Management of Organizations-Part I
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The document discusses various cognitive biases and heuristics that influence human decision-making and judgment. It provides examples of availability bias, representative bias, anchoring and adjustment, framing, confirmation bias, hindsight bias, priming, and escalation of commitment. It also discusses positive illusions and ways to debias thinking such as using detailed documentation, counterintuitive examples, diverse perspectives, and disconfirming evidence.
![Mental shortcut that uses the ease with which examples come to mind to make judgments
about the probability of events.
Operates on the notion that "if you can think of it, it must be important."
The availability of consequences associated with an action is positively related to perceptions of
the magnitude of the consequences of that action. (gotcha!)
In other words, the easier it is to recall the consequences of something, the bigger we perceive
these consequences to be. Sometimes, this heuristic is beneficial, but the frequency that events
come to mind are usually not accurate reflections of their actual probability in reality.
For example, if someone asked you whether ISB has more engineers or CAs, under the availability
heuristic, you would probably answer the question based on the relative availability of examples/images
of Engineer and CA students. If you recall more students from Engineering that you know, the more likely
you will conclude that most students at ISB are engineers!
A person argues that cigarette smoking is not unhealthy because his grandfather smoked three packs of
cigarettes a day and lived to be 100. The grandfather's health could simply be an unusual case that does
not speak to the health of smokers in general
Representative Bias:
Daniel Kahneman, who defined representativeness as "the degree to which [an event]
(i) is similar in essential characteristics to its parent population, and
(ii) reflects the salient features of the process by which it is generated".
Yaad Rakhne waali Baat!
When you think n=10 is big enough
The fact that something is more representative does not make it more likely.
Why is this heuristic used ? Because it is accessible.
Class Example (no Pun here!) of Linda
She is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was
deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear
demonstrations.
Which is more probable?](https://image.slidesharecdn.com/rammdanotes-session1-130223035933-phpapp01/85/Management-of-Organizations-Part-I-2-320.jpg)
Management of Organizations-Part I
- 1. - What The Faff!! Contents Satisficing: Satisfy+ Suffice (A herb by Simon Baba) ..................................................................................... 1 Availability Bias: ............................................................................................................................................ 1 Representative Bias: ..................................................................................................................................... 2 Anchoring and adjustment heuristic: ........................................................................................................... 3 Framing: ........................................................................................................................................................ 4 Confirmation Bias:......................................................................................................................................... 5 Beliefs shape expectations, which in turn shape perceptions, which then shape conclusions ........... 5 Thus we see what we expect to see and conclude what we expect to conclude. ............................... 5 And thus sang Iron maiden- Fear of the Dark!! Your feel tipsier when you feel you are high (converse doesn't hold true- sorry..Still no Drinking and Driving :)) ............................................................................. 5 Examples: ...................................................................................................................................................... 6 Hindsight Bias:............................................................................................................................................... 6 Priming: ......................................................................................................................................................... 6 Debiasing....................................................................................................................................................... 8 Satisficing: Satisfy+ Suffice (A herb by Simon Baba) take a decisions that may not be optimal, but acceptable to you. Cannot get access to all the information required Even if they could, their minds would be unable to process it properly. The human mind necessarily restricts itself. Simon baba calls it “cognitive limits”. Hence people, in many different situations, seek something that is “good enough”, something that is satisfactory. Humans, for example, when in shopping mode, aspire to something that they find acceptable, although that may not necessarily be optimal. They look through things in sequence and when they come across an item that meets their aspiration level they go for it. This real-world behaviour is what Simon called Satisficing. Availability Bias:
- 2. Mental shortcut that uses the ease with which examples come to mind to make judgments about the probability of events. Operates on the notion that "if you can think of it, it must be important." The availability of consequences associated with an action is positively related to perceptions of the magnitude of the consequences of that action. (gotcha!) In other words, the easier it is to recall the consequences of something, the bigger we perceive these consequences to be. Sometimes, this heuristic is beneficial, but the frequency that events come to mind are usually not accurate reflections of their actual probability in reality. For example, if someone asked you whether ISB has more engineers or CAs, under the availability heuristic, you would probably answer the question based on the relative availability of examples/images of Engineer and CA students. If you recall more students from Engineering that you know, the more likely you will conclude that most students at ISB are engineers! A person argues that cigarette smoking is not unhealthy because his grandfather smoked three packs of cigarettes a day and lived to be 100. The grandfather's health could simply be an unusual case that does not speak to the health of smokers in general Representative Bias: Daniel Kahneman, who defined representativeness as "the degree to which [an event] (i) is similar in essential characteristics to its parent population, and (ii) reflects the salient features of the process by which it is generated". Yaad Rakhne waali Baat! When you think n=10 is big enough The fact that something is more representative does not make it more likely. Why is this heuristic used ? Because it is accessible. Class Example (no Pun here!) of Linda She is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Which is more probable?
