Economics Bounded Rationality Questions
Biases play a significant role in decision-making under bounded rationality in organizational psychology. Bounded rationality refers to the limited cognitive abilities of individuals to process and analyze all available information when making decisions. In this context, biases are systematic deviations from rational decision-making that can influence the decision-making process.
Biases can affect decision-making in several ways. Firstly, biases can lead to the over-reliance on heuristics or mental shortcuts, which are simple decision-making strategies that often ignore relevant information. These heuristics can result in cognitive biases such as confirmation bias, where individuals seek out information that confirms their pre-existing beliefs, and availability bias, where individuals rely on readily available information rather than considering all relevant data.
Secondly, biases can impact the evaluation and interpretation of information. For example, anchoring bias occurs when individuals rely too heavily on the first piece of information they encounter when making decisions, even if it is irrelevant or misleading. Similarly, framing bias occurs when the way information is presented or framed influences decision-making, even if the underlying information remains the same.
Lastly, biases can also affect the perception of risk and uncertainty. Prospect theory suggests that individuals are more sensitive to potential losses than gains, leading to biases such as loss aversion. This bias can result in individuals making suboptimal decisions by avoiding risks that could potentially lead to gains.
Overall, biases in decision-making under bounded rationality can lead to suboptimal or irrational choices in organizational psychology. Understanding and mitigating these biases is crucial for improving decision-making processes and outcomes within organizations.