Question 1

Many projects result in escalation of commitment when decision makers underestimate the risk and overestimate their probability of success. This is called the:
A) fallacy of distribution.
B) regression fallacy.
C) gambler's fallacy.
D) red herring fallacy.

Accepted Answer

The given scenario describes the gambler's fallacy, where decision makers continue to invest resources into a project because they believe that their past investment makes it more likely the project will succeed, despite the actual probability of success remaining unchanged.

Question 2

The _____ heuristic leads to a bias whereby people base their decisions heavily on an example that can be easily brought to mind.
A) representativeness
B) framing
C) anchoring
D) availability

Accepted Answer

The availability heuristic leads people to rely too heavily on information that is readily available, leading to biased decision-making. This can often be based on easily recalled examples or recent events, rather than a more comprehensive analysis of all relevant information.

Question 3

Explain at least four ways by which firms can overcome groupthink.

Accepted Answer

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Question 4

Which of the following is NOT a symptom of groupthink?
A) Stereotyping of in-groups
B) Illusion of invulnerability
C) Rationalization
D) Direct pressure

Accepted Answer

Stereotyping is typically directed towards out-groups rather than in-groups, making it not a symptom of groupthink. Groupthink symptoms include an illusion of invulnerability, rationalization, and direct pressure among group members to conform, but not stereotyping of in-groups.

Question 5

Write an explanatory note on the sunk-cost trap.

Accepted Answer

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Question 6

Many individuals will refuse to sell a stock or a mutual fund at a loss even though it may be clear that the investment will not turn around. This is an example of a:
A) sunk-cost trap.
B) anchoring trap.
C) status-quo trap.
D) confirming-evidence trap.

Accepted Answer

This behavior is an example of a sunk-cost trap, where individuals continue a behavior or endeavor as a result of previously invested resources (time, money, or effort), even if it's clear that the investment will not yield a favorable outcome. In this case, the prior investment in the stock or mutual fund, and the loss associated with it, influences the decision to hold onto it, hoping for a turnaround, rather than cutting losses.

Question 7

How can managers overcome escalating commitment problems?

Accepted Answer

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Question 8

Compare and contrast programmed and nonprogrammed decisions.

Accepted Answer

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Question 9

Write an explanatory note on how cultural factors can affect decision making.

Accepted Answer

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Question 10

The "representativeness" heuristic can result from all of the following EXCEPT:
A) misunderstanding probabilities.
B) neglecting relevant base rates.
C) being unduly influenced by initial impressions.
D) seeing patterns where none exist.

Accepted Answer

The "representativeness" heuristic involves making judgments based on how much one thing resembles another, often leading to errors such as misunderstanding probabilities, neglecting base rates, and seeing patterns where none exist. Being unduly influenced by initial impressions is more closely related to the "anchoring" heuristic, where initial information serves as a reference point and heavily influences subsequent judgments.

Question 11

A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, and when the members' striving for agreement override their motivation to realistically appraise alternative courses of action is:
A) confirmation bias.
B) groupthink.
C) herd mentality.
D) group polarization.

Accepted Answer

The description closely matches the concept of groupthink, in which individuals prioritize maintaining group harmony over considering alternative perspectives or information. Confirmation bias is a related but distinct concept, involving the tendency to seek out information that supports one's preexisting beliefs. Herd mentality refers to the tendency of individuals to follow the behaviors of the larger group without considering their own beliefs or actions. Group polarization involves the tendency for group discussion to further polarize individuals' initially held beliefs or attitudes.

Question 12

The human tendency to judge options according to the size of previous investments rather than the size of the expected return is called:
A) economic loss.
B) the sunk-cost fallacy.
C) groupthink.
D) a framing error.

Accepted Answer

The sunk-cost fallacy is a cognitive bias where individuals continue to invest in a project or option based on the amount of resources already dedicated to it, rather than the potential future benefits. This can result in poor decision making and is a common pitfall in business and personal decision making.

Question 13

The tendency to allocate more resources to a failing course of action is:
A) escalation of commitment.
B) risk aversion.
C) representativeness.
D) anchoring.

Accepted Answer

Escalation of commitment refers to the tendency of individuals or groups to continue investing resources, even when it is clear that the current course of action is failing. This can occur due to a variety of factors such as feelings of personal responsibility, fear of failure or loss, or a desire to justify past investments. As a result, the decision-makers may allocate more resources to the failing course of action, leading to further losses or inefficiencies.

Question 14

The ability of members of the group to think differently, and to express their opinions and findings is:
A) groupthink.
B) identity diversity.
C) identity orientation.
D) cognitive diversity.

Accepted Answer

The ability of group members to think differently and express their opinions is known as cognitive diversity. This brings different perspectives to the table, which can lead to more innovative solutions and better decision-making. Groupthink, on the other hand, is when group members strive for consensus and avoid dissent, leading to conformity and potentially flawed decision-making. Identity diversity and identity orientation refer to differences in cultural and social identities among group members, which can also contribute to cognitive diversity. However, the specific ability to think differently and express opinions is best described as cognitive diversity. Therefore, choice D is the best answer.

Question 15

What is groupthink? Why is it considered to be problematic?

Accepted Answer

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Question 16

What is a confirming-evidence bias?

Accepted Answer

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Question 17

What is the scarcity principle?
A) Most people feel worse about a loss of a given amount than they would feel good about a gain of a similar amount.
B) People tend to focus on losses (or loss avoidance) in making decisions.
C) Alternatives that are acceptable or ''good enough,'' rather than the best possible solutions.
D) Items and opportunities are seen to be more valuable as they become less available.

Accepted Answer

The scarcity principle states that items and opportunities are seen to be more valuable as they become less available. This means that people tend to place a higher value on something if they believe it is rare or in short supply. This principle is often used in marketing and sales tactics to create a sense of urgency or exclusivity around a product or service.

Quiz 9: Decision Making

Many projects result in escalation of commitment when decision makers underestimate the risk and overestimate their probability of success. This is called the:

The _____ heuristic leads to a bias whereby people base their decisions heavily on an example that can be easily brought to mind.

Explain at least four ways by which firms can overcome groupthink.

Which of the following is NOT a symptom of groupthink?

Write an explanatory note on the sunk-cost trap.

Many individuals will refuse to sell a stock or a mutual fund at a loss even though it may be clear that the investment will not turn around. This is an example of a:

How can managers overcome escalating commitment problems?

Compare and contrast programmed and nonprogrammed decisions.

Write an explanatory note on how cultural factors can affect decision making.

The "representativeness" heuristic can result from all of the following EXCEPT:

A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, and when the members' striving for agreement override their motivation to realistically appraise alternative courses of action is:

The human tendency to judge options according to the size of previous investments rather than the size of the expected return is called:

The tendency to allocate more resources to a failing course of action is:

The ability of members of the group to think differently, and to express their opinions and findings is:

What is groupthink? Why is it considered to be problematic?

What is a confirming-evidence bias?

What is the scarcity principle?