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Decision Making

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Week 2 - Tuesday (August, 31st)

Bias in Judgement and

Heuristic Approach
MB 2101 DECISION MAKING
Decision Making Teaching Team

School of Business and Management

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Today’s Agenda

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Bias in Judgement Heuristic Approach

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Quiz Review In-Class Exercise

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Agenda 1:
Let’s Review the Quiz Answers

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Which of the following options are not types of heuristics?

QUESTION

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A. Repetitive

B. Anchoring and Adjustment

C. Availability

D. Representative
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QUESTION If we make a judgment based on the accessibility of

information in mind, we use what type of heuristics?

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A. Anchoring and Adjustment

B. Intuitive

C. Representative

D. Availability
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If we make a judgment of estimate values/ likelihood
QUESTION based on the initial values, we use what type of
heuristics?

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A. Anchoring and Adjustment

B. Intuitive

C. Representative

D. Availability
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If we make a judgment of likelihood of an event’s
QUESTION occurrence by the similarity, we use what type of
heuristics?

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A. Anchoring and Adjustment

B. Intuitive

C. Representative

D. Availability
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If we expecting the probability of joint events to be larger
QUESTION than the probability of the component events, WHAT
TYPE OF BIAS is it?

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A. Conjunction Fallacy

B. Insufficient Adjustment

C. Illusory Correlation

D. Confirmation
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If there is very little information to be used as an anchor,

QUESTION
we are prone to WHAT TYPE OF BIAS?

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A. Conjunction Fallacy

B. Insufficient Adjustment

C. Illusory Correlation

D. Confirmation
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If we think that all people with beard correlate with

QUESTION
terrorist, we experience WHAT TYPE OF BIAS?

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A. Conjunction Fallacy

B. Insufficient Adjustment

C. Illusory Correlation

D. Confirmation
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If we believe desirable outcomes are more probable,

QUESTION
WHAT TYPE OF BIAS we make?

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A. Conjunction Fallacy

B. Insufficient Adjustment

C. Illusory Correlation

D. Confirmation
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Agenda 2:
Testing Your Judgement
Explore more about the bias through several example
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This is Alan’s Family
● He and his wife have four
daughters.
● Now his wife is expecting
a baby.

● What is the chance that

the new upcoming family
member is girl?

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You have been offered a free ticket for a lottery in which
IDR 100 million jackpot will be awarded to those with all 6
numbers chosen randomly from 1 through 40.
Which of these ticket (with 6 number of combination)
would you choose?
A. B.
1 2 3 4 5 6 10 15 20 25 30 35

C. D.
7 11 23 27 33 38 20 21 24 26 27 28

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Complete the following words
S__P
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Guess the population of Uzbekistan in 2018!

Population in 2018:
5.8 million

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Eight percent of people interviewed for jobs at a company have a
criminal record. Here are Jim X record notes from the interviewer
related to Jim X are shown in the box:

Jim had an unshaven, scruffy appearance. Though his clothes looked

Estimate the expensive, they did not fit him well. He never made eye contact
probability
that Jim X during the interview and he had a strange, hard look about him.
has a His handshake was weak and I noticed a scar on the back of his
criminal
record! hand. He said he had no hobbies or family and his general
demeanor was unfriendly, and even a little contemptuous.
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Agenda 3:
Heuristic Approach

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1
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Chapter 2 of Goodwin & Wright ( 2014)

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Se
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Alternatives

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As
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Sa ct
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Heuristic Approaches to Multiple

in
g
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Recognition
Which city has more inhabitant :
A. Detroit
Heuristics B. Milwaukee
example
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You’ve been selected as SBM representation

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of Youth Program Asia-Pacific to Iceland.
Alternatives of airline to go to Iceland :

1. Air France
Minimalist 2. Iceland Air
Strategy 3. British Airways
example 4. Qatar Airways
5. Garuda Indonesia
6. Singapore Airlines
7. China Southern

Which airline will you choose? Explain why?

