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Decision-Making Biases and Pitfalls

Summary

Decision-making is the most critical job of any manager, yet it is the riskiest and the most challenging task. Poor decisions are known to ruin businesses and careers, sometimes irreparably. Many cases prove that the reason for a wrong decision is an ill-conceived plan. Nonetheless, the human mind drives the decision-making process, sometimes leading to choosing the wrong options. Therefore, various researchers started to investigate why the human brain sabotages people’s choices.

My supervisor from my previous workplace always overestimated his abilities. Once, he claimed our restaurants were ready to serve one hundred guests even though that night our kitchen was short of personnel. Yet, he relied on his confidence and struggled with multiple complaints from the customers since they did not receive their food on time. As a result, clients were not satisfied with the service, and my supervisor did not consider himself guilty.

Overestimating one’s resources and abilities is one of the most common mistakes executives make. According to Hammond et al. (1998), overconfidence contradicts accuracy and typically results in bad decisions. This bias occurs when a person overestimates the reliability of their judgments. This may include confidence in one’s own abilities, chances of success, or performance. Moreover, a person in a higher position claims they are experienced to make impactful choices. Thus, sometimes leaders consider themselves superior and rely on their confidence rather than experience.

Apart from the overconfidence, I also encountered another kind of decision-making mistake related to prudence. One of my managers was deciding how many brand bags to produce before the sales season started. Different departments asked him to provide a detailed forecast concerning possible profit, costs, and competitors’ actions. When every aspect was discussed, they decided to produce more bags in advance. Nevertheless, my manager was still insecure about his decisions. Unsurprisingly, the number of bags manufactured exceeded the demand, and it took the company half a year to sell off the surplus, eventually resorting to promotional pricing.

The prudence trap is related to being extremely cautious while making a vital business decision. Therefore, managers tend to produce and buy items or services “just in case” to adjust their forecasts. Politicians significantly influence formal decision-making procedures, imposing uncertainty on consciousness. Therefore, Bolland and Fletcher (2012) consider that such behavior occurs because executives employ the “worst-case” policy in order to avoid financial and other losses. However, leaders should sense unforeseeable events and try to adjust to the circumstances.

Besides, confirmation bias is one of the most relevant types of decision-making pitfalls since leaders prefer making choices by reassuring their knowledge. My former supervisor would often ask the general manager if fining an employer for being late was legal. This bias has a psychological force because as soon as someone’s opinion diverges, there is always a need to reconsider the decision (Hammond et al., 1998). Therefore, being impacted by other people’s judgments impedes making the right choice and creates more complexities for a leader.

In conclusion, it seems reasonable to state that leaders have multiple biases which do not allow them to make accurate decisions. All of the authors mentioned in the paper gave an expanded description of the most common prejudices. Yet, in my opinion, the most useful written by Hammond et al., as they provided a detailed observation of biases and the tips on how to avoid them.

References

Bolland, E., & Fletcher, F. (2012). Solutions: Business problem-solving. Routledge.

Hammond, J. S., Keeney, R. L., & Raiffa, H. (1998). The hidden traps in decision-making. Harvard Business Review, 76(5), 47-58.

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Essay4Business. 2022. "Decision-Making Biases and Pitfalls." August 21, 2022. https://essay4business.com/decision-making-biases-and-pitfalls/.

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