...heuristics in terms of making decisions and explaining the failure to ignore base rates, discuss the relevant factors of why associated with the decision and if the decision was framed properly to ascertain a better decision. Literature Review (Shanteau, 1989) suggested that (Kahneman and Tversky, 1982) exemplified their view of heuristics and biases as follows: "In making pre dictions and judgments under uncertainty, people do not appear to follow the calculus of chance or the statistical theory of prediction. Instead, they rely on a limited number of heuristics which sometimes yield reasonable judgments and sometimes lead to severe and systematic errors.” (Kahneman & Tversky, 1982) went on to identify three of several cognitive heuristics for risk judgments- representativeness, availability, and anchoring-and-adjustment. * Representativeness – (Shanteau, 1989) referenced (Kahneman and Tversky, 1984) as explaining the representativeness heuristic to describe making an uncertainty judgment on the basis of the degree to which the judgment is similar in essential properties to its parent population and also if the judgment reflects the prominent features of the process by which it is generated. Evidence to support these two...
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...12/19/14 Systematic Traps and Biases in Professional Judgment: Insights from Research in Psychology Douglas F. Prawitt, PhD, CPA Brigham Young University The Emerging Science of Judgment • Rapid change, increased complexity in business • Greater importance of professional judgment The Emerging Science of Judgment • Rapid change, increased complexity in business • Greater importance of professional judgment Fortunate coincidence: A critical mass of insight on human judgment emerging— 30+ years of research in economics, management, and cognitive psychology bearing fruit 12/19/14 Ambitious goals for today • Introduce a model—common vocabulary and framework • Explain importance of proactive “reframing” and identify common pitfalls in applying the judgment model • Identify and explain judgment biases, and how to mitigate their impact Visual Perception Professional Judgment: The process of reaching a conclusion where there are a number of possible alternative solutions and uncertainty is involved. 12/19/14 Professional Judgment: The process of reaching a conclusion where there are a number of possible alternative solutions and uncertainty is involved. ‐‐A simple process‐oriented professional judgment framework is helpful… The KPMG Professional Judgment Framework © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated...
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...The main idea that appears throughout Kincaid's, Menissi's, and Hurston's articles is certain biases within a specific culture. In her "How It Feels To Be Colored Me", Hurston speaks about the culture of the Americans and the African Americans. She mentions how people believe that these cultures differ, yet she thinks otherwise. In her Size 6 : The Western Women's Harem, Mernissi believes that men dictate all the judgments surrounding what women's size should be. In her Excerpt from On Seeing England for the First Time, Kincaid displays her own biases towards English culture because she is originally from Antigua. Hurston speaks about how white Americans believe that they and African Americans are different, yet she believes that they're the same. She does have her doubts however, for example when she was in the bar and saw a white person, she noticed the difference between herself and him. "He is so pale with his whiteness then and I am so colored" (197). She speaks of the cultural biases that are placed on her and her family because she is of color. She states, "at certain times I have no race, I am me"(197). She states this to oppose what other people think about white Americans and African Americans. She says that she has no race and is only herself, to show that she is nothing more than a human. She also emphasizes that she only feels American, neither white or black. "I have no separate feelings about being an American citizen and colored"(197). To make a point that...
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...Performance Appraisal BUS 303 Human Resources Management Professor Munich Cabble-Ware February 9, 2015 Performance Appraisals and evaluations are sensitive areas for managers and employees to discuss with each other and must be done correctly. Positive employee productivity can be the result of job satisfaction, organizational commitment, and work engagement on a positive review. A negative productivity report of an employee can be cynicism of the job and disengagement. (Youssef, 2012). A performance appraisal and evaluation can affect employees in different ways. There are many common outcomes that can result from performance appraisal and evaluations of an employee that organizations use to demonstrate the needs and goals of the company. Performance evaluations help to support salary increases, promotions, transfers, demotions and terminations. They help with communicating job performance status to subordinate employees and suggesting areas of improvement whether it is job knowledge and skills, behavior and attitude. They also allow the supervisor to counsel the employee and identify performance inadequacies. By successfully conducting an evaluation with questions and answers by supervisor and employee will establish areas of strengths and weaknesses. Strategic advantages of performance evaluations are forms of incentives to sustain a culture of rewarding employees based on their job performance. This establishes loyalty and commitment to the organization...
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...A growing number of management tomes seem to advise against applying human judgment when making key decisions, notes Professor Jim Heskett. Is good old-fashioned intuition out of date? What do YOU think? by James Heskett In the last several years, a veritable tsunami of advice on how to make decisions has hit the Internet and what few shelves remain in our local bookstores. The advice is a distant relative of early ideas about decision theory in which we were advised to construct decision trees, mapping outcomes, attaching values to each one, and estimating probabilities that various combinations of outcomes might occur. Judgment entered into the construction of the resulting "decision trees," but the process itself was a way of injecting a certain amount of objectivity and analysis into the decision to be made. In recent years, we have been advised to make certain decisions in a "blink" by Malcolm Gladwell, to "think twice" by Michael Mauboussin, and to think "fast and slow" by Daniel Kahneman. The replacement of customs and biases with data, "big" or "small," has been intended, at least in part, to drive out such things as tradition, habit, and even superstition in endeavors ranging from child rearing to professional sports. After all, wasn't the book and film, Moneyball, at least in part a glorification of the triumph of statistics and probabilities over intuition and managerial judgment in professional baseball? Two recent books add to the genre of advice on...
