The Psychology Behind Heuristics
Individuals do not easily take fast decisions without thinking, instead, individuals rely on heuristics that direct them to take fast decisions. Heuristics help individuals make decisions with the least amount of information and eliminate the long thinking process that individuals have to undergo to make decisions (Bazerman and Moore, 2013). Although heuristics aid individuals in making decisions faster and with minimal amount of information, heuristics might lead individuals to make inaccurate decisions. According to Bazerman and Moore (2013), heuristics help managers make correct decisions in complicated situations; however, these heuristics can turn to bias if they were misused by individuals (Stanovich and West, 2000). The three main heuristics are availability, representativeness, and confirmation heuristics (Bazerman and Moore, 2013).
Heuristics are individuals’ responsive way to answer a question, and they are the stored information in an individual’s memory (Tversky and Kahneman, 1973, cited in Bazerman and Moore, 2013). Availability heuristic is a way individuals make decisions using the information that was recently made available to them. For instance, individuals make decision about something using the latest information that was available to their brains. For example, a manager decides to adopt a new method of working hours in which the total amount of working hours decrease. The manager takes this decision after he or she has read few articles that praise the strategy. The manager has relied on availability to take this decision and ignored other articles and researches that might be opposing this strategy. In such cases where managers make decisions depending on what was recently available to them might mislead them and make them biased to their strategy.
Representativeness heuristic is a way in which individuals are represented with information and that representation might be misleading. Representativeness is a heuristic that relies mostly on stereotype, it is the way individuals’ brains approximate conclusions by linking future events with past ones (Bazerman and Moore, 2013). For example, a manager might have employed some women several times for the same job but they all failed to do it properly. The manager might stereotype all women that apply for that job and simply reject them! The worse part would be if the manager stereotyped gender and job positions. Another good example would be managers building previous year numbers to future ones and ignoring other factors; for example, most companies built budgets and expectation for 2020 in December 2019. Most managers ignored the virus that started in Wuhan and relied on 2019 numbers to plan for 2020. As a result, many companies have struggled in 2020 due to their reliance on previous numbers and ignorance of other factors.
Confirmation heuristic is a heuristic that individuals use to answer questions and confirm their answers by linking them to irrelevant information (Bazerman and Moore, 2013). For instance, individuals might relate average mothers’ age to their mothers’ age when asked both questions at the same time. This is how confirmation heuristics work; individuals confirming their information by linking them to irrelevant information. Confirmation can be very dangerous if account managers use it, especially that they are liable for accounts and numbers that can be very deceiving when misread. For example, an accounting manager might link depreciation prediction to irrelative income accounts. Another example of confirmation, when managers make decisions in regards to working hours by linking employees’ working hours to their productivity. An employee might work for hours on Sundays while banks are closed and many other businesses, which interrupts the employee’s productivity. As a result, managers’ decisions taken using confirmation could complicate the whole situation and lead to making inaccurate and ineffective decisions.
Gigerenzer and Gaissmaier (2011) argued that individuals take decisions using common sense, facts, or heuristics. The notable part is that heuristics are closely related to an individual’s common sense. For instance, the previously mentioned heuristics are relevant to System 1 thinking, which is the fast form of thinking that results in making spontaneous decisions. How individuals make decisions depends on their personal choices. However, all individuals must aim to increase the effectiveness of their managerial decision making. The previously mentioned heuristics have biases that cause reduction in the effectiveness of managerial decision making. The previously mentioned examples are in the best case scenarios ignoring the biases that might occur upon the use of heuristics.
The three main heuristics, that were previously discussed, result in twelve biases discussed by Bazerman and Moore (2013). These biases caused by heuristic are a threat for managers directed by heuristics to make decisions. For example, a manager that has confirmation heuristic might fall in the confirmation trap as it was described by Bazerman and Moore (2013). The confirmation trap occurs once a manager searches for information that satisfies his or her thoughts. A manager might have linked two irrelevant ideas to one another and supported the linked ideas using a search that proves the ideas’ relevancy. However, the manager has fallen into this bias because he or she did not search for what disagrees to the claim or decision he or she is trying to make. This is why a manager’s decision using heuristic can lead to an inaccurate and ineffective result.
Kahneman (2012) discusses how the reliance on heuristics cause bias and result in errors. Kahneman (2012) discusses how sometimes neither a professional idea comes to mind nor heuristics function properly to answer questions. However, the major difference between heuristic and professional thinking is that heuristic might lead to a bias answer. Managers do not always have a professional solution for every problem, and when managers fail to come up with a professional solution then their heuristic should assist them to find a solution. According to Kahneman (2012), the problem with heuristic is when it leads individuals to be bias, that is why heuristic can be destructive rather than supportive for managers.
In conclusion, heuristics can mislead managers and cause them to become bias. However, managers can still use heuristics to come up with a solution or make a decision because they cannot always function using their professional thoughts. Although heuristic can reduce effectiveness of managerial decisions, but managers that can monitor heuristic would be capable of adopting heuristics and making proper decisions. Managers should be aware of heuristics and understand them to eliminate the chances of falling into their biased results. When heuristics are not monitored, they would result in reducing the effectiveness of the managerial decisions. As a result, managers should be aware of using heuristics professionally. If managers monitor and adjust their heuristics, the effectiveness of their managerial decisions would not be reduced.
References:
Bazerman, M. and Moore, D. A. 2013. Judgement in managerial decision making. 8th Edition; Wiley.
Gigerenzer, G. and Gaissmaier, W. 2011. Heuristic Decision Making, Annual Review of Psychology.
Kahneman, D. 2012. Thinking Fast and Slow. London: Penguin.
Stanovich, K. E., & West, R. F. 2000. Individual differences in reasoning Implications for the rationality debate Behavioral and Brain Sciences, 22, 645–665. doi10.1017/S0140525X00003435 — References — Scientific Research Publishing. Available at: http://pages.ucsd.edu/~mckenzie/StanovichBBS.pdf [Accessed January 12, 2021].
