Judgment and decision making

HR101 Psychology in Organisations

Dr. Xuchang Zheng
DCU Business School
 5PM, 17 August, inter-province highway,
Canada
Should you go? Hotel booked at the destination: 400
euro per night x 7, non-refundable.

Your departure flights are from the

destination.

You, your partner, and two kids (7 & 14).

You prepared the fuel for 500km. 250km

into the journey (also the distance from
the last petrol station).

You asked a returning driver – They

refuelled at a small farm house on the
way.

You have some water and normally

holiday luggage on the car.

Go ahead or head back?

So just be rational, right?
• In business, the idea of making rational decisions is widely held.
Bounded rationality
• Focus on understandable information
• Compare recognisable solutions
• Evaluate available alternatives
• Choose the first, acceptable outcome
 This sentnece iis incorrxct, btu yo cna stll uderstad it.
FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC
STUDY COMBINED WITH THE EXPERIENCE OF YEARS
In an office kitchen

Percentage of people paid to the honest box

When buying travel insurance

Some international travellers were asked:

• How much would you pay for insurance that pays $100,000 in
case of death for any reason?

Others were asked:

• How much would you pay for insurance that pays $100,000 in
case of death in a terror incident?
Which is more probable?

That a mother has blue eyes if her daughter has blue eye.

That a daughter has blue eyes if her mother has blue eyes.
Motivation-based biases
Framing and loss aversion • People are inconsistent in their preference
for risk

• People are risk-seeking when recovering

loss

• People are risk-averse when pursing gains

Kahneman & Tversky’s “prospect theory”

Nobel Prize for Economics in 2002 for their work on the integration of psychological research into economic science.
Two prospects
CASE A CASE B

• Receive 5,000 euro for certain • Pay 5,000 euro

OR • OR

• Toss a coin • Toss a coin

Receiver 10,000 euro if heads Pay 10,000 euro if heads
Receive nothing if tails Pay nothing if tails
Motivation-based biases
Irrational escalation of commitment
to complete and win
A related feature of loss: people escalate commitment to potentially
losing course of action, especially in the face of competition pressure.
Motivation-based biases
Egocentric bias
to boost the ego
We overestimate our chances of succeeding versus others, even when
the circumstances are the same.
Distribution of bullet holes on the bombers
Availability bias
Information-based biases
Availability bias
information that is either omitted or not readily at hand isn’t needed
People often make decisions using data that is highly available, even
when it is obviously irrelevant.
Information-based biases
Attribution error
we think we know us more than the other

Explain our own mistake in relation to external reasons (e.g. poor weather,
uncooperative teammate) whilst attribute others’ to internal reasons (e.g. low IQ,
laziness).

• Our attributions can change when our perspective changes (e.g. participant to
observer)

• Stereotyping
love us, hate others
Considering the member of our own social identity categories (e.g. race, gender,
profession) to be more favourable and alike.
Information-based biases
Illusory causality
overattribute causality to a given stimulus when it is salient
People tend to erroneously assume a cause and effect relationship that
does not actually exist.
Please move the deer crossing sign
Information-based biases
Anchoring bias
rely heavily on the first piece of information offered
People favour the first bit of information they learn and adjust only
gradually from that anchor when the new information emerges.
• Two groups of high school students estimated the answers to the below sums, within 5
seconds. One group (group A) estimated the result of:
8x7x6x5x4x3x2x1
2,250

• while the other group of students (group B) estimated the product of:
1x2x3x4x5x6x7x8
512

40320
Information-based biases
Decoy effect
interference from a third, less relevant option
People tend to change their preference between two options when
presented with a third option

• Group 1 Group 2
Choice between Choice between
A) $6.00 A) $6.00,
B) an elegant cross pen B) an elegant cross pen
• 64% chose A; 36% chose B C) a less attractive pen
52% chose A; 46% chose B; 2% chose C
Same price
Baseball card auctions
SET A (10 baseball cards- all in great condition) SET B (same as SET A + 3 cards that not of high quality)

Non dealers - $4.86 Non dealers - $3.20

Dealers - $3.20 Dealers - $2.70
Information-based biases
Recency bias
favours recent events over historic ones
People gives heavier weight to the most recent event

How much did these patients suffer?

Vs

How much did these patients think

they suffered?
Pressure-related biases
• When stressed, people revert to responding from deeply ingrained
lessons or behaviours

• It is why initiating change is difficult, even when the organisation

faces serious problems
Coping mechanisms
• Cognitive biases generally serve us well
• Different strategies may help mitigate their negative influences
The problem is that there is often not a clear cut between motivation,
information, and pressure as the cause of our bias

Each cause may trigger the other causes and then function to influence
our decision together.