After studying this chapter, you should be able to: Articulate the role of the external environment in management decisions and effectiveness, explain the five major dimensions of an organization’s general environment, describe the critical forces in the organization’s task environment,…
Judgment in Managerial Decision Making 8e Chapter Common Biases Copyright 2013 John Wiley & Sons Problem 1: Causes of Death • Rank order causes of death • Estimate death rates Rank Cause of Death War and civil conflict Nutritional deficiencies, including starvation Respiratory infections, lung cancers, and lung diseases Deaths in 2009 Problem 2: Words with “a” What percentage of words in the English language begin with the letter “a”? Problem 3: Words with “a” What percentage of words in the English language have the letter “a” as their third letter? Lisa is 33 and is pregnant for the first time She is worried about birth defects such as Down syndrome Her doctor tells her that she need not worry too much because there is only a in 1,000 chance that a woman of her age will have a baby with Down syndrome Nevertheless, Lisa remains anxious about this possibility and decides to obtain a test, known as the Triple Screen, which can detect Down syndrome The test is moderately accurate: When a baby has Down syndrome, the test delivers a positive result 86% of the time A certain town is served by two hospitals In the larger hospital, about 45 babies are born each day In the smaller hospital, about 15 babies are born each day As you know, about 50 percent of all babies are boys However, the exact percentage of boys born varies from day to day Sometimes it may be higher than 50 percent, sometimes lower For a period of one year, each hospital recorded the days in which more than 60 percent of the babies born were boys Which hospital you think recorded more such days? a The larger hospital b The smaller hospital Problem 6: Having a Baby You and your spouse have had three children together, all of them girls Now that you are expecting your fourth child, you wonder whether the odds favor having a boy this time What is the best estimate of your probability of having another girl? a 6.25% (1 in 16) – odds of getting girls in a row b 50% (1 in 2) – equal chance of getting either c Something in between (6.25-50%) Problem 6: Having a Baby You and your spouse have had three children together, all of them girls Now that you are expecting your fourth child, you wonder whether the odds favor having a boy this time What is the best estimate of your probability of having another girl? a 6.25% (1 in 16) – odds of getting girls in a row b 50% (1 in 2) – equal chance of getting either c Something in between (6.25-50%) Problem 7: Batting Averages Predict 2011 batting averages • Player 2010 Batting Average 284 265 359 291 318 286 277 155 212 Estimated 2011 Batting Average Problem 8: Describe Linda Linda is 31 years old, single, outspoken, and very smart She majored in philosophy As a student, she was deeply concerned with issues of discrimination and social justice, and she participated in antinuclear demonstrations _Linda is a teacher in elementary school _Linda is a psychiatric social worker _Linda is an insurance salesperson _Linda works in a bookstore and takes yoga classes _Linda is a member of the League of Women Voters _Linda is a bank teller who is active in the feminist movement _Linda is active in the feminist movement _Linda is a bank teller Problem 10: Which is More Likely? a b c Drawing a red marble from a bag containing 50% red marbles and 50% white marbles Drawing a red marble seven times in succession, with replacement, from a bag containing 90% red marbles and 10% red marbles Drawing at least one red marble in seven tries, with replacement, from a bag containing 10% red marbles and 90% Problem Answers • Rank order causes of death • Estimate death rates Rank Cause of Death Deaths in 2009 War and civil conflict 182,000 Nutritional deficiencies, including starvation 418,000 Respiratory infections, lung cancers, and lung diseases 3.5 million Answers: Problems and What percentage of words in the English language begin with the letter “a”? 6% What percentage of words in the English language have the letter “a” as their third letter? 