Friends of the Behavioral Economics Blog, this week we present the paper “The impact of cognitive biases on professionals’ decision-making: a review of four occupational areas” de Berthet, V. (2022), in which the author makes a revision of previous literature to know how cognitive biases affect professionals that have to make complicate decisions in different areas.

We have already seen in other articles how we can make mistakes when making decisions under the influence of cognitive biases, which can make us choose what is least beneficial to us.

For example, people tend to overestimate the accuracy of their judgments (overconfidence bias), or to perceive events as more predictable once they have already occurred (hindsight bias).

It’s not strange, then, that cognitive biases have attracted the attention of experts. While early research on cognitive biases was conducted with lay participants to study the general decision-making process, there seems to have been a great deal of interest in how biases spread to professional decision-making in areas such as management or administration, finance, medicine and justice.

For example, there is the framing effect, which tells us that when making risky decisions, people prefer safe gains over riskier ones. Therefore, framing a problem in terms of gains versus losses could have a significant impact on decision making.

In most trials, for example, plaintiffs must choose between a certain gain and a larger potential gain, while defendants choose between a certain loss and a larger potential loss. When considering settlement, judges who evaluate the case from the plaintiff’s perspective are more likely to recommend a settlement than those who evaluate the case from the defendant’s perspective.

For all this, the author carries out a review of the existing literature, to verify the approximate impact of cognitive biases in professional decision-making process in the previously mentioned areas. In addition, it establishes three main objectives.

The first is to decide if it is true that cognitive biases arise in professional decisions; the second, to evaluate the level of evidence shown in the analyzed studies; finally, identify if there are gaps in the research.

The author mentions some biases that should be explained, since they appear in most of the studies used for the analysis.

The first of these would be the anchoring bias, which would be the tendency to adjust our judgments to the first information obtained.

Next, we have the availability bias, which is a person’s tendency to assess the probability of events by the ease with which similar events that have already occurred come to mind.

Confirmation bias is the tendency to seek out, interpret, favor, and remember information that confirms and supports one’s personal beliefs.

Hindsight bias is the propensity to perceive events as more predictable once they have occurred.

The overconfidence bias is a common tendency for people to overestimate their own abilities.

Finally, we mention the framing susceptibility bias, which is the tendency for people to react differently to a decision depending on whether it is presented as a loss or a gain.

The analysis showed significant answers to the questions that the authors proposed at the beginning.

First, the reviewed literature shows that, in general, professionals in the four proposed areas (management, medicine, finance and justice) are vulnerable to cognitive biases.

In management, there is evidence that framing effects and overconfidence among CEOs impact decision-making.

In finance, there is strong evidence that overconfidence and the disposition effect (a consequence of loss aversion) impact the decision making of individual investors.

Regarding medical decision-making, the existence of omission bias, relative risk bias and availability bias is guaranteed, associating overconfidence, anchoring bias and availability bias with diagnostic errors.

Finally, anchoring biases, hindsight bias and confirmation bias, would be present in judicial decision-making.

The first step in controlling its influence is for practitioners to consider concrete and practical ways to reduce its impact.

Addressing limits, such as the need to consider individual differences to study bias, is something that, according to the authors, is necessary for further research on the topic.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

Author

Write A Comment

Behavioral Economics Blog