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Article
Publication date: 12 January 2021

Konrad Kulikowski

Despite evidence showing that cognitive biases – the systematic errors made by humans during cognitive processing, are prevalent among decision-makers, there is a lack of…

Abstract

Purpose

Despite evidence showing that cognitive biases – the systematic errors made by humans during cognitive processing, are prevalent among decision-makers, there is a lack of theoretical models providing insight into how these limitations of human mind might affect decisions made during performance management. This study aims to fill this gap and contribute to performance management scholarship by proposing a conceptual framework broadening our understanding of the role of cognitive biases in performance improvements practices and by highlighting remedies for cognitive biases.

Design/methodology/approach

Using benchmarking as an example, the authors integrate the knowledge from performance management and cognitive psychology literature. Examples of cognitive biases possible during benchmarking are used to illustrate how the limitations of human mind might have a critical role in performance management.

Findings

The cognitive biases might diminish the positive effect of performance improvement practice on organizational performance. As there is a prevalence of cognitive biases coupled with the inability of individuals to recognize and face them, the remedy for cognitive biases should be sought not at an individual but rather on an organizational level, in creating organizational cognitive biases policy (CBP).

Originality/value

The presented model provides new insights into the role of cognitive biases in performance management and allows seeing CBP as a safeguard against the effects of cognitive biases on performance. By referring to cognitive biases and CBP, our model also helps to understand why the same performance improvement practices might incite different opinions among decision-makers.

Details

International Journal of Productivity and Performance Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-0401

Keywords

Content available
Article
Publication date: 19 May 2020

Chiara Acciarini, Federica Brunetta and Paolo Boccardelli

In a work environment marked by unprecedented complexity, volatility and ambiguity, managers must accomplish their objectives while navigating many challenges. This paper…

Abstract

Purpose

In a work environment marked by unprecedented complexity, volatility and ambiguity, managers must accomplish their objectives while navigating many challenges. This paper aims to investigate potential interrelations among environmental transformations, cognitive biases and strategic decisions. In particular, the purpose of the study is to crystallize the state of art on the impact of cognitive biases on strategic decisions, in the context of environmental transformations.

Design/methodology/approach

The authors have conducted a systematic literature review to identify existing relevant work on this topic and to detect potential avenues for future research.

Findings

The findings highlight how decision-making is influenced and enabled by internal (e.g. perception) and external factors (e.g. digitalization). Specifically, the strategic role of cognitive biases appears to be crucial when investigating the related impact on strategic decisions in times of environmental transformation.

Practical implications

Implications are drawn for scholars and practitioners interested in evaluating the role of specific decision-making determinants for the formation and implementation of strategic decisions. In this sense, we stress that decision-makers need to manage their cognitive biases and select the right information out of a wide data set in order to adapt to environmental transformations.

Originality/value

By systematizing the literature review, potential interrelations among environmental transformations, cognitive biases and strategic decisions are identified. Furthermore, the primary phases that drive the decision-making process are proposed (analysis, decision, onboarding and control).

Details

Management Decision, vol. 59 no. 3
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 26 November 2020

Niklas Kreilkamp, Maximilian Schmidt and Arnt Wöhrmann

The purpose of this paper is to investigate if and how firms approach debiasing and what determines its success. In particular, this study examines if debiasing is…

Abstract

Purpose

The purpose of this paper is to investigate if and how firms approach debiasing and what determines its success. In particular, this study examines if debiasing is effective in reducing cognitive decision biases. This paper also investigates organizational characteristics that determine the effectiveness of debiasing.

Design/methodology/approach

This study uses survey data from German firms to answer the research questions. Target respondents are individuals in a senior management accounting function.

Findings

In line with the hypotheses, this paper finds that debiasing can reduce cognitive biases. Moreover, this study finds that psychological safety not only directly influences the occurrence of cognitive biases but is also an important factor that determines the effectiveness of debiasing.

