Reference no: EM131406060

Discussion

1) Availability bias is "one of several cognitive biases affecting judgment" (Bebbington, 2010, p. 65). Things that we do on a regular basis can impact our judgment. These are actions that can result in a bias decision. This can result in judgmental that and actions on decision making from bias research results for the comparison. "The roles of emotion is judgment and decision making received less attention in that work than it had received before the beginning of the cognitive resolution in psychology in the 1950's" (Kahneman, 2003, p. 1470).

The reconsideration with the higher NPV numbers are what can lead to greater profitability. This has significant impact on the selection for the potential company that you're interested in investing. "Availability bias can still occur even when sufficient data is supplied to judge probability correctly" (Bebbington, 2010, p. 66). The significant impact is against the low probability for each of the selections in SLP 2.

Increasing a higher probability against the lowest potential profit changes significantly especially against the Low NPV for each of the products. "Economists often criticize psychological research for its propensity to generate lists of errors and biases, and for its failure to offer a coherent alternative to the rational-agent model" (Kahneman, 2003, p. 1449). Having a higher starting point can significantly changes the decision on which company to select. This changes the Low, Medium and High to a closer comparison range that results in company selection.
"Main problem in deriving accurate objective analysis from a field experiment is the insufficient sampling of measurements" (Zhang, Lin, Cederwall, Yio, & Xie, 2001, p. 295). This can be applicable for all cases to make sure that the correct information in not bias information that is collected. Bias information is what can influence the selection of the future information against companies. "Clearly availability bias is difficult to overcome, and can have potentially fatal consequences when people alter their behaviour after incorrectly judging probabilities which have been skewed by it" (Bebbington, 2010, p. 66).

References

Bebbington, D. (2010). Thinking Tools: Availability Bias. Cambridge University Press 9(24), 65-66. doi: 10.1017/S1477175609990236.

Kahneman, D. (2003). Maps of Bounded Rationality: Psychology for Behavioral Economics. The American Economic Review 93(5), 1449-1475. doi: 10.1257/000282803322655392.

Zhang, M., Lin, J., Cederwall, R., Yio, J., & Xie, S. (2001). Objective Analysis of ARM IOP Data: Method of Sensitivity. Monthly Weather Review 129(2), 295-311. doi: 10.1175/1520-0493(2001)129<0295:OAOAID>2.0.CO;2.

2) The definition of availability bias according to the article, Availability bias may taint investing moves (2010), is simply the availability of information for mental recall to use in the decision-making process. Another way to explain availability bias is the process of formulating a probability from a person's memory. These probabilities may be subjective due to connected memory based biases such as representativeness bias and correlation bias. Memory biases consider past events and stereotyping of events to form a relationship of probability which is typically incorrect (Laibson & Zeckhauser, 1998).

Availability bias could play a role in the SLP 2 decision of choosing which business in which to invest. The person choosing the companies to invest in may have a bias for one of the businesses. For example, they may have invested in several hat businesses that inevitably failed.

By formulating the data into frequency distributions, the decision maker can visualize the data in a less subjective eye. By doing so, the decision should result in less availability biased decisions and more of a data-based decision (Laibson & Zeckhauser, 1998).

References:

Availability bias may taint investing moves. (2010, Apr 28). Chattanooga Times Free Press Retrieved fromhttps://search.proquest.com/docview/193939168?accountid=28844

Laibson, D., & Zeckhauser, R. (1998). Amos Tversky and the Ascent of Behavioral Economics. Journal Of Risk & Uncertainty, 16(1), 7-47.

3) Availability Bias is defined as "The giving of preference by decision makers to information and events that are more recent, that were observed personally, and were more memorable." (Availability Bias, n. d.). One may have Availability Bias because the decision that is made is based off their feelings instead of complete and absolute logic. A manager may feel that this method has worked recently, and it made me feel good about that decision, rather than assessing the situation carefully. This term could influence which alternative the decision-maker would choose based on their person preference of the business opportunities. Instead of assessing the effectiveness of each of the proposed alternatives, the manager may want to invest in the option that brings forth the most gratification on a personal level. For instance, I would choose real estate because it may bring forth more profit, as selling houses might make more money than selling cupcakes or hats. That is just my personal take on it. Based on my calculations for all the high NPV's using both 0.75 and 0.5, the priority in the potential profits would shift from one proposed investment to the next. If Availability Bias was at play here, then there is a potential to keep the options as the same. Because, one option remains on top with both the High NPV percentages calculated. This is my own biased opinion, of course. Using frequency distribution will allow the decision maker to assess the information from a standpoint of clarity. The number would be in front of them, allowing them to decide, based on logical progression, rather than personal emotions. What do you guys think?

Sincerely,

Marcus Bradley

Resources:

Availability Bias. (n. d.) BusinessDictionary.com. Retrieved from

https://www.businessdictionary.com/definition/availability-bias.html