BUS403: Negotiations and Conflict Management (2016.A.01)

Key Points

• Decision making is shaped by individual personality and behavioral characteristics.
• Subjective biases can influence decisions by disrupting objective judgments.
• Common cognitive biases include confirmation, anchoring, halo effect, and overconfidence.

Terms

• Dichotomies: two elements, often mutually exclusive, that stand in juxtaposition to one another.

Decision-making is a cognitive activity that results from rational and irrational thinking (based on assumptions not supported by evidence). Individual characteristics, such as personality and experience, influence how people make decisions. An individual's predispositions can be an obstacle or an enabler to the decision-making process.

From the psychological perspective, decisions are often weighed against a set of needs and augmented by individual preferences. Abraham Maslow's work on the needs-based hierarchy is one of the best known and most influential theories on the topic of motivation. According to Maslow, an individual's most basic needs (physiological needs such as food, water, and a sense of safety) must be met before they will strongly desire or be motivated by higher-level needs (love and self-actualization).

Many businesses use the Myers-Briggs Type Indicator (MBTI) diagnostic tool to identify personality characteristics. By categorizing individuals in terms of four dichotomies – thinking and feeling, extroversion and introversion, judging and perception, and sensing and intuition – the MBTI provides a map of the individual's orientation toward decision making.

Types of Cognitive Bias

Cognitive biases can create major obstacles in the decision-making process. Biases distort and disrupt objective contemplation of an issue by introducing influences into the decision-making process that are separate from the decision itself. We are often unaware of the biases that can affect our judgment. The most common cognitive biases are confirmation, anchoring, halo effect, and overconfidence.

1. Confirmation bias occurs when decision-makers seek evidence that confirms their previously-held beliefs as they discount or diminish the impact of evidence that supports contrary conclusions.

2. Anchoring describes an overreliance on an initial single piece of information or experience. Once the decision-maker sets an anchor, they dismiss subsequent judgments. This limits their ability to accurately interpret new, potentially-relevant information.

3. Halo effect describes a decision maker's overall impression of a person, company, brand, or product, which influences their thoughts and feelings about the object's overall character or properties. For example, if someone does well in one area, the observer automatically believes they will perform well in another area, regardless of whether those tasks are related.

4. Overconfidence bias occurs when a decision-maker overestimates the reliability of their own judgments. This can include the certainty they feel about their own ability, performance, level of control, or chance of success.