Вы находитесь на странице: 1из 5

MM 5009

Decision Making and Negotiation


Biases in Probability Assessment & The New Rational Manager WEEK 1

MBA YP 52A
Ishak Firdauzi R

(29114333)

MASTER OF BUSINESS ADMINISTRATION


SCHOOL OF BUSINESS AND MANAGEMENT
INSTITUT TEKNOLOGI BANDUNG
2015

BIASES IN PROBABILITY ASSESSMENT


Most of the methods that are designed to help people to make decisions under conditions of
uncertainty require estimates of probabilities for the possible outcomes of the decision.
Because of the unavailability of suitable statistical data, these probabilities will usually be
subjective estimates based on human judgment.
Heuristics and biases
The central theme of Tversky and Kahnemans work is that people use rules of thumb or
heuristics to cope with the complexities of making estimates of probabilities. While these
heuristics can sometimes provide good estimates and reduce the effort required by the
decision maker, they can also lead to systematically biased judgments. Three main heuristics
identified by Tversky and Kahneman are (i) availability, (ii) representativeness and (iii)
anchoring and adjustment. We consider these, and their associated biases, next.
The availability heuristic
People using the availability heuristic judge the probability of the occurrence of events by
how easily these events are brought to mind. Events which are vivid, recent, unusual or
highlighted by the media are readily recalled or envisaged and therefore assigned high
probabilities. Events which are less available to the mind are assumed to be less likely.
Availability can be a reliable heuristic. Frequently occurring events are usually easier to recall
so the higher probabilities estimates for them should be reliable. However, the ease with
which an event can be recalled or imagined sometimes has no relationship to the true
probability of the event occurring. For example, some events are easily recalled precisely
because they are unusual and rare. This can lead to biased estimates. Some of the biases
associated
with
the
availability
heuristic
are
discussed
next.
Biases associated with the availability heuristic
1. When ease of recall is not associated with probability
Studies in the USA found that, although peoples estimates of the probability of death by
various causes were moderately accurate, there were some serious misperceptions. These
were closely associated with recent reports of deaths by these causes in newspapers. For
example, the probabilities of death by animal bites and stings were grossly overestimated.
Similarly,
accidents
and
disease
were
thought to be equally likely causes of death. In reality, diseases cause 15 times more deaths
than accidents.
2. Ease of imagination is not related to probability
Easily The ease with which an event can be recalled or imagined sometimes has no
relationship to the true probability of the event occurring.
3. Illusory correlation
Some events are easily recalled precisely because they are unusual and rare
The representativeness heuristic
The questions like What is the probability have to judge the probability that a person or
object belongs to a particular category, or that events originate from a particular process. The
representativeness heuristic will answer these questions by judging how representative the
object, person or event is of the category or process.

Biases associated with the representativeness heuristic


1. Ignoring base-rate frequencies
A series of experiments where subjects were asked to judge the probability that individuals
had particular occupations. Subjects were given both base-rate information and a description
of the person.
2. Expecting sequences of events to appear random
When a sequence of events is generated by a random process people expect the sequence to
represent the characteristics of randomness.
3. Expecting chance to be self-correcting
If a fair coin is tossed and a long sequence of heads appears, many people will think that the
occurrence of a tail on the next throw is highly probable because the tail is overdue.
4. Ignoring regression to the mean
when an event follows an extreme event, it will be maximally representative of the extreme
event. In other words, people expect extremes to be followed by similar extremes.
5. The conjunction fallacy
The conjunction fallacy will have important implications when we consider scenario
planning. The more detailed and plausible a scenario is, the more likely it will appear to be,
even though more specific scenarios must have a lower probability of occurring than general
ones.
The anchoring and adjustment heuristic
Judgment is widely used to make estimates of values such as how long a job will take to
complete or what next months sales level will be. Often these estimates start with an initial
value which is then adjusted to obtain the final estimate. Typical initial values might be how
long the last job took to complete or this months level of sales. Unfortunately, the adjustment
from these initial values is often insufficient; a phenomenon known as anchoring.
Biases associated with anchoring and adjustment
1. Insufficient adjustment
Tversky forecasts that are used in the decision process may be biased by forecasters anchoring on the
current value and making insufficient adjustment for the effect of future conditions.