Research limitations/implications

This paper provides evidence that debiasing can serve as a powerful management accounting tool and discusses debiasing in the context of recent management accounting literature. This study also adds to the stream of research that investigates the role of psychological safety in organizations by highlighting its importance for successful debiasing.

Practical implications

This paper informs firms that use or intend to use debiasing about crucial determinants to consider when debating its implementation, i.e. psychological safety. This study also identifies risk management as a potential interface for the implementation of systematic debiasing.

Originality/value

While previous research primarily addresses specific cognitive biases and debiasing mechanisms using lab experiments, this is – to the best of the knowledge – the first study investigating cognitive biases and debiasing on a broad conceptual level using survey data.

Details

Journal of Accounting & Organizational Change, vol. 17 no. 4
Type: Research Article
ISSN: 1832-5912

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Article
Publication date: 13 September 2021

Moses Munyami Kinatta, Twaha Kigongo Kaawaase, John C. Munene, Isaac Nkote and Stephen Korutaro Nkundabanyanga

This study examines the relationship between investor cognitive bias, investor intuitive attributes and investment decision quality in commercial real estate in Uganda.

Abstract

Purpose

This study examines the relationship between investor cognitive bias, investor intuitive attributes and investment decision quality in commercial real estate in Uganda.

Design/methodology/approach

A cross-sectional research survey was used in this study, and data were collected from 200 investors of commercial real estate in Uganda using a structured questionnaire. Hierarchical regression analysis was used to test the hypotheses derived under this study.

Findings

The results indicate that investor cognitive bias and investor intuitive attributes are positive and significant determinants of investment decision quality in commercial real estate. In addition, the two components of Investor cognitive bias (framing variation and cognitive heuristics) are positive and significant determinants of investment decision quality, whereas mental accounting is a negative and significant determinant of investment decision quality. For investor intuitive attributes, confidence degree and loss aversion are positive and significant determinants of investment decision quality, whereas herding behavior is a negative and significant determinant of investment decision quality in commercial real estate in Uganda.

Practical implications

For practitioners in commercial real estate sector should emphasize independent evaluation of investment opportunities (framing variation), simplify information regarding investments (Cognitive heuristics), believe in own abilities (Confidence degree), be risk averse (loss aversion) and avoid making decisions based on subjective visual mind (mental accounting) and group think/herding in order to make quality investment decisions. For policymakers, the study has illuminated factors such as provision of reliable information that ought to be taken into account when promulgating policies for regulation of the commercial real estate sector. This will help investors to come up with investment decisions which are plausible.

Originality/value

Few studies have focused on investor cognitive bias and investor intuitive attributes on investment decision quality in commercial real estate. This study is the first to examine the relationship, especially in the commercial real estate sector in a developing country like Uganda.

Details

Journal of Property Investment & Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 13 April 2020

Haili Zhang, Hans van der Bij and Michael Song

While some studies have found that cognitive biases are detrimental to entrepreneurial performance, others have conjectured that cognitive biases may stimulate…

Abstract

Purpose

While some studies have found that cognitive biases are detrimental to entrepreneurial performance, others have conjectured that cognitive biases may stimulate entrepreneurial action. This study uses a typology of availability and representative heuristics to examine how two patterns of biases affect entrepreneurial performance. Drawing on ideas from cognitive science, this study predicts that various levels of biases in each pattern stimulate entrepreneurial behavior and performance.

Design/methodology/approach

A profile-deviation approach was employed to analyze data from 253 entrepreneurs and zero-truncated Poisson regression and the zero-truncated negative binomial regression to test hypotheses.

Findings

This study finds some positive associations between a particular level of cognitive biases in each of the two patterns and entrepreneurial behavior and performance. Results show that the patterns of biases often stimulate and never hurt entrepreneurial behavior and performance. The opposite holds for a lack of cognitive biases, which hurts and never stimulates entrepreneurial behavior and performance.

