demonstrate that their initial decision was not wrong and to avoid having to admit
they made a mistake.
Many organizations have suffered large losses because a manager was determined
to prove his or her original decision was right by continuing to commit resources to
what was a lost cause from the beginning.
Overconfidence Bias
It’s been said that “no problem in judgment and decision making is more prevalent
and more potentially catastrophic than overconfidence.”^26
When we are given factual questions and asked to judge the probability that our answers
are correct, we tend to be far too optimistic. This is known as the overconfidence bias. For
instance, studies have found that when people say they are 65 to 70 percent confident that
they are right, they were actually correct only about 50 percent of the time.^27 And when they
say they are 100 percent sure, they tended to be 70 to 85 percent correct.^28
From an organizational standpoint, one of the more interesting findings related to
overconfidence is that those individuals whose intellectual and interpersonal abilities
are weakestare most likely to overestimate their performance and ability.^29 So as man-
agers and employees become more knowledgeable about an issue, they are less likely to
display overconfidence.^30 Overconfidence is most likely to occur when individuals are
considering issues or problems that are outside their area of expertise.
Anchoring Bias
The anchoring biasis a tendency to fixate on initial information as a starting point.
Once set, we then fail to adequately adjust for subsequent information.^31 The anchor-
ing bias occurs because our minds appear to give a disproportionate amount of empha-
sis to the first information they receive. So initial impressions, ideas, prices, and estimates
carry undue weight relative to information received later.^32
Professional people such as advertising writers, managers,
politicians, real estate agents, and lawyers widely rely on
anchoring—they create first impressions to persuade people
to act in particular ways. For instance, in a mock jury trial,
one set of jurors was asked by the plaintiff’s attorney to make
an award in the range of $15 million to $50 million. Another
set of jurors was asked to make an award in the range of $50
million to $150 million. Consistent with the anchoring bias,
the median awards were the first numbers heard by the jurors:
$15 million in the first condition and $50 million in the sec-
ond condition.^33
When making decisions, you should consider whether you are
falling into any of the judgment and bias traps described above.
In particular, understanding the base rates and making sure that
you collect information beyond that which is immediately avail-
able to you will provide you with more alternatives from which
to frame a decision. It is also useful to consider whether you are
sticking with a decision simply because you have invested time
in that particular alternative, even though it may not be wise to
continue. OB in Action—Reducing Biases and Errors in Decision
Makingprovides you with some ideas for improving your
decision making. To learn more about your decision-making
style, see the Learning About Yourself Exerciseon pages 325–326.
Chapter 9Decision Making, Creativity, and Ethics 301OB IN ACTION
Reducing Biases and Errors in
Decision Making
➔Focus on goals. Clear goals make decision mak-
ing easier and help you eliminate options that are
inconsistent with your interests.
➔Look for information that disconfirms your
beliefs. When we deliberately consider various
ways we could be wrong, we challenge our tenden-
cies to think we are smarter than we actually are.
➔Don’t create meaning out of random events. Ask
yourself if patterns can be meaningfully explained
or whether they are mere coincidence. Don’t
attempt to create meaning out of coincidence.
➔Increase youroptions. The more alternatives you
can generate, and the more diverse those alterna-
tives, the greater your chance of finding an out-
standing one.Source:S. P. Robbins, Decide & Conquer: Making Winning
Decisions and Taking Control of Your Life(Upper Saddle
River, NJ: Financial Times/Prentice Hall, 2004), pp. 164–168.overconfidence bias
Overestimating the accuracy of our
predictions.anchoring bias A tendency to
fixate on initial information as a
starting point.