This statement was given by Herbert A. Simon who is called “prophet of bounded rationality.” In spite of the tone of such statement, at least in economics, it can be said that the concept of rationality is firmly associated with Simon’s name. The above statement of Simon shows that not every decision is based on the rational behaviour rather the decision we make is sometimes bias by some causes such as overconfidence and inappropriate knowledge of the problem (Soll, Milkman, & Payne, 2015). However, there are three major discrete concepts that can explain better than how these factors bring bias in decisions.
Bounded awareness occurs when people fail to see relevant information because they are engaged and overly focused on some other issue that is not important. This means most important and crucial information is overlooked by people when they make any decision. That results in bias decision making because people consider inappropriate and irrelevant information about the situation. Sometimes a good people having no intention for doing any unethical conducts and that person suddenly involve in immoral misconduct without their own consciousness. The lack in awareness of that particular person about the situation forces him to do some unethical conducts in the organisation. The unbound awareness also causes bias in decision-making. Simon talks about the rationality in decision-making that is crucial for making any decision, but he also mentioned that the wide range and broad complexity in the nature of problem could not be solved because of their limited capacity of mind of a human being (Abatecola, Caputo, & Cristofaro, 2018). This concept applies in many organisations, which fail to realize the significant developments of the problem or are very slow in realizing about the information and problems at the start of the business that at the end becomes strategically important for the business organisation. This result in an irrelevant and bias decision-making in the organisation and causes a heavy loss in terms of inappropriate and unethical decision-making. With this in mind, it can be said that bounded awareness can and will happen in every decision-making process. Thus, it is essential for a decision maker to avoid the bias he/she must be careful about the bounded awareness. Thus, sharing and discussion of information with another team member in the organisation is necessary which is widely known and relevant for all. It is also considered that unique information that is known by only a particular person in a group typically does not generate any positive feedback. In any organisation, a manager should overcome this issue of bounded awareness in their organisational decision-making because it is always lead to the bias decision making (Peters, Evans, Hemmerich, & Berman, 2016). A manager should also try to identify the relevant information that is essential and required in making the decision and get it, rather than depends on using the pre-collected information or information that is already available in the room.
Simons told in his statement that it is nature of human mind that it is characteristically unable to sighted certain things but because they humans are limited by the extent in their own imagination, it is difficult for us to imagine what is not exist in that particular situation or problem (Andia & Chorev, 2017). Because of some blind spots in the human mind and limited capacity of it, we miss things, then after our mind replaces what we did not see with what it expects to experience. It can be explained in many studies that unexpected and hide information is particularly easy to miss. Thus, to avoid such circumstances of bias decision-making because of unbounded awareness, an organisation should focus on silos and multi-layer of management hinder information flow. With this strategy, the information is not transmitted well across silos, and the multiple layers of management can filter the information that is not relevant in the decision-making.
The framing effect is a cognitive bias where people make their decision based on options if the options are based on positive or negative consequences such as loss or gain. In other words, the framing concept depends on how the brain makes decisions about information depending on how the information is presented. The framing effect constantly recognized as one of the strongest biases in making decisions. Framing can be used in many ways such as from emotional appeals to social pressure to priming etc. it has been observed that people normally avoid risk when they consider that there is positive frame is presented in the decision-making, but seek risks when they observe a negative frame is presented (Bachkirov, 2015). The concept helps in to develop an understanding of the different frames available in the decision-making process. The understanding of framing concept in decision-making avoids the bias while making any decision. Prospect theory was the first theoretical explanation of framing concept that was given by Kahneman and Tversky in 1979. This theory supports the rational decision making of Simon and reveals the people who would not compliment completely rational action always refers to deviates the rationality. This theory focuses on two stages called editing and evaluation. In the editing stage, people normally interpret the information through coding, composition, and decomposition and integrate the information, while in the evaluation stage individual decision makers select different options of utility value.
Framing concept is often used by marketers and business professional to influence decision-makers or influencing the decision-making of consumers (Wolf, Weißenberger, Claus Wehner, & Kabst, 2015). It is the human nature that different person responds in different ways even they perceive and view the similar information because it is depending on whether the precise available option is obtained in a positive way or in a negative way (Beham, Baierl, & Poelmans, 2015). Framing effect normally affects the thinking of a decision maker by providing them with two frames of information, which includes a positive frame of information and a negative frame of information. For example, an advertiser manipulates the decision of a consumer by just adding few words in the advertisement and the successfully divert a customer in their own segment (Murata, Nakamura, & Karwowski, 2015). However, this technique can also be used by the competitor to attract and manipulate the customer decision. For another instance, if a company ‘A’ will attract its customer through promoting its product by saying that 95% of their products are not found to be defected, while the company’s competitor can change the frame and say that Company A’s product will fail 5 times after using it 100 times or company A produces 5 defective products.