Originality/value

This study examines patterns of cognitive biases of entrepreneurs instead of single biases. The study broadens the perspective on the heuristics and cognitive biases of entrepreneurs by examining patterns of biases emanating from the availability and the representativeness heuristic that make a difference for entrepreneurial behavior and performance. The study also brings the “great rationality debate” closer to the entrepreneurship field by showing that a normative rule based on statistics and probability theory does not benefit entrepreneurial behavior and performance.

Details

International Journal of Entrepreneurial Behavior & Research, vol. 26 no. 4
Type: Research Article
ISSN: 1355-2554

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Article
Publication date: 29 June 2020

Nurcan Deniz

Expert evaluation is the backbone of the multi-criteria decision-making (MCDM) techniques. The experts make pairwise comparisons between criteria or alternatives in this…

Abstract

Purpose

Expert evaluation is the backbone of the multi-criteria decision-making (MCDM) techniques. The experts make pairwise comparisons between criteria or alternatives in this evaluation. The mainstream research focus on the ambiguity in this process and use fuzzy logic. On the other hand, cognitive biases are the other but scarcely studied challenges to make accurate decisions. The purpose of this paper is to propose pilot filters – as a debiasing strategy – embedded in the MCDM techniques to reduce the effects of framing effect, loss aversion and status quo-type cognitive biases. The applicability of the proposed methodology is shown with analytic hierarchy process-based Technique for Order-Preference by Similarity to Ideal Solution method through a sustainable supplier selection problem.

Design/methodology/approach

The first filter's aim is to reduce framing bias with restructuring the questions. To manipulate the weights of criteria according to the degree of expected status quo and loss aversion biases is the second filter's aim. The second filter is implemented to a sustainable supplier selection problem.

Findings

The comparison of the results of biased and debiased ranking indicates that the best and worst suppliers did not change, but the ranking of suppliers changed. As a result, it is shown that, to obtain more accurate results, employing debiasing strategies is beneficial.

Originality/value

To the best of the author's knowledge, this approach is a novel way to cope with the cognitive biases. Applying this methodology easily to other MCDM techniques will help the decision makers to take more accurate decisions.

Details

Journal of Enterprise Information Management, vol. 33 no. 5
Type: Research Article
ISSN: 1741-0398

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Article
Publication date: 23 November 2012

Sachin Wasuja, Mahim Sagar and Sushil

Specialty drug development is capital‐intensive and represents a new era for the entire health ecosystem. This “newness” has resulted in below‐par sales performance of…

Abstract

Purpose

Specialty drug development is capital‐intensive and represents a new era for the entire health ecosystem. This “newness” has resulted in below‐par sales performance of these drugs. This paper seeks to explore the intricate relationship of product (or company), salespersons, doctors and consumers (patients) in the given scenario.

Design/methodology/approach

The study makes use of grounded theory and total interpretive structural modeling (TISM). Grounded theory is used to explore various factors of cognitive bias in selling specialty drugs. TISM is used to create a hierarchy amongst the factors and interpret the relationships amongst them.

Findings

The study proposes a cognitive bias amplification model explaining the phenomenon of cognitive bias in specialty pharmaceutical selling.

Originality/value

The study fills part of the significant research gap and addresses the issues in selling specialty drugs. The cognitive bias amplification model is helpful in providing the starting point for sales‐centric organizations to overcome the cognitive bias affecting salespersons.

