Thus, rather than cutting their losses, they waste time and energy while trying to justify their purchase of the car. However, many people would spend hours of their time and hundreds, even thousands of dollars repairing the car in the hopes that they might recover their initial investment. An effective way of dealing with this situation might be to sell the car without incurring further losses, donate the car, or use it until it falls apart. For example, imagine a person who purchases a used car, which turns out to need something repaired every few weeks. It is sometimes called the “sunken costs fallacy,” because continuation is often based on the idea that one has already invested in the course of action. Escalation of CommitmentĮscalation of commitment occurs when individuals continue on a failing course of action after information reveals it may be a poor path to follow. Similarly, customers tend to prefer a statement such as “85 percent lean beef” as opposed to “15 percent fat” (Li et al., 2007). It is important to be aware of this tendency, because depending on how a problem is presented to us, we might choose an alternative that is disadvantageous simply because of the way it is framed. For example, when making a purchase, customers find it easier to let go of a discount as opposed to accepting a surcharge, even though they both might cost the person the same amount of money. Framing bias refers to the tendency of decision makers to be influenced by the way that a situation or problem is presented. Framing Biasįraming bias is another concern for decision makers. How could a mistake like this have been made? One theory is that decision biases played a large role in this serious error, and anchoring on the fact that the plane had been consumed by flames led the coroner to call off the search for any possible survivors (Becker, 2007). The next day two survivors who had been declared dead walked out of the forest. Similarly but more dramatically, lives were lost in the Great Bear Wilderness Disaster when the coroner, within five minutes of arriving at the accident scene, declared all five passengers of a small plane dead, which halted the search effort for potential survivors. Job seekers often fall into this trap by focusing on a desired salary while ignoring other aspects of the job offer such as additional benefits, fit with the job, and working environment. Anchoring BiasĪnchoring refers to the tendency for individuals to rely too heavily on a single piece of information. Therefore, it is important for decision makers to remember this bias before passing judgments on other people’s actions. However, the driver in question may have heard similar sounds before with no consequences, so based on the information available at the time, continuing with the regular routine may have been a reasonable choice. It would be easy to criticize the decision to continue to drive the car because in hindsight, the noises heard in the morning would make us believe that the driver should have known something was wrong and taken the car in for service. During the day, the car malfunctions and stops miles away from the office. Being familiar with this car in particular, the driver may conclude that the probability of a serious problem is small and continues to drive the car. For example, let’s say a company driver hears the engine making unusual sounds before starting the morning routine. ![]() Hindsight bias tends to become a problem when judging someone else’s decisions. This bias may occur because they are selectively reconstructing the events. ![]() In other words, after a surprising event occurred, many individuals are likely to think that they already knew the event was going to happen. Hindsight bias is the opposite of overconfidence bias, as it occurs when looking backward in time and mistakes seem obvious after they have already occurred. Further, research shows that overconfidence leads to less successful negotiations (Neale & Bazerman, 1985).To avoid this bias, take the time to stop and ask yourself if you are being realistic in your judgments. It is three times more likely for a person driving ten miles to buy a lottery ticket to be killed in a car accident than to win the jackpot (Orkin, 1991). People who purchase lottery tickets as a way to make money are probably suffering from overconfidence bias. For example, 82 percent of the drivers surveyed feel they are in the top 30 percent of safe drivers, 86 percent of students at the Harvard Business School say they are better looking than their peers, and doctors consistently overestimate their ability to detect problems (Tilson, 1999). Many people exhibit signs of overconfidence. Overconfidence bias occurs when individuals overestimate their ability to predict future events.
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