2. Overestimating the probability of conjunctive events


The estimation of conjunctive events is particularly important in planning.

3. Underestimating probabilities for disjunctive events


Most people would be likely to anchor on the 1/100 probability of an individual subsystem failing
and produce an estimate close to it. In fact, the correct probability is just under 1/10.

4. Overconfidence
Overconfidence is of particular con- cern when probability distributions have to be estimated. There is
a danger that when estimating maximum and minimum possible levels of quantities like costs or sales,
decision makers will estimate ranges which are too narrow to include all of the possibilities.

THE SEARCH FOR ORGANIZATIONAL EFFECTIVENESS


The search has been on for many years to find ways of improving organizational
effectiveness. Everyone agrees that there is room for improvement, that the organization as
we know it is not perfect. Failure of the organization to perform as a functional unit limits full
realization of its potential. What to do about it and how to improve the organization to make
it more productive and efficient are subjects of great disagreement.
The Group and the Team
Understanding one another as individuals, being consciously sensitive to one another, and
knowing how to adapt to individual peculiarities are trademarks of a functioning group that
will hold together.
A team is built primarily on the technical capabilities of its members working in pursuit of
specific goals, only secondarily on attraction among the members as individuals.
Building a Management Team
The successful management team, so fervently sought after. The members are specialists in
all required areas of expertise, with unique contributions to make by virtue of unique
experiences and knowledge.
A competent manager can be a member of many teams, contributing wherever there is a need
for his or her skills and experience, and be an active partner in the coordinated activity that
makes an organization thrive.
FOUR BASIC PATTERNS OF THINKING
The four basic patterns of thinking have not altered substantially since the emergence of the
human race. The patterns are universal and applicable to any situation. These four basic
patterns of thinking are reflected in the four kinds of questions managers ask every day:
Whats going on? (ask for clarification)
Why did this happen? (cause-and-effect analysis)
Which course of action should we take? (determine action)
What lies ahead? (look into the future)
Pattern 1: Assessing and clarifying, this fundamental pattern of thinking enabled humans to
prevail in a variety of surroundings and against an array of profoundly adverse conditions.
Pattern 2: Relating Cause to Effect, the one that permits us to relate an event to its outcome, a
cause to its effectgave early man the ability to assign meaning to what he observed.
Pattern 3: Making Choices, The development of sophistication in the making of choices,
along with goal setting and consideration of the consequences of one action as opposed to
another, meant that humans could sometimes eat tigers instead of vice versa.
Pattern 4: Anticipating the Future, thinking enables us to look into the future to see the good
and bad it may hold. This ability to imagine and construe the future, even a little way ahead
and that imperfectly, gave our ancestors a tremendous advantage.
BASIC PATTERNS OF THINKING IN THE ORGANIZATIONAL CONTEXT
Situation Appraisal
Situation Appraisal is designed to identify problems to be solved, decisions to be made, and
future events to be analyzed and planned. Therefore, we must understand the Rational
Processes applicable to these areas.

Problem Analysis
It gives us a methodical means to extract essential information from a troublesome situation
and set aside irrelevant, confusing information.
Decision Analysis
Using this process, we can stand back from a decision situation and evaluate its three
components.
Analyze the reasons for making the decision and examine its purpose.
Analyze the available options for achieving that purpose.
Analyze the relative risks of each alternative.
From this balanced picture of the situation, we can then make the wisest and safest choice the
one that has emerged after careful consideration of all the factors.
Potential Problem (Opportunity) Analysis
A potential problem exists when we can foresee possible trouble in a given situation. No one
knows for sure that trouble will develop, but no one can guarantee that it will not.
It is based on the idea that thinking and acting beforehand to prevent a problem are more
efficient than solving a problem that has been al- lowed to develop.
RATIONAL MANAGEMENT
Rational Management aims at major change and therefore demands major commitment.
We must identify the people who have the greatest influence on the important issues
facing the organization. They should be the first to learn and use the new ideas.
We must identify the people who provide them with information.
We must identify those who will implement the conclusions that come out of the use
of the ideas.
This can only be done by introducing teamwork based on the continuing conscious use of
common approaches expressed in a simple, common language and directed toward resolution
of an organizations important concerns.

Вам также может понравиться