Details

International Journal of Pharmaceutical and Healthcare Marketing, vol. 6 no. 4
Type: Research Article
ISSN: 1750-6123

Keywords

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Book part
Publication date: 8 July 2021

Yonca Toker-Gültaş, Afife Başak Ok and Savaş Ceylan

Organizations are investing their resources to identify effective leaders; however, the most commonly utilized assessments of leadership potential do not cover the social…

Abstract

Organizations are investing their resources to identify effective leaders; however, the most commonly utilized assessments of leadership potential do not cover the social cognitions of individuals. Trait assessments, which are explicit in nature, also have other problems, including faking and socially desirable responding. In this chapter, we highlight the importance of leaders' implicit reasoning processes, with a particular focus on cognitive biases, in an attempt to understand how destructive leaders frame the world, situations and people and how they justify their choice of behaviours and decisions. Empirical evidence in the literature supports the valid use of implicit reasoning measurements in organizational contexts. Thus, we first summarize and list the cognitive biases of destructive leaders as identified in the literature. We then turn our focus on Machiavellian leaders as they have been associated with destructive leadership. We present the most common six cognitive biases and justification mechanisms of Machiavellian leaders based on our qualitative analysis of interview responses from 72 employees. We aim to encourage researchers and practitioners to make use of the literature on implicit reasoning and to further contribute to developing measures assessing such implicit reasoning processes.

Details

Destructive Leadership and Management Hypocrisy
Type: Book
ISBN: 978-1-80043-180-5

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Article
Publication date: 8 January 2019

Arnela Ceric and Peter Holland

The purpose of this paper is to explore the role of four cognitive biases, namely, selective perception, exposure to limited alternatives, adjustment and anchoring, and…

Abstract

Purpose

The purpose of this paper is to explore the role of four cognitive biases, namely, selective perception, exposure to limited alternatives, adjustment and anchoring, and illusion of control in anticipating and responding to Distributed-Denial-of-Service (DDoS) attacks.

Design/methodology/approach

The paper is based on exploratory case study research and secondary data on decision making in the Australian Bureau of Statistics (ABS) in regards to planning and managing DDoS attacks on Census day in 2016.

Findings

Cognitive biases limited the ABS’s awareness of the eCensus system’s vulnerabilities, preparation for and management of DDoS attacks. Cyberattacks are on the increase, and managers should expect and be prepared to deal with them.

Research limitations/implications

Due to the sensitivity of the topic, it was not possible to interview relevant stakeholders. Analysis is based on high-quality secondary data that includes comprehensive government reports investigating the events on Census day.

Practical implications

Cyberattacks are inevitable and not an aberration. A checklist of actions is identified to help organisations avoid the failures revealed in the case study. Managers need to increase their awareness of cyberattacks, develop clear processes for dealing with them and increase the robustness of their decision-making processes relating to cybersecurity.

Originality/value

This the authors believe that it is the first major study of the DDoS attacks on the Australian census. DDoS is a security reality of the twenty-first century and this case study illustrates the significance of cognitive biases and their impact on developing effective decisions and conducting regular risk assessments in managing cyberattacks.

Details

Information Technology & People, vol. 32 no. 1
Type: Research Article
ISSN: 0959-3845

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Book part
Publication date: 4 July 2019

Ercan Özen and Gürsel Ersoy

Introduction – Markowitz (1952) argues that individuals act rationally in their financial decisions. In contrast, Kahneman and Tversky (1979) claim that the psychological…

Abstract

Introduction – Markowitz (1952) argues that individuals act rationally in their financial decisions. In contrast, Kahneman and Tversky (1979) claim that the psychological characteristics of people significantly affect financial decisions. In making these decisions, factors such as age, gender, and educational status may have an impact.

Purpose – The purpose of this study is to determine whether financial literacy has an impact on individuals’ cognitive biases related to financial investments.

Methodology – A sample of 444 individuals were surveyed.

Findings – In the results of study (1) it was determined that financial literacy leads to differences in cognitive biases; and (2) cognitive biases of individuals who do not receive finance education are different from individuals who receive finance education and professionals in the business world. The findings indicate that the increase in the level of financial literacy of individuals will reduce the cognitive biases and heuristics, and therefore will have a positive effect on the investor behavior in financial markets.

Details

Contemporary Issues in Behavioral Finance
Type: Book
ISBN: 978-1-78769-881-9

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