Causes are to remember how available they are to the

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causes are to remember (how available they are to the memory) o The rule of thumb that says an event is easy to remember is likely to have occurred more frequently than an event that is difficult to remember o People tend to judge an event that they have no difficulty remembering as occurring more frequently than an event they find difficult to remember, also a potential cause of an event that comes to mind quickly is the one people are more likely to believe made it happen o Can aid decision making because events and causes that actually do occur frequently come to mind easily o Can cause certain biases to affect decision making One such bias is the overestimation of the frequency of vivid or extreme events and their causes because these kinds of event are memorable Also frequency of recent events and their causes because they are simply the freshest in memory 2. Representativeness Heuristic: the tendency to predict the likelihood of an event occurring in the future because it is similar or representative of events that have occurred in the past o Can be used to estimate the likelihood of an upcoming event because it has been a good predictor of similar kinds of events that happened in the past o This heuristic can lead decision makers to disregard important information about the frequency of such events o Managers may sometimes over or under estimate the frequency of such events, and thus the base rate, and this leads to biased decision making Base rate = actual, recorded frequency with which an event occurs 3. Anchoring and Adjustment Heuristic o Is the tendency to made decisions based on adjustments or estimates from some initial amount or quantity (anchor) Decisions about salary increases are often made by choosing an % increase from an employee’s current salary Budget decisions are often made by deciding whether the current budget should be increased or decreased Decisions about the degree at which costs must be cut are based on the current level of costs o Decision makers need to consider only the degree to which current level needs to be changed Escalation of Commitment o The tendency of decision makers to invest additional effort, time and money into what are essentially bad decisions or unproductive courses of action that are already draining an organization’s resources o Typical escalation-of-commitment scenario: A decision maker initially makes a decision that leads to a course of action that results in a loss or negative outcome Rather than change the initial course of action, the decision maker now decides how to commit more effort, time nad money to pursue it successfully Further losses are experiences from pursuing this course of action o 3 causes of this type of faulty decision making: decision makers often do not want to admit themselves or to other people that they have made a mistake given the amount of money or resources that have been lost, decision makers erroneously believe an additional commitment of resources is justified to recoup some of those losses

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