09.13.09. - Chapter 5, Case Incident 1 - Natural Disasters and the Decisions That Follow

09.13.09. - Chapter 5, Case Incident 1 - Natural Disasters and the Decisions That Follow

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9/13/09 Chapter 5 Alexander Silkin Case Incident 1 Natural Disasters and the Decisions That Follow 1. Rommel's quote about making a "sound business decision" reveals three potential decision making biases involved: overconfidence bias, confirmation bias and escalation bias. Without supplying evidence to support the affectivity of his decision, Rommel sounds overconfident whilst placing a lot of trust on his own rationale. This also leads to confirmation bias, as Rommel is only selectively paying attention to information that shows the positive effects of his decision, such as the fact that his actions potentially minimized his company's cost, while ignoring the negative effect of heighted negative attention in the media towards the firm and the opportunity cost in the form of potential revenue and customer goodwill. Furthermore, there is space for escalation of commitment, whereas Rommel feels responsibility for his decision and will continue to support it in order to save face, by ignoring negative evidence to avoid facing the fact that he might have made a mistake, as shown by other insurance companies' record profits in 2006. Finally, Rommel says that "the rationale was sound", but we know that all individuals unconsciously base their decisions on bounded rationality, meaning that even though he perceives that he viewed the problem in its entirety, he involuntarily limited the factors he considered in his decision. 2.
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09.13.09. - Chapter 5, Case Incident 1 - Natural Disasters and the Decisions That Follow

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