Emotional bias is a misrepresentation or wrong interpretation of information while making any decision due to emotional factors. Emotions play a significant role in the decision making and having a crucial impact on decisions that an individual take regarding a situation or a problem. Most of the people are bias in their decision-making because of sadness, guilt, happiness, or disgust. These are some emotional states of human mind that determines the behaviour pattern while making any decision (Costa, de Melo Moreira, de Melo Carvalho, & Silva, 2018). While fear is associated with uncertainty and sadness is associated with perception and these factors having more influence in the decision-making process. Thus, Simon’s statement is true about that the capacity of the human mind is very less to understand and find out the solution of a complex problem. Stress can also cause the biasness in the decision-making (Butler, O’Broin, Lee, & Senior, 2016). We know that emotions are an important factor in decision making because it affects different types of decisions. Emotions have also a strong influence on economic behaviour and decision-making. Sometimes overconfidence also causes in biased decision-making. When people ignore the actual information and also reject the opinions of others, and make their decision on their own judgement and knowledge, it results in biased decision-making.
It has been seen many times that emotional decisions may or may not be the right ones at every time. However, it is also true that the rational behaviour of a decision maker somewhat depends on human emotions. A person has to take care of a few things while making any decision or taking action about a problem or situation (Atsan, 2016). A person should use their intellectual abilities and should consider both aspects of the matter- negative aspects and positive aspects. An individual should consider the right and wrong side of the decision in which the person involved, rather than depending on the emotions, which drive the person to it (Mahmoodi, Bang, Olsen, Zhao, Shi, Broberg, & Roepstorff, 2015). Emotions often cause bias decision-making, thus a person should make their decision with a cool mind and with all the positive observations rather than taking decisions when the person is angry. Being rational may result in a high-quality decision, that is free from any bias but when a person taking a decision with both balanced rational and emotional approach it can help in taking the right decision and also helps in justify the decision.
According to an article that is published in January 2006, in Harvard Business Review Titled ‘Decision with blinders’ by Max H. Bazerman and Dolly Chugh, a US based company Merck withdrew Vioxx (A pain relief drug) medicines from the US medicine market because in September it was out of concern that this pain relief medicine causing heart attacks and strokes. More than 100 million prescriptions already were filed in the USA alone and doctors continuously prescribe this pain relief drug to the patients. However, the drug researchers found that Vioxx has been causing more than 25000 heart attacks and strokes and more than 1000 were filed complain against the company (Pechmann & Catlin, 2016). However, the evidence of the drug’s hazards was publically available in 2000, when the New England Journal of Medicine reported a complaint that if a person taking this medicine as many four times, then they were experienced myocardial infarctions. After that in 2001, Merck is showed to federal regulators and accept in its own report that 14.6% of Vioxx patients suffered from cardiovascular troubles among them 2.5% were developed serious problems (Jasper, Leenders, & O’Shannassy, 2017).
Therefore, here the problem is why the doctor prescribed this medicine; even the drug’s risk had been published in 2000 and 2001. It means they overlooked this important information while prescribed this medicine to the patients. Social sciences research has shown that without knowing and realizing it, decision makers ignore certain critical information (Bazerman & Sezer, 2016). It can also be said that doctors are also a human being and they are like the rest of us who are imperfect information processors (Petersen & Singhal, 2017). The bounded awareness occurs at various points in this scenario:
This bias is identified by the complaint filed by people and other regulatory authority. Even the doctors did not ask the patient as feedback about the medicine, or it might be possible that they not received any feedback from the patient (Gendall, Eckert, Hoek, & Louviere, 2018). Therefore, it can be said that despite being having information about the drug risk, and they knew the information related to this drug they overlook and blinded to the actual extent of those risks.