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Take the Last
◈ Same as minimalist heuristic except that people use
the attribute that enabled them to choose last time
when they had a similar choice.
◈ If both options are equally good on this attribute,
choose the attribute that worked the time before, and
so on.
◈ If none of the previously used attributes works, a
random attribute will be tried.
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Lexicographic
◈ Used where attributes can be ranked in order of
importance.
◈ Involves identifying most important attribute and
Strategy selecting the option which is best on that attribute
(e.g. choose cheapest option).
◈ In there’s a ‘tie’ on the most important attribute,
choose the option which performs best on the 2nd
most important attribute, and so on.
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If the price is more important attribute, then under
lexicographic strategy choose Brand D since
brand A and D is tie in price 3 but brand D is better
in quality.
Lexicographic
Strategy Brand Price Quality
example
A $ 3.00 low
B $ 3.60 high
C $ 3.40 medium
D $ 3.00 medium
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Semi-
◈ Like the lexicographic strategy - except if options
have similar performance on an attribute they are
considered to be tied.
Lexicographic
Strategy ◈ It can lead to violation of transitivity axiom…
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If the price difference between brands is less than

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50 cents choose the higher quality product,
otherwise choose the cheaper brand.

Brand Price Quality

Semi-
Lexicographic A $ 3.00 low
Strategy B $ 3.60 high
example
C $ 3.40 medium

A vs B the price difference is more than 50 cent →

chose A.
A vs C the price difference is less than 50 cent →
chose C since C has higher Quality.
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Elimination
◈ Most important attribute is identified and a
performance cut-off point is established.

by Aspect ◈ Any alternative falling below this point is eliminated.

(EBA)
◈ The process continues with 2nd most important
attribute, and so on.
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◈ Price is more important attribute and the cut
off point of price is $3.50.
◈ The cut off point for Quality is medium.
Elimination Brand Price Quality
by Aspect
A $ 3.00 low
(EBA)
example B $ 3.60 high
C $ 3.40 medium

Eliminate B since its price higher than $3.50.

Eliminate A since its quality is low.
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Elimination
◈
◈
◈
Easy to apply.
Involves no complicated computations.
Easy to explain and justify to others.
by Aspect
(EBA) ◈ Fails to ensure that the alternatives retained
Strength & are superior to those which are eliminated -
Limitation
this arises because the strategy is
non-compensatory.
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Satisficing
◈ Alternative chosen sequentially.
◈ Aspiration have been set previously, and the
search process stops when an alternative is
fulfilled the aspiration.
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Satisficing
example
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Agenda 4:
Let’s have an Exercise!
● Work in group (Discussion Group
from Prodi)
● Read the case description and
instructions carefully.
● Submit the results to the Google
Classroom

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Case Description
• A manager is ordering 40 inkjet
printers for staff working in the
company’s main office.
• Details of the available models are
given in the next slide.
• The print quality score has been
produced by an independent
magazine.
• The score ranges from 1 = “very
poor” to 5 = “excellent”

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Case Description
Model Price Mono Printing Speed (ppm) Print Quality Score Noise Level (dBA)
Solar $200 12.0 5 45
Symbol $159 7.8 4 46
Real $169 5.4 3 38
CCC $250 6.0 5 40
Tiger $80 4.1 4 48
Linwood $110 5.6 4 43
GA $185 5.4 4 40
Superb $210 7.2 4 45
Multitask $170 6.1 5 36
AR52 $237 14.0 5 48
Zeta $105 7.0 2 45
Multitask 2 $118 9.1 3 43

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Case Instructions
Use the previous information to
demonstrate how the manager could
apply each of the following strategies to
choose the computer and discuss the
advantage and disadvantages of using
these strategies.
• Lexicographic
• Semi-lexicographic
• Elimination by aspects
• Satisficing

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Additional Information
Importance Level For the Semi-Lexicographic. Criteria for satisficing:
1. Price Additional assumption: ● Price <180
2. MPS We will still consider $100 higher ● MPS >7.0
3. Print Quality price printer. ● Print Quality >3
4. Noise Level ● Noise Level <48
For Elimination By Aspect
Cut off point:
● Price ($180) - RED cross the
options for elimination.
● MPS (≥7 ppm) -BLUE cross the
options for elimination.
● Quality (≥4) - GREEN cross the
options for elimination.

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Any Questions?
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