Reference no: EM132803767

Cognitive Biases: Prior hypothesis bias, escalation of commitment, representativeness and illusion of control.

Randy is the owner of an independent pizza restaurant, Cheese State Pizza, (fictional) that operates in the Madison Wisconsin area. Randy started the firm 10 years ago, and his sales and employees have grown. Five years ago, he successfully expanded to a second location by buying a local competitor and turning it into another location for Cheese State Pizza. While he offers carry out, much of his business is dine in. He is considering implementing the following strategies:

1. Purchasing a competing local restaurant. There is another pizza restaurant on the other side of town that is struggling financially for the past several years that the owner has put up for sale. Randy believes that by rebranding this restaurant as Cheese State Pizza, and adopting the menu items that have been successful for him at the other two locations, Randy can make this third location a success.
2. Getting rid of the barbecue items on his menu OR expanding barbeque offerings. Two years ago, Randy purchased two large meat smokers so he could serve barbecue items at his two restaurant locations. He thought by serving barbecue dishes, he would be able to offer an appealing dish to those that do not care for pizza. However, this strategy has not been particularly successful, and sales have only been 40% of what he originally expected. He believes he should either remove the barbeque items from the menu, or expand these offerings to see if new options would make it more successful. If he removes the barbeque items from the menu he will be able to sell the meat smokers, however, selling the meat smokers will only yield 50% of their original purchase price. However, Randy knows that simplifying the menu by removing the barbeque dishes will likely make the kitchen operate more efficiently. Another option is to keep the meat smokers and try to expand the number of barbeque dishes on the menu. Randy would not need to buy any additional equipment to to make this happen, but would need to invest quite a bit in employee training, and adding more menu items would complicate kitchen operations.

For each of these strategies, discuss what cognitive biases (from those we discussed in class) are likely to affect Randy's decision-making. Make sure and explain your rationale. Finally, discuss what techniques Randy might use to minimize the influence of these cognitive biases and improve his decision-making.