Question 1

We tend to accept at face value information that is consistent with our preconceived views, while we are critical and skeptical of information that challenges these views. This represents the ________ bias.

Accepted Answer

The given scenario represents the confirmation bias, which means we tend to seek and interpret information in a way that confirms our beliefs or preconceptions while ignoring or dismissing information that challenges them. We are more likely to accept information that supports what we already believe, and we are skeptical or critical of information that contradicts our view.

Question 2

Which of the following types of biases in decision making represents the tendency of decision makers to prefer a sure thing?

Accepted Answer

Risk aversion represents the tendency of decision makers to prefer a sure thing.

Question 3

The more optimistic the entrepreneurs, the less successful the performance of their new ventures. Which of the following systematic biases and errors creep into their judgments?

Accepted Answer

Overconfidence bias can lead to entrepreneurs being too optimistic about their chances of success, even in the face of evidence suggesting otherwise. This can lead to poor decision-making and ultimately lower performance outcomes.

Question 4

We tend to accept at face value information that confirms our preconceived views, while we are critical and skeptical of information that challenges these views.

Accepted Answer

This phenomenon is known as confirmation bias, and it is a well-established cognitive bias that affects our ability to evaluate information objectively. We tend to favor information that confirms our beliefs because it feels more comfortable and familiar, and we are more likely to dismiss or ignore evidence that contradicts our views. This can lead to distortions in our thinking and decision-making, as we may overlook important facts or evidence that could change our minds.

Question 5

One of the core problems that created the financial meltdown of 2008 was that large loans were made to individuals who could not repay them, and the finance companies purchased these bad debts without realizing how poor the prospects of repayment were. Which of the following decision-making errors was made by the lenders and borrowers?

Accepted Answer

The lenders and borrowers displayed overconfidence bias by underestimating the risk associated with lending and borrowing such large amounts of money without properly assessing the ability to repay. This led to the purchase of bad debts and ultimately contributed to the financial meltdown of 2008. Hindsight bias, availability bias, confirmation bias, and anchoring bias are not applicable to this scenario.

Question 6

Tom knows that the title insurance company made a mistake on his property title. Because of their mistake, his neighbor now has access to an easement road through the 25 acres located at the back of his property. He can't use the acreage for pasture, because his neighbor insists that the gates remain open. The title company has offered a $40,000 settlement. Tom has decided to take the settlement rather than possibly lose in court if he were to sue the title company for more money. Tom's decision is based on ________.

Accepted Answer

Tom's decision to take the settlement rather than pursue litigation suggests that he is risk-averse, preferring to avoid the potential loss of a court case and accepting a guaranteed settlement instead.

Question 7

A common tendency related to the overconfidence bias is that as managers and employees become more knowledgeable about an issue, they become more likely to display overconfidence.

Accepted Answer

The answer of A common tendency related to the overconfidence...

Question 8

The ________ bias is typically associated with negotiation.

Accepted Answer

The anchoring bias is the tendency for individuals to rely too heavily on the first piece of information presented (the "anchor") when making decisions or negotiating. This bias can lead negotiators to be overly influenced by the opening offer or initial proposal made by the other party, rather than objectively evaluating the situation and possibilities for compromise.

Question 9

You are part of a group, making a decision about whether it is appropriate to discontinue research on a new drug. This new drug would save lives, but it is uncertain whether you can develop it within a reasonable time frame and at a reasonable cost. Your firm has already spent a small fortune on this drug. You have gathered so much information in preparation to making the decision that you are unable to sort the good information from the superfluous data. You just feel that this project has merit. What form of decision making are you using if you decide to continue the project because you feel that the project has merit?

Accepted Answer

The decision-making approach being used in this scenario is intuitive, as the decision is being based on a gut feeling or instinct that the project has merit, rather than a rational analysis of the information.

Question 10

People who carefully gather and consider information consistent with the rational decision-making model are more likely to engage in which of the following decision-making errors?

Accepted Answer

Escalation of commitment is a decision-making error more likely to occur among those who carefully gather and consider information, as they may become too invested in their decisions and continue to commit resources to failing courses of action in an effort to justify their initial decision.

