Reference no: EM133492452

Case Study: Even the most intelligent manager is prone to personal biases and pitfallsthat can lead to bad decisions. We all carry biases based on our personalexperiences. And we can all fall into various traps that lead to decisionsthat seem perfectly logical at the time but in retrospect, we see that weshould have known better.In the background materials, including Kriek, D. (2019); Kourdi (2003);and Hammond, Keeney, and Raiffa (2008); several specificdecision-making biases and pitfalls are discussed. Collectively these areknown as cognitive biases. Some of the common pitfalls and biasesdiscussed in these readings include overconfidence bias, confirmation(self-confirming) bias, sunk-cost bias, framing bias, and hindsight bias.Carefully review all three of these readings and make sure youunderstand the different types of biases. Then read through the scenariosbelow and think about what kind of biases are demonstrated in eachscenario. For each scenario, carefully explain which specific bias orbiases is demonstrated by the decision and what can be done to avoidthis bias in the future. Make sure to pick at least one specific bias that youread about for each scenario, and explain your reasoning. Use referencesto at least one of the three required readings from the backgroundmaterials in your discussion of each scenario below. Your paper should be4-5 pages in length:

Question 1. The Chief Financial Officer (CFO) of a corporation is of the strongbelief that marketing is not a good use of the company's money.Someone shows her data from several years ago showing that duringa period of high spending on marketing, sales did not go up. Shesays, "See, I told you marketing is not a good use of our budget!" andcuts the marketing budget to almost zero. Following the cut in themarketing budget, sales also start to drop dramatically. When askedby an employee if the drop in sales is due to the cut in the marketingbudget, she says, "No!" and insists there must be a differentexplanation. What kind of decision-making bias do you think thisrepresents, and why? What steps would you recommend to this CEOto reduce this kind of bias? Support your answer with references to atleast one of the three background readings.

Question 2. A CEO decides that he wants to greatly expand the company'smarket by purchasing a major rival. This acquisition would double thecompany's market share. However, several of his top managers warnhim that such a purchase would require the company to take out ahuge amount of debt to finance this merger, and that many of theselarge mergers have failed. They also point out that the organizationalculture of the other company is very different and that managing thismerger would be very difficult. Nonetheless, the CEO insists that hecan overcome the odds and plans to go through with the merger.What kind of decision-making bias do you think this represents, andwhy? What steps should this leader take to avoid this bias? Supportyour answer with references to at least one of the three backgroundreadings.

Question 3. A CEO wants to purchase a new factory. He is currently decidingbetween two factories. The owner of Factory A brags that 94% ofproducts produced at the factory are free of defects. The owner ofFactory B cautions that his factory has a 5% defect rate butmanagement and staff are working very hard to reduce the rate. TheCEO decides to purchase Factory A citing its strong 94% rate ofsuccess in producing defect-free products even though Factory Bactually has a 95% rate of success. What kind of decision-makingbias do you think this represents, and why? What steps should thisleader take to avoid this bias?

Question 4. A CEO of an automobile company decides to introduce a new hybridvehicle using cutting-edge technology. A huge amount of money isspent in research and development as well as advertising. But whenthe car is completed sales are very slow and the price has to be cutso low that the company is losing money on every hybrid vehicle sold.She is advised to simply abandon the car to avoid further losses inprofits, and focus her energy on selling profitable vehicles. However,she insists it is unwise to abandon the hybrid vehicle given that somuch money has already been put into the project. What kind ofdecision-making bias do you think this represents, and why? Whatsteps should this leader take to avoid this bias? Support your answerwith references to at least one of the three background readings.

Question 5. Conclude the paper with a discussion about which one of thedecision-making biases you think is the most dangerous to a leader,and explain your reasoning.