If doctors asked the patient for feedback and involve them in their decision-making regarding prescribing this drug to other patients, they can stop these bias decisions. It is a common phenomenon that people would like to believe; some people are seeking approval rather than advice when they ask for other’s opinions on proposed decisions. Most of the people did not seek out the actual information and disconfirming the evidence that is available in advance and relevant too. This is the real problem when a decision is affected with bounded awareness.
According to prospect theory, a person regarding the decision-making process considers the risk involve in seek risk in a situation of pure loss, and develop a risk aversion in the situation of pure gain. A real-world example on framing effect is tobacco and cigarette companies. A tobacco company conveys a message on the product-related hazards and their negative impact on the human body. They print a message on the tobacco products that consumption of tobacco is injurious for health. However, some people know it very well and they avoid it and follow the message instruction that prevents them to consume tobacco products, while some people never believe in the message and consuming the tobacco products. Perception and attitude of a person matter a lot when quitting smoking. Apart from this, the manner in which message was processed is also mattered for convincing people about the possible harm or gain by consuming the tobacco products (Wackowski, Manderski, Lewis, & Delnevo, 2017).
It has been found that smokers allocate very little attention to the high-risk information than to copying information while a non-smoker person gives more attention to high-risk information when it is printed with threatening images on the tobacco products. Another thing is that the graphic warning on tobacco product is more effective than the text printed on the products related to product consumption hazards. Therefore, the framing effect created by Tobacco Company is to prevent people from using tobacco products because of its harmful effects on the body (Noval, & Stahl, 2017).
The framing message on tobacco products such as quitting smoking decreases the risk of erectile dysfunction and infertility problems in men and for women, it is tobacco causes miscarriage and cancer of the cervix. These messages are the example of loss-framed messages and the gain frame messages highlighted the benefits of using tobacco that helps it came out from depression etc.
Although, the people generally bias in decision making in this scenario when a person who first time try to use the tobacco products and after reading the loss framing message change his/her mood to consume it because now the decision of consuming products of that person is changed with the framing message printed on the products. This framing message may prove the decision outcomes in such a way that it prevents people to consume tobacco products by informing them about the possible threats and loss (Malmendier, & Tate, 2015). People after reading the message and watching the graphics message generally avoid consuming tobacco products. However, there is another exception in this that person who does not want to quit tobacco consumptions are not affected by these messages.
Emotions play an important role in every decision we make in our personal and professional life both. When we purchase an expensive shirt like Hugo Boss or we buy a brand washing detergent powder. There are 95% of our thoughts are unconscious I.E. and we are not aware of them (Heilman, Miu, & Houser, 2016). A real-world example of such effect is almost found everywhere and one of the recent examples of emotional effect in decision-making bias was in a college sports team management decisions when Coach of team fire a player from the final eleven of cricket team because he was already emotionally attached with another player. A well-known professor of neuroscience, Antonio Damasio argues that emotion is an essential ingredient to almost all decisions (Griffith, Zeni, & Johnson, 2016).
The great example of this emotional bias in decision-making was Volkswagen emission scandal where this automobile company was found guilty to produce cars with “defeat devices” that causes high emission rate and that was more than times from the permissible limits. Volkswagen admitted that there were few automobile engineers who were found guilty in device testing and that result in high rate of emission scandal in USA and UK. The former executive Oliver was found to be guilty in that scandal and they were not punished by the company, neither company take any action against them. Because somewhere, the top executives of the company favour their employees and not disclose this matter in public even they know the situation (Koch, D’mello, & Sackett, 2015). The emotional attachment of the company and fear to caught by the regulatory bodies force them to take unethical decision making regarding the manufacturing of such care, which is polluting the air with excessive emission.
If the company was not emotionally taken the decision to continue the manufacturing of cars that were inbuilt faulty engines that generate a high level of emission, they will not be caught by the pollution control regulatory bodies of USA (Sezer, Zhang, Gino, & Bazerman, 2016). Volkswagen emission scandal is known as one of the biggest fraud in US history.
This scandal was prevented by the company if they continuously check their engine testing process. The company trust and emotionally taken a decision about their engine testing process and even after, they continue with the manufacturing when most of the top executives know the exact scenario. Company if taken an ethical decision and not focus on the emotional attachment in decision making regarding the manufacturing of new cars with defective engines, they can stop this scandal (WILSON, 2016). Thus, the emotional effect in decision-making causes bias with the rest of the world and with customers of Volkswagen when they sold them cars with defective car engines that were highly involved in emission rate in USA and rest of the world.
References
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