BazermanMoore

14 Chapter 2: Common Biases
Without looking back at the list, please estimate whether there are:
a. more companies on the list that are based in the United States, or
b. more companies on the list that are based outside the United States.
If you guessed that there are more American firms on the list, you are in the majority.
Most people (at least, most Americans polled) estimate that there are more American
companies than foreign companies on the list. Most people also guess that the American
firms are larger than the foreign companies listed.
However, this majority response is incorrect. In fact, there are thirteen American
firms on the list and fourteen based outside of the United States. What’s more, the non-
U.S. firms were ranked higher than the American firms on Fortune magazine’s 2006 list
of the largest global corporations.
Why do most people overestimate the frequency of American firms on the list?
Because the American company names are more familiar, more recognizable, and more
memorable to Americans than the foreign company names.
This problem illustrates the availability heuristic, which we introduced in Chapter 1.
For Americans, the names of American firms are more available in our memories than
the names of foreign firms after reading the list. We err in assuming that the prevalence
of American firms in our minds mirrors the real world. Awareness of the bias resulting
from the availability heuristic should inspire us to question our judgments and adjust
them accordingly.
As we noted in Chapter 1, individuals develop rules of thumb, or heuristics, to reduce
the information-processing demands of making decisions. By providing managers
with efficient ways of dealing with complex problems, heuristics produce good decisions
a significant proportion of the time. However, heuristics also can lead managers
to make systematically biased judgments. Biases result when an individual inappropriately
applies a heuristic when making a decision.
This chapter is comprised of three sections that correspond to three of the general
heuristics we introduced in Chapter 1: the availability heuristic, the representativeness
heuristic, and the confirmation heuristic. (We will discuss a fourth general heuristic, the
affect heuristic, in Chapter 5.) The three heuristics covered in this chapter encompass
twelve specific biases that we will illustrate using your responses to a series of problems.
The goal of the chapter is to help you ‘‘unfreeze’’ your decision-making patterns by
showing you how easily heuristics become biases when improperly applied. Once you
are able to spot these biases, you will be able to improve the quality of your decisions.
Before reading further, please take a few minutes to respond to the problems presented
in Table 2.1.