The Cognitive Biases in Management

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Despite becoming more reliant on rational thinking, people tend to ease the analysis method by following some intuitive thinking or feelings to make decisions. Informational predispositions which affect choices are called cognitive biases. Based on how the human brain works, mistakes and entanglements shield an individual from making choices that bring the most worth. Accordingly, it is important to see how common conduct measures lead to mistakes and biases. Likewise, investigating the preventive measures and procedures can be helpful in diminishing these inclinations, improving individual choices, and enhancing authoritative choice cycles.

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Scenario 1

The overconfidence bias expresses that individuals are excessively hopeful about how right they are. Studies have demonstrated that when individuals state they are 65–70% sure they are correct, it is the case only in 50% of such instances (Zhang et al., 2020). Additionally, when they state they are 100% convinced, they are right only around 70–85% of the time (Zhang et al., 2020). The carelessness of one’s accuracy can prompt a helpless dynamic. Likewise, the research indicated that those people with the most fragile insight and relational abilities are more prone to show overconfidence in their dynamic (Hammond et al., 1998). Thus, supervisors should avoid extreme self-assurance when they are attempting to make a decision.

As a result, the decision made by the CFO not to spend money on marketing due to her groundless assurance of her own belief was attributed to the overconfidence bias. Even though her assistant showed her one example of unsuccessful marketing, it did not imply that marketing is unnecessary. She did not search for other valid sources of proof and was too confident in her knowledge without asking anybody’s opinion.

In order to avoid a similar mistake in the future, it is important to have a receptive outlook about the chances of committing an error. As soon as the CFO becomes able to accept her weaknesses, she will naturally find a way to surpass them. At the point when an individual accepts the idea that he or she commits no errors, the shortcomings stay as they are, and a person does not develop any qualities. The character from the situation needs to acknowledge and study the feedback from other managers and coworkers regarding any crucial decision. Such information will always serve as a rational base for a person’s choices and analysis of the situation.

Scenario 2

When a person is focused on the positive outcomes, he or she may disparage the likelihood of unfortunate results and overestimate good and satisfying outcomes. Optimism bias persuades people that they are less inclined to encounter negative occasions than others and to follow up on that hopeful conviction (Zhang et al., 2020). Shockingly, past concluding how to continue with a weak task, there are various other regular undertaking circumstances where a positive thinking predisposition can daze men. Even if the team works efficiently at calculating the risk, the CEO’s response to the situation might be biased. In this case, the team’s speed to react to changing trends can be slowed.

The optimism predisposition causes many difficulties at work and in personal relationships. Individuals overestimate their odds of progress and expect that ventures will be finished in more limited measures of time than they really are (Fletcher & Bolland, 2012). Similarly, the CEO of the situation made over-optimistic predictions and believes that risks will not affect the company. He ignores the advice and negative estimation from his colleagues because of this bias, being focused on the positive result and not considering the valid information. To avoid this, he should utilize explicit data about the case to change the pattern forecast. It might be helpful for him to question any choice by using statistics and objectiveness.

Scenario 3

When individuals are presented with different options with similar information, their choice will be impacted by distinctive semantic portrayals of the given knowledge. In other words, how something is outlined, emphatically or adversely, enormously affects the way the data is handled regardless of whether the information is, on a very basic level, indistinguishable. Making various determinations from similar knowledge based on the way the data is introduced is described by the impact of framing (Fletcher & Bolland, 2012). Thus, the CEO from the scenario was influenced by the framed message with positive outcomes despite the second choice being more beneficial.

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The first step to avoiding framing is to always analyze the underlying edge of the issue or message. The specialist needs to attempt to re-examine the message or the issue later on. He ought to re-evaluate the problem from various reference focuses. Studies show that supervisors committed fewer errors when they had individuals around them who were bound to challenge their contemplations, points of view, and activities (Hammond et al., 1998). It is important to have experts who might challenge the CEO’s reasoning.

Situation 4

The Prospect theory of loss aversion is a behavioral process in financing when a person values losses more than possible gains. In other words, loss aversion is the point at which an individual would prefer to maintain a strategic distance from misfortunes than to accomplish gains (Kourdi, 2011). Somebody will work more enthusiastically to keep their previous work rather than starting a new project. Additionally, this is firmly identified with the sunk cost misrepresentation, where one is inclined to invest more assets into the work for which the resources had already been spent in the past (Kourdi, 2011). The apparent disutility of surrendering an item is more noteworthy than the utility related to obtaining it.

Therefore, an automobile company’s CEO did not want to leave the idea of new hybrid cars according to loss aversion bias. She did not wish to neglect and forget the effort and money spent on the project, which deprived her of potential gains from other alternative pathways. There is also a possibility of a bigger loss in the case of clinging to the unpromising idea (Kourdi, 2011). In light of this predisposition, an individual may begin feeling that the business will improve in the long term when there is no discerning motivation to accept this. This psychological inclination is established in the expectation of a turnaround.

When individuals let feelings and inborn psychological predispositions assume control over their levelheadedness and rationale, the working execution is probably going to be inefficient. For successful marketing, it is necessary to oversee the mistakes. Thus, developing professional prediction methods is fundamental if the CEO has long-term objectives. Additionally, losses and gains are always interchangeable, and a manager should be emotionally ready for them as one cannot exist without the other. If a financial analyst makes a mistake, he or she should learn how to make gains from such errors. Consequently, the manager needs to follow the plan and have an alternative strategy in case of negative outcomes.


Fletcher, F., & Bolland, E. J. (2012). Solutions: Business problem-solving. Ashgate Publishing Group.

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

Kourdi, J. (2011). Effective decision making: 10 steps to better decision making and problem-solving. London: Marshall Cavendish International [Asia] Pte Ltd.

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Zhang, H., Bij, H. V. D., & Song, M. (2020). Can cognitive biases be good for entrepreneurs?. International Journal of Entrepreneurial Behavior & Research, 26(4), 793–813. Web.

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