Question 11

Our tendency to believe we have some control over our world and our destiny and that we can predict the outcome of random events is the ________.

Accepted Answer

The randomness error refers to our tendency to believe that we can predict the outcome of random events, which is a manifestation of our desire to see patterns and control in the world around us, even when none exist.

Question 12

An individual's place in the interview schedule may affect the interviewer's evaluation of the applicant. This is an example of confirmation bias.

Accepted Answer

This is an example of order effects, not confirmation bias. Order effects occur when the position of an item in a sequence affects how it is perceived or evaluated, whereas confirmation bias refers to the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Question 13

The ________ bias can explain why managers doing performance appraisals give more weight to recent employee behaviors than to behaviors of 6 or 9 months earlier.

Accepted Answer

The availability bias refers to the tendency of individuals to give more weight to information that is readily available to them. In this case, managers may remember more easily the recent behaviors of employees, leading to a bias towards these behaviors in performance appraisals.

Question 14

________ refers to staying with a decision even when there is clear evidence it's wrong.

Accepted Answer

Escalation of commitment refers to the tendency to continue investing in a decision or project even when it's clear that it's not working. This is often fueled by emotional attachment, sunk costs, and the belief that persistence will eventually pay off. Other biases such as hindsight bias, satisficing, selective perception, and availability bias may contribute to decision-making, but they do not necessarily involve a persistent commitment to a failing course of action.

Question 15

People who carefully gather and consider information consistent with the rational decision-making model are more likely to engage in escalation of commitment than those who spend less time thinking about their choices.

Accepted Answer

People who carefully gather and consider information consistent with the rational decision-making model are more likely to engage in escalation of commitment because they are more invested in their decisions and are less likely to admit that they have made a mistake.

Question 16

What are the three generally accepted constructs of decision making each of us employs to make determinations?

Accepted Answer

These three constructs are widely accepted in the field of decision making as ways in which individuals approach and make determinations. Rational decision making involves systematically evaluating alternatives and selecting the best one based on a set of criteria. Bounded rationality acknowledges that individuals are limited in their ability to process information and may therefore rely on simplifying heuristics or shortcuts. Intuition refers to the use of past experiences and gut feelings to make decisions. All three constructs play a role in decision making and can be employed depending on the situation and context.

Question 17

For many people, a 50-50 flip of a coin for $100 might not be worth as much as a sure promise of $50, even though the gamble is mathematically worth twice as much as the sure thing. This is an example of ________.

Accepted Answer

This scenario is an example of risk aversion, which occurs when individuals prefer a certain outcome over a higher expected value gamble. In this case, people are willing to give up some potential gain in order to avoid the risk of losing the entire amount.

Question 18

While negotiating salary with your prospective employer, if you suggest an initial target salary of $55,000, your employer will consider $50,000 to $60,000 a reasonable range for negotiation, but if you mention $55,650, your employer is more likely to consider $55,000 to $56,000 the range of likely values for negotiation. In this example your employer is exhibiting the ________ bias.

Accepted Answer

This is an example of anchoring bias, where the initial suggestion of $55,000 sets a range for negotiation. When a more specific number is mentioned (i.e. $55,650), it anchors the negotiation range more tightly around that number.

Question 19

________ is a highly complex and highly developed form of reasoning that is based on years of experience and learning.

Accepted Answer

Intuition is the highly complex and highly developed form of reasoning that is based on years of experience and learning. It is often described as a gut feeling or a sense of knowing without conscious reasoning. Intuition is thought to be the result of accumulated experience, knowledge, and patterns of thought that enable individuals to quickly assess situations and make decisions based on subconscious analysis.

Question 20

Which of the following statements is true regarding the hindsight bias?

Accepted Answer

The hindsight bias, also known as the "I-knew-it-all-along" phenomenon, refers to our tendency to believe falsely, after the outcome is known, that we would have accurately predicted it. This bias can lead to overconfidence in our ability to make predictions or judgments. Option A describes the anchoring bias, option B describes confirmation bias, option C describes the availability heuristic, and option E describes the halo effect.

Quiz 6: Perception and Individual Decision Making