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Essay / Research Paper Abstract
A 9 page research paper that examines biases in business decision-making, looking at both positive and negative effects. The writer particularly focuses on how a bias toward optimism can cause managers to underestimate costs and problems. Bibliography lists 4 sources.
Page Count:
9 pages (~225 words per page)
File: D0_khbias.rtf
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Unformatted sample text from the term paper:
can cost millions, sometimes billions. Rather than formulating a decision based on realistic forecasts, managers can make decisions based on a bias to maintain the status quo, or, conversely, on
an overly optimistic assessment of projects success. With one bias, acceptable risk is consciously avoided, which can mean that a company fails to expand and grow. But on the other
hand, when a bias toward optimism is involved, risk is not assessed realistically. Both biases have potentially negative effects, which is not to say that bias is always harmful. Bias
can sometimes be advantageous, as a bias toward optimism aids in supporting company morale. However, biases in decision-making are frequently responsible for poor strategy and business decisions. Research indicates that
the first step in countering the negative effects of bias in managerial decisions is to realize that these biases exist. The following examination of biases in regards to business decisions
examines both their possible negative effects and their positive advantages. According to Lovallo and Kahneman (2003), there is a strong bias among business executives to exaggerate the benefits and
discount costs in forecasting the success of a new venture or product line. At the beginning of a venture, this optimism is often a necessary factor in the process of
propelling an idea into a reality. However, business literature refers over and over again to instances where optimistic forecasts have come back to haunt planners. The recent much ballyhooed merger
of AOL and Time/Warner immediately comes to mind as an example of overly-optimistic assessments. Lovallo and Kahneman list numerous examples of failed optimism, such as how in 1992, Oxford
Health Plans started work on a complex new computer system for processing claims and payments. From the beginning the project ran into unforeseen delays and problems. In 1997, the company
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