Introduction Decision making can be regarded as a process mental processes leading to the selection of a course of action, a decision, among number of available alternatives. A selected decision may be far from optimal due to number of reasons, internal or external to the subject of decision making process. Besides trivial errors in estimating outcomes, the reasons for non-optimal decisions may be result when alternatives were not clearly defined or required information was not collected. However, one of the major problems may lay in decision makers cognitive and personal biases, being a tendency or preference towards a particular perspective, ideology or result, interfering with the ability to be impartial, unprejudiced, or objective (Soukhanov, 1992, p. 231). This paper reviews several major types of internal cognitive biases which may prevent from optimal decision making.
Anchoring is a cognitive bias being he common human tendency to giving disproportionate weight to one trait or piece of information, usually received first, when making decisions. The anchoring was first studied by Tversky and Kahneman, who asked respondents to guess the percentage of African nations which are members of the UN, people who were first asked “Was it more or less than 45%?” guessed lower values than those who had been asked if it was more or less than 65% (Tversky & Kahneman, 1974, p. 1124-1130).
The status quo bias is a cognitive bias describe that people tend to favor alternatives that perpetuate the existing situation or behavior, unless the incentive to change them is really compelling. Kahneman, Thaler and Knetsch (1991), who created experiments that reliably produce this effect, attributed it to a combination of loss aversion and the endowment effect, placing higher value to objects a person owns (pp.193-206).
Sunk cost bias, stemming from loss aversion, is a making decision based on previously made decisions, like investing costs and/or efforts, rather than on current circumstances, like additional costs and/or efforts required and expected outcomes. It is often called “throwing the good money after bad” (Spears, 2006)
One of the first steps in making a decision is framing the question. It’s also one of the most dangerous steps, as the way a problem is framed profoundly influences the nature and number of choices the one assesses (Hammond, Keeney, Raiffa, 1998, p. 53).
Knowing possible barriers for optimal decision making, such as biases, and ability to identify them in practice is the key to improving decision making skills in order to reach optimal solutions for problems.
- Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1130.
- Kahneman, D., Knetsch, J. L. & Thaler, R. H. (1991). Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. Journal of Economic Perspectives, 5, 1, pp. 193-206
- Spears, Richard, (ed.) (2006) McGraw-Hill Dictionary of American Idioms and Phrasal Verbs. New York: McGraw-Hill http://idioms.thefreedictionary.com/throw+good+money+after+bad Retrieved on 03-Apr-2009
- Hammond, J.S., Keeney, R.L., Raiffa, H. (1998) The Hidden Traps in Decision Making Harvard Business Review 1998 Sep-Oct 76(5), p. 47-57
- Soukhanov, A. H. (ed.). (1992). The American heritage dictionary of the English language (3rd ed.). Boston: Houghton Mifflin