- 3. Vast majority of those asked chose option 3. However the probability of two events occurring together (in "conjunction") is always less than or equal to the probability of either one occurring alone. Now academic journals think this is representative bias. Ladies and Gentlemen of CO2013, I think this is mere Sleep Bias- answering questions in your sleep. But well! Anchoring and adjustment heuristic: Anchoring is the chemical Locha in your brain. For the literates unlike me, it is a psychological heuristic that influences the way people intuitively assess probabilities. According to this heuristic, people start with an implicitly suggested reference point (the "anchor") and make adjustments to it to reach their estimate. It's a seed in your brain that has been planted, and you tend to swivel around it. yeah, I'm thinking what you're thinking! Before you get lost, come back and keep checking An example from a Psychology book:
- 4. If asked whether the population of Turkey was greater or less than 30 million, you might give one or other answer. If then asked what you thought the actual population was, you would very likely guess somewhere around 30 million, because you have been anchored by the previous answer Adjustment occurs when using a self-generated anchor because it is clear that the anchor is wrong, no matter how close it may be to the desired value But the problem is with adjustment that it is insufficient. People tend to only adjust minimally, remaining too close to the original anchor. Through research, psychologists have concluded that people tend to adjust insufficiently because they stop adjusting once they have reached a certain range of plausible values (Epley, Keysar, Van Boven, & Gilovich, 2004). Therefore, their estimates tend to lie near the anchor side of their range. In addition, adjustment has been found to be effortful. It requires attention and motivation and is subject to distractions. Another Example: Chances of larger donations are higher in case 1. Bias with Benefits The anchoring and adjustment heuristic is the foundational decision making heuristic in situations where some estimate of value is needed. In negotiations; people make counter offers based on the anchor that is provided to them. Let's ask prof. Kamdar and Prof. Vadera to substantiate this :) Framing: Framing effect is an example of cognitive bias. Simply put, taking a portion of an idea/ image and presenting it as new (creating focus) People react differently to a particular choice depending on whether it is presented as a loss or as a gain. Train-wala example. One of the dangers of framing effects is that people are often provided options within the context of only one of the two frames.
