Solved by verified expert :Case Assignment
Even the most intelligent manager is prone to personal biases and
pitfalls that can lead to bad decisions. We all carry biases based on
our personal experiences. And we can all fall into various traps that
lead to decisions that seem perfectly logical at the time but in
retrospect, we see that we should have known better.
In the background materials, including Bolland and Fletcher (2012);
Kourdi (2003); and Hammond, Keeney, and Raiffa (2008); several specific
decision-making biases and pitfalls are discussed. Collectively these
are known as cognitive biases. Some of the common pitfalls and biases
discussed in these readings include overconfidence bias, confirmation
(self-confirming) bias, sunk-cost bias, framing bias, and hindsight
bias.
Carefully review all three of these readings and make sure you
understand the different types of biases. Then read through the
scenarios below and think about what kind of biases are demonstrated in
each scenario. For each scenario, carefully explain which specific bias
or biases is demonstrated by the decision and what can be done to avoid
this bias in the future. Make sure to pick at least one specific bias
that you read about for each scenario, and explain your reasoning. Use
references to at least one of the three required readings from the
background materials in your discussion of each scenario below. Your
paper should be 4–5 pages in length:
The Chief Financial Officer (CFO) of a corporation is of the strong
belief that marketing is not a good use of the company’s money. Someone
shows her data from several years ago showing that during a period of
high spending on marketing, sales did not go up. She says, “See, I told
you marketing is not a good use of our budget!” and cuts the marketing
budget to almost zero. Following the cut in the marketing budget, sales
also start to drop dramatically. When asked by an employee if the drop
in sales is due to the cut in the marketing budget, she says, “No!” and
insists there must be a different explanation. What kind of
decision-making bias do you think this represents, and why? What steps
would you recommend to this CEO to reduce this kind of bias? Support
your answer with references to at least one of the three background
readings.
A CEO decides that he wants to greatly expand the company’s market by
purchasing a major rival. This acquisition would double the company’s
market share. However, several of his top managers warn him that such a
purchase would require the company to take out a huge amount of debt to
finance this merger, and that many of these large mergers have failed.
They also point out that the organizational culture of the other company
is very different and that managing this merger would be very
difficult. Nonetheless, the CEO insists that he can overcome the odds
and plans to go through with the merger. What kind of decision-making
bias do you think this represents, and why? What steps should this
leader take to avoid this bias? Support your answer with references to
at least one of the three background readings.
A CEO wants to purchase a new factory. He is currently deciding between
two factories. The owner of Factory A brags that 94% of products
produced at the factory are free of defects. The owner of Factory B
cautions that his factory has a 5% defect rate but management and staff
are working very hard to reduce the rate. The CEO decides to purchase
Factory A citing its strong 94% rate of success in producing defect-free
products even though Factory B actually has a 95% rate of success. What
kind of decision-making bias do you think this represents, and why?
What steps should this leader take to avoid this bias?
A CEO of an automobile company decides to introduce a new hybrid vehicle
using cutting-edge technology. A huge amount of money is spent in
research and development as well as advertising. But when the car is
completed sales are very slow and the price has to be cut so low that
the company is losing money on every hybrid vehicle sold. She is advised
to simply abandon the car to avoid further losses in profits, and focus
her energy on selling profitable vehicles. However, she insists it is
unwise to abandon the hybrid vehicle given that so much money has
already been put into the project. What kind of decision-making bias do
you think this represents, and why? What steps should this leader take
to avoid this bias? Support your answer with references to at least one
of the three background readings.
Conclude the paper with a discussion about which one of the
decision-making biases you think is the most dangerous to a leader, and
explain your reasoning.
Assignment Expectations
Follow the assignment instructions closely and follow all steps listed in the instructions.
Stay focused on the precise assignment questions; don’t go off on
tangents or devote a lot of space to summarizing general background
materials.
Make sure to cite readings from the background materials page. Rely
primarily on the required background readings as your sources of
information.
Include both a bibliography and in-text citations.
