Define psychological biases and explain how they relate to managerial decision making.

Question

What will be an ideal response?

Answer 1

People have biases that interfere with objective rationality. Decision makers are far from objective in the way they gather, evaluate, and apply information in making their choices. Illusion of control is the belief that one can influence events even when one has no control over what will happen. Gambling is one example: some people believe they have the skill to beat the odds, even though most of the time they cannot. Framing effects refer to how problems or decision alternatives are phrased or presented and how these subjective influences can override objective facts. In one example, managers indicated a desire to invest more money in a course of action that was reported to have a 70 percent chance of profit than in one said to have a 30 percent chance of loss. Discounting the future means to weigh short-term costs and benefits more heavily than longer-term costs and benefits. Consider your own decision about whether to go for a dental checkup. The choice to go poses short-term financial costs, anxiety, and perhaps physical pain, but the choice not to go will inflict even greater costs and more severe pain if dental problems worsen.