9% The Availability Heuristic • • Ease of Recall Bias – Vividness influences recall – Estimating death rates – Airline security decisions – Familiarity of names – Performance evaluations Retrievability Bias – Ease of retrieval from memory Lisa is 33 and is pregnant for the first time She is worried about birth defects such as Down syndrome Her doctor tells her that she need not worry too much because there is only a in 1,000 chance that a woman of her age will have a baby with Down syndrome Nevertheless, Lisa remains anxious about this possibility and decides to obtain a test, known as the Triple Screen, which can detect Down syndrome The test is moderately accurate: When a baby has Down syndrome, the test delivers a positive result 86% of the time There is, however, a small “false positive” rate: 5% of babies produce a positive result despite not having Down syndrome Lisa takes the Triple Screen and obtains a positive result for Down • • • • • Per 1,000 women Lisa’s age, 999 not have a baby with Down syndrome 5% of women with a baby that does not have Down syndrome will receive a false positive test 999 * 05 = 49.95 women per 1,000 receive a false positive 86% of babies with Down syndrome test positive the first time .86*1 = 86 per 1,000 women with a Down syndrome baby receive an accurate positive test A certain town is served by two hospitals In the larger hospital, about 45 babies are born each day In the smaller hospital, about 15 babies are born each day As you know, about 50 percent of all babies are boys However, the exact percentage of boys born varies from day to day Sometimes it may be higher than 50 percent, sometimes lower For a period of one year, each hospital recorded the days in which more than 60 percent of the babies born were boys Which hospital you think recorded more such days? a The larger hospital b The smaller hospital Problem 6: Having a Baby You and your spouse have had three children together, all of them girls Now that you are expecting your fourth child, you wonder whether the odds favor having a boy this time What is the best estimate of your probability of having another girl? a 6.25% (1 in 16) – odds of getting girls in a row b 50% (1 in 2) – equal chance of getting either Problem 7: Batting Averages • Texas Rangers: 2010 and 2011 Player 2010 Batting Average 2011 Batting Average Michael Young 284 338 Elvis Andrus 265 279 Josh Hamilton 359 298 David Murphy 291 275 Nelson Cruz 318 263 Ian Kinsler 286 255 Andres Blanco 277 224 Taylor Teagarden 155 235 Craig Gentry 212 271 Problem 8: Describe Linda Linda is 31 years old, single, outspoken, and very smart She majored in philosophy As a student, she was deeply concerned with issues of discrimination and social justice, and she participated in antinuclear demonstrations _Linda is a teacher in _Linda is a psychiatric elementary school social worker _Linda is an insurance salesperson _Linda works in a bookstore and takes yoga classes _Linda is a member of the League of Women Voters _Linda is a bank teller who is active in the feminist movement _Linda is active in the feminist movement _Linda is a bank teller The Representativeness Heuristic • Insensitivity to base rates • Insensitivity to sample size • Misconceptions of chance • Regression to the mean • The conjunction fallacy Problem 9: Guess the Date • • Write the last three digits of your phone number and add to the front of the string, as if it were a year: _ Was the Taj Mahal completed before or after the date formed by your phone number? _Before _After • What year was the Taj Mahal completed? 1648 Problem 10: Which is More Likely? a b c Drawing a red marble from a bag containing 50% red marbles and 50% white marbles Drawing a red marble seven times in succession, with replacement, from a bag containing 90% red marbles and 10% red marbles Drawing at least one red marble in seven tries, with replacement, from a bag containing 10% red marbles and The Confirmation Heuristic • Seeking to confirm prior information • Anchoring • – Arbitrary starting points – Achievement tests for children – First impressions – Stereotypes Conjunctive and disjunctive events bias Summary • Heuristics simplify our decisions • Often, they save us time • We don’t apply them appropriately ... getting girls in a row b 50% (1 in 2) – equal chance of getting either c Something in between (6.2 5-5 0%) Problem 7: Batting Averages Predict 2011 batting averages • Player 2010 Batting Average... she participated in antinuclear demonstrations _Linda is a teacher in elementary school _Linda is a psychiatric social worker _Linda is an insurance salesperson _Linda works in a bookstore... takes yoga classes _Linda is a member of the League of Women Voters _Linda is a bank teller who is active in the feminist movement _Linda is active in the feminist movement _Linda is a bank teller