security firms often reflect this approach to management. Equalitarianism is based on the belief that employees should be protected from the extremes of risk and management decision making. Rewards tend to be equal and the protection of the worker is the highest priority. This fits in well with the equalitarian political view. Nonmilitary government employment tends to follow this model. The humanism school of thought is based on a belief that the organization should offer opportunities to enhance the personal growth and success of all employees. Not for profit organizations and school systems often reflect this type of management philosophy. The behaviorism school of thought is based on the belief that jobs should be narrowly defined to promote maximum efficiency (O Toole, 1993). Technology companies tend to follow this model most closely. References Bazerman, M. H. (2006). Judgment in managerial decision making (6th ed.). Danvers, MA: Wiley. Nisbett, R. E., & Ross, L. (1980). Human inference: Strategies and shortcomings of social judgment. Englewood Cliffs, NJ: Prentice Hall. O Toole, J. (1993). The executive compass: Business and the good society. New York: Oxford University Press. Tversky, A., & Kahnemann, D. (1973). Availability: A heuristic for judging frequency and probability. Cognitive Psychology, 5, 207 232. 5
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