Decision-Making, Problem

Solving, and Biased Thinking

Habits
Decision-Making, Problem Solving, and
Biased Thinking Habits
• A manager's crucial responsibility is to ensure effective decision-
making and problem-solving.
• Decision-making highlights consequences of non-rational thinking.
• Experts emphasize multiple tasks in making decisions and resolving
problems.
Decision-Making, Problem Solving, and
Biased Thinking Habits
• The process includes two main phases:
• Recognition Phase: Involves recognizing and identifying the decision or
problem, understanding its causes, setting goals, and generating options.
• Choice Phase: Entails assessing options, making a decision,
implementing it, and evaluating the chosen solution.
• The recognition phase is considered more important as it identifies
goals, underlying causes, barriers, and information needs. It's a learning
process, but habitual thinking narrows openness to new information
(Hodgkinson & Healey, 2008).
• The choice phase involves evaluating options, making a decision,
implementing it, and assessing the outcome.
• In actual organizational settings, problem solving and decision making
often deviate from the ideal process due to various challenges:
• Incomplete information.
• Inability to process all relevant information.
• Unclear or disputed goals and priorities.
• Uncertain outcomes of alternative solutions.
Heuristics and Cognitive Biases
• Heuristics are mental shortcuts that simplify decision-making; they can lead
to biases and errors (Tversky & Kahneman, 1974).
• Overconfidence bias: People tend to overestimate the accuracy of their
judgments, relying on intuition without seeking proven information
(Kahneman, 2011).
• Confirmation bias: Individuals selectively notice information that confirms
their existing beliefs, avoiding disconfirming information (Kahneman, 2011).
• Availability and familiarity heuristics: These shortcuts rely on ease of
recalling examples or familiarity with a topic, often leading to biased
judgments (Kahneman, 2011).
• These biases are common and contribute to distorted decision-making
The Wrong Diagnosis: A Lesson for
Managers
• In medical diagnosis, cognitive traps can lead to errors and biases
(Groopman, 2007).
• Similar cognitive traps can affect organizational problem solving and
decision-making in management (Groopman, 2007).
• Strategies to mitigate biases include wide participation, evaluating
alternatives, using decision protocols, bias awareness and training,
and employing decision support systems (Croskerry, 2003).
• Managers who are aware of biases and engage in thoughtful
reflection and discussion can improve organizational decisions and
actions (Bazerman, 1998).
Heuristics and Cognitive Biases
• Daniel Kahneman's work revolutionized understanding of thinking.
• Decision-making involves recognition and understanding, choice.
• Habitual thinking narrows capacity for new information.
Heuristics and Cognitive Biases
• Overconfidence bias (Kahneman, 2011): Overestimating accuracy of
judgments. "94% of college professors consider themselves above-
average teachers; 90% of entrepreneurs think their new business will
be a success; 98% of students who take the SAT say they have average
or above-average leadership skills" (Brooks, 2011, p. 218).
• Confirmation bias (Kahneman, 2011): Selectively noticing information
that confirms beliefs. Media "echo chamber" effect related to
confirmation bias.
Heuristics and Cognitive Biases
• Availability heuristic (Kahneman, 2011): Judging importance based on
easy recall. Travelers' fear of airplane crash vs. car crash due to vivid
reporting of airplane crashes.
• Familiarity heuristic (Kahneman, 2011): Judging unknown quality
based on familiarity. Choosing a city with name recognition as larger
population.
Heuristics and Cognitive Biases
• Management challenge: Non-rational habits limit understanding.
• Strategies to reduce biases: Wide participation, evaluating
alternatives, evidence-based approaches, bias awareness, cognitive
aids.
• Awareness of biases improves organizational decisions and actions.
Textbox 4-2. The Atypical Heart Attack
• Dr. Pat Croskerry's case demonstrates representativeness error.
• Prototype-based thinking led to overlooking true cause of symptoms.
• Croskerry identified cognitive errors related to decision-making
(2002).
Textbox 4-3. The Wrong Diagnosis: A Lesson
for Managers?
• Groopman (2007) examines physician thinking and medical reasoning.
• Cognitive traps skew doctors' clinical reasoning.
• Organizational problem solving faces cognitive distortion.
• Strategies to increase deliberate processing and reduce bias.
• Bias awareness and thoughtful reflection improve decisions.