- 5. differences between framing and anchoring Framing is a catalyst for anchorage. Framing creates an environment that plants the seed in your brain. come back! Come Back! Framing Examples: The way you frame a sentence influences Anchorage. Hence 'Zabaan Sambhal ke!' Say, you go to a psychologist (probable after ISB). Before the meeting: Doc: "Ise dawa ki nahi, dua ki zarurat hai!" Family: "What? why?" Doc: "There is a 90 % chance that after my treatment he will be perfectly fine" Family: Nervous... Case 2 Doc: "Ise dawa ki nahi, dua ki zarurat hai!" Family: "What? why?" Doc: "There is a 10 % chance that after my treatment he will be crazier than before" Family: WTF!!! This is framing, leading to the anchorage of success rate of psychologist's treatment. Framing And Anchoring- a Video Confirmation Bias: Tendency of people to favor information that confirms their beliefs or hypotheses Beliefs shape expectations, which in turn shape perceptions, which then shape conclusions Thus we see what we expect to see and conclude what we expect to conclude. And thus sang Iron maiden- Fear of the Dark!! Your feel tipsier when you feel you are high (converse doesn't hold true- sorry..Still no Drinking and Driving :))
- 6. Examples: Women are bad drivers, Saddam plotted 9/11, Obama was not born in America, and Iraq had weapons of mass destruction! All are result of confirmation bias... Hindsight Bias: Put simply, it's the idea of "Muhe toh pehle se hi pata tha aisa hoga" or "I knew the party would suck" It exaggerates the presence of sixth sense in humans. Example: S1 gets into McKinsey. But S1 is not dean's lister (but got above 3.5). On getting the job, S1 says, I knew I would get in...McKinsey looks for quality, not dean's list alone. a month back: S1 to S2: "Band baji hai man! Day Two mein bhi placement hoga kya pata nahi...Yeh CAS na.." Priming: It is effectively creating a ground for , loosely speaking, a prejudice. Priming is an implicit memory effect in which exposure to a stimulus influences a response to a later stimulus. It can occur following perceptual, semantic, or conceptual stimulus repetition. For example, if a person reads a list of words including the word table, and is later asked to complete a word starting with tab, the probability that he or she will answer table is greater than if not so primed. Another example is if people see an incomplete sketch that they are unable to identify and they are shown more of the sketch until they recognize the picture, later they will identify the sketch at an earlier stage than was possible for them the first time. Possible Example: Movie Ek ruka hua Faisla Overcoming Heuristics To overcome the representativeness and availability heuristics make sure you have not overlooked relevant probability information and plausible reasons for differential availability Escalating Commitment Tendency to invest additional resources in an apparently losing proposition, influenced by effort, money, and time already invested One's more likely to commit to a failing course of action when you: • Had free choice at the very beginning
- 7. • Have been publicly identified with the project • Have made a big investment – the bigger the investment, the more severe the possible loss, the more prone you are to honor sunk costs Two types of escalation of commitment • Unilateral • Competitive Best Example was done in-class for competitive escalation. Auctioning a 1000rupee note in class. Rule is that the second highest bidder must pay winner's bid. After a point, S1 and S2 were simply trying to get out of the trap of being the second highest bidder. So they kept upping the stakes- escalation of commitment. Nick Leeson's case is another Reducing Escalation & Confirmation Bias (STRAIGHT FROM THE PPT) • Set minimum targets for performance • Have multiple individuals examine the issues • Have different individuals assess initial and subsequent decisions about a project • Attain more frequent feedback about project completion and costs • Reduce penalties or risk for failure • Make costs of persistence explicit Positive (Egocentric) Illusions (Straight fm the PPT) We view ourselves, the world, and the future in a considerably more positive light than is objectively likely or than reality can sustain • Unrealistically positive views of the self • Unrealistic optimism (Entrepreneurs, Restaurants) • Illusion of control (Dice Throw) • Self-serving attributions (Internalize Success, Externalize Failure) • Holier, smarter than thou principle Example:
- 8. Understand negative first- if your zip isn't working or ur shoe has a small hole, you tend to be less confident and believe everyone can notice it. If you are asked how many will notice, you might say 60% of the people, when in reality, only 10 % might notice it. Positive: Flashback to O-week- how we thought our section performance was better than it actually was. Debiasing Availability Heuristic • Use detailed documentation rather than recall • Don’t rely on the first thing that comes to mind • Involve individuals with varied points of view • Counter with vivid examples • Role play Representative Heuristic Seek out and use base rates Don’t make strong conclusions based on small samples Be aware of making causal inferences when chance and regression to the mean are equally plausible explanations Make events or individuals more unique, harder to categorize (e.g., describe inconsistencies in personal characteristics) Present disconfirming evidence within logic of bias Increase diversity, i.e., involve more individuals with varied biases