Question

Tom, a manager, is faced with heavy losses in business. However, he is confident that matters will improve in a few months, as he has faced such situations previously. He refuses to acknowledge the fact that the present condition of the business is due to certain mistakes that he made in decision making. In the context of the influence of psychological biases in decision making, what is relevant to Tom's behavior?

Answer 1

Tom's optimistic belief that his business losses will recover despite past mistakes is influenced by psychological biases like confirmation bias and substitution heuristic, which prevents him from accurately assessing the present situation and learning from past errors.

Step-by-step explanation:

Tom, a manager facing heavy losses in business, demonstrates behavior that is influenced by psychological biases in decision-making. Not acknowledging the setbacks due to his own mistakes can be attributed to cognitive biases like the confirmation bias, where Tom focuses on information confirming his belief that the situation will improve, ignoring evidence of his mistakes. Another relevant bias is the hindsight bias, which might lead him to view past successful recoveries as evidence that the current situation was predictable and will resolve similarly, despite differing circumstances. These biases can hinder accurate assessment and learning from errors.

The cognitive bias of substitution heuristic is also at play here, where Tom substitutes the complex task of analyzing current failures with the simpler task of recalling past successes. This can create a sense of cognitive ease but may lead to inappropriate responses to the current business crisis. Tom can benefit from critical reflection and metacognition to overcome these biases, which might improve decision-making processes and outcomes for his business.