Debiasing competitive irrationality: How managers can be prevented from trading off absolute for relative profit

Gräf, Lorenz; König, Andreas; Enders, Albrecht; Hungenberg, Harald

doi:10.1016/j.emj.2011.12.001

Cited by 26 publications

(17 citation statements)

References 83 publications

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“…Haleblian [84] stated that the awareness-motivation capabilities of firms influence the timing of competitive action. Managers may occasionally sacrifice profits to improve their relative competitive standing [85]. The results for the main criterion of green attractions in this study show that sacrificing profit and assuming social responsibility can improve corporate image, which benefits sustainable operations and competitive advantages.…”

Section: Case Studymentioning

confidence: 79%

A DFuzzy-DAHP Decision-Making Model for Evaluating Energy-Saving Design Strategies for Residential Buildings

Liu

Hsueh

et al. 2012

Energies

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Abstract:The construction industry is a high-pollution and high-energy-consumption industry. Energy-saving designs for residential buildings not only reduce the energy consumed during construction, but also reduce long-term energy consumption in completed residential buildings. Because building design affects investment costs, designs are often influenced by investors' decisions. A set of appropriate decision-support tools for residential buildings are required to examine how building design influences corporations externally and internally. From the perspective of energy savings and environmental protection, we combined three methods to develop a unique model for evaluating the energy-saving design of residential buildings. Among these methods, the Delphi group decision-making method provides a co-design feature, the analytical hierarchy process (AHP) includes multi-criteria decision-making techniques, and fuzzy logic theory can simplify complex internal and external factors into easy-to-understand numbers or ratios that facilitate decisions. The results of this study show that incorporating solar building materials, double-skin facades, and green roof designs can effectively provide high energy-saving building designs.

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Section: Case Studymentioning

confidence: 79%

A DFuzzy-DAHP Decision-Making Model for Evaluating Energy-Saving Design Strategies for Residential Buildings

Liu

Hsueh

et al. 2012

Energies

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“…By minimizing the dynamics and complexity of the environment, the decision maker tends to make more rational and informed decisions. However, since it is difficult to control the environment,27 reducing the cognitive biases using the second and third strategy will not be discussed further in this paper. Instead, the first strategy of expanding the rational boundary of the decision maker will be adopted.…”

Section: Introductionmentioning

confidence: 99%

“…The obvious way to expand the rational boundary is to make people aware of their own cognitive biases. Providing training seems to be an effective way to achieve this goal 27. There are many forms of training.…”

Section: Introductionmentioning

confidence: 99%

<p>Cognitive biases resulting from the representativeness heuristic in operations management: an experimental investigation</p>

AlKhars¹,

Evangelopoulos²,

Pavur³

et al. 2019

PRBM

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Purpose Operations managers are subjected to various cognitive biases, which may lead them to make less optimal decisions as suggested by the normative models. In their seminal work, Tversky and Kahneman introduced three heuristics based on which people make decisions: representativeness, availability, and anchoring. This paper aims to investigate the six cognitive biases resulting from the use of the representativeness heuristic, namely, insensitivity to prior probability of outcomes, insensitivity to sample size, misconception of chance, insensitivity to predictability, the illusion of validity, and misconception of regression. Specifically, the paper examines how cognitive reflection and training affect these six cognitive biases in the operations management context. Methods For each cognitive bias, a scenario related to operations management was developed. The participants of the experimental study are asked to select among three responses, where one response is correct and the other two are biased. A total of 315 students from the University of North Texas participated in this study and 302 valid responses were used in the analysis. Results The results show that in all six scenarios, >50% of the respondents make biased decisions. However, using simple training, the bias is significantly reduced. Regarding the relationship between cognitive biases and cognitive reflection, the results partially support the hypothesis that people with high cognitive reflection ability tend to make less biased decisions. Regarding the effect of training on making biased decisions, the results show that making people aware of the existence of cognitive biases helps them partially to avoid making biased decisions. Conclusion Overall, our study demonstrates the value of training in helping operations managers make less biased decisions. Our discussion section offers some related guidelines for creating a professional environment where the effect of the representativeness heuristic is minimized.

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“…De‐biasing competitive positional concerns is hard, even in the absence of escalation of commitment. Graf, König, Enders, and Hungenberg () tested five different de‐biasing interventions for such situations. Although 31% of their subjects in the control condition chose a “competitively irrational option,” even their strongest intervention, a “training in biases” in which subjects read quotes from the Harvard Business Review about emotions and social comparisons (Malhotra et al, , pp.…”

Section: Introductionmentioning

confidence: 99%

Competitive escalation and interventions

Hafenbrädl

Woike

2018

Behavioral Decision Making

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Competitive escalation occurs frequently in managerial environments, when decisions create sunk costs and decision makers compete under time pressure. In a series of experiments using a minimal dollar auction paradigm, we test interventions to prevent competitive escalation. Without any intervention, most people, including experienced managers, escalate and lose money by bidding more than the price is worth (e.g., more than 10 € for 10 €). We test several interventions, in which we provide individuals with different types of experience: direct experience in structurally identical and in structurally similar situations, as well as direct experience in similarly competitive situations (lacking the escalation dimension). We also study indirect experience based on vicariously learning about the situation's consequences (experienced by others) and based on mental simulation by setting oneself a limit regarding where to exit the competition. In 3 experiments (N = 1,229), we find that direct experience in exactly the same or a structurally similar situation allows individuals to prevent subsequent escalation, whereas direct experience in a similar situation without escalation does not. Indirect experience based on vicarious learning successfully reduces competitive escalation, whereas a goal‐setting intervention that has proven instrumental in reducing classic escalation of commitment is not effective. This pattern of variation in the effectiveness of different interventions is consistent with the theory of a hot‐cold empathy gap that prevents people from anticipating how they will experience a competitive situation before entering it. As a methodological contribution, we developed a deception‐free computer‐player dollar‐auction for online participants and a dynamic chicken game.

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Debiasing competitive irrationality: How managers can be prevented from trading off absolute for relative profit

Cited by 26 publications

References 83 publications

A DFuzzy-DAHP Decision-Making Model for Evaluating Energy-Saving Design Strategies for Residential Buildings

A DFuzzy-DAHP Decision-Making Model for Evaluating Energy-Saving Design Strategies for Residential Buildings

<p>Cognitive biases resulting from the representativeness heuristic in operations management: an experimental investigation</p>

Competitive escalation and interventions

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