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...Case study of “Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues” Judgment Framework and Professional Judgment Discuss the importance of “judgment framing.” “Judgment framing” occurs early in the judgment process. The definition of framing follows: Frames are mental structures that we use, usually subconsciously, to simplify, organize, and guide our understanding of a situation. They shape our perspectives and determine the information that we will see as relevant or irrelevant, important or unimportant. Frames are a necessary aspect of judgment, but it is important to realize that our judgment frames provide only one particular perspective. The importance is that judgment framing question management’s perspective appropriately by viewing other frames and it is a foundation to professional skepticism. How do perceptual biases relate to judgment biases? Our eyes and related perceptual skills ordinarily are quite good at perceiving and helping us to accurately judge shape similarity. However, optical illusions can predictably and systematically fool our eyes. The judgment biases are similar to the perceptual ones, like there are times when our intuitive judgment falls prey to systematic traps and biases. What are the five steps in the judgment process? a. Clarify Issues & Objectives: To get at issues, ask “what is the problem to be solved?” To get at objectives ask “what is wanted or needed?” Ask “what” and “why” questions. b. Consider...
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...Social Biases Paper Psych 555 May 5, 2013 Dr. Anthony Social Biases Paper Bias is generally described as favoring thinking of particular way, or something to watch. Being biased means attitude of that person or behavior is particularly prejudice. The person may be aware of that he is bias. Social prejudices are a social problem, because a group is looking at another individual or group as the group feels that they are superior to others. The social interaction among some groups might have to create common biases. Social biases may be very harmful and can interfere with human interaction (Fiske, 2010). Define the concepts of prejudice, stereotyping and discrimination Prejudice means feeling or having attitude towards members of a group, established solely on the basis of membership in this group. Stereotypes dealt with generalizations regarding others that usually cause display of others group predictable and typical characteristics. Discrimination means an act of a group or person against another group or person who is the prejudice subject. Stereotypes put people into groups having similar attributes or characteristics. Stereotypes have the ability to distort the perspective of a person. As soon as a stereotype becomes active, the features belong to the group, either positive or negative, they are easy to remember. Stereotypes can influence social judgments on how much a person loves another, and this behavior is normal. There was a time when because of the stereotyping...
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...ability among others. It is tough to decipher those hidden qualities on an individual without knowing much about that person. For my first example I have chosen Jenna, this was very tough for me as I let my personal bias get in the way of a rational choice when I came across the decision to match a picture to the description. I was wrong! Her Drive is eminent; her commitment to succeed is unprecedented. She was able to survive drug dependency (demonstrates drive and the will to succeed) and established herself as she once had after she graduated college. Mental toughness was very important as she went through hard times after losing her mother, these hidden characteristics cannot be detected by the naked eye and most of us base our judgment on our own personal bias and stereotypes. Kim was my second choice, She too has the drive to succeed, and she was the first one of her family to attend college. Her humble origins and the opinion of others as well as their stereotypes did not stop her from pursuing her dreams. Her social status was an big hurdle she had to overcome, being one of many to come from humble beginnings it was hard to break the pattern that follows most of us. Kyle is my third and final choice; he has broken the stereotype of becoming a...
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...Social Biases University of Phoenix Dr. Kinsey August 20, 2012 Social Biases In today’s society social biases can be a problem because many people may look down on another person or group. People and groups can look down on another person believing he or she is better than the other. This type of social influence that some groups may have can generate common biases. Social biases can hinder interaction between people and become very damaging to people (Fiske, 2010). “Just as aggression research reveals the basic social psychology of processes that can prove deadly, the research on bias reveals processes that are demonstrably unhealthy and sometimes deadly for both agents and targets of bias” (Fiske, 2010, p. 428). Characterizing a specific way of thinking or the way a person is being view is sometimes called bias. People’s behavior and attitude which may be influenced by judgment can be displayed as bias. Many people do not realize they are bias, because it is not common to know you the person is bias. Others may identify a person being bias but one may not realize they are bias. In this paper I will define the concept of prejudice, stereotyping, and discrimination. Explain the differences between subtle and blatant bias, and identify some common bias and ways to prevent bias in today’s society. Concept of Social Bias Social Bias is “prejudice attitudes toward particular groups, races, sexes, or religions, including the conscious or unconscious...
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...Every single investment requires decision making. The result of decision making without certain planning might not end well. One cannot simply make a decision by relying on his/her personal resources as the decision may give an impact to the investments. It is difficult to make decision which is related to the field of investments. Investors have to consider their risks, market condition, rate of return, and others in making their investment portfolio. However, there are many possible physiological biases that make investors become irrational thus making bad decisions for the investment. Illusion of Money This bias refers to investors making decisions based upon nominal terms and not real terms. It means that the confusion between the real and the actual changes in money. Why will this happen? This will happen because the investor lack of the knowledge in finance. They only will see the money that can get by them but never accounting the inflation and the time value of money. As an example, an investor invests their money in a bond and it will yield 10% in the future. It sound attractive but we are get nothing when the inflation are also 10%. This kind of investment will mislead the investor that lack of general knowledge in finance becomes irrational thus making bad decision for the investment. Overconfidence First that is overconfidence. Overconfidence obviously mean in overtrading or switching between investment accounts in an effort to increase returns. Overtrading will...
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...Theoretical models of decision-making, and their neuroscientific underpinnings Introduction In this essay I would like to focus the theoretical models of decision making that have come from psychology, cognitive and ecological alike, and review relevant literature from cognitive neuroscience that may or may not provide neural foundation for the claims that they have formulated. The reason for which I find it interesting to contrast these two approaches is there different outlook on the concept of “bias”. Traditional – closed systems - approaches to decision-making The investigation of decision-making is a multidisciplinary endeavor with researchers approaching the area from different fields and applying numerous different models (Hastie, 2001). The normative model of decision-making originates from mathematics and economics and the most prominent normative model is perhaps Subjectively Expected Utility (SEU; Savage, 1954). This model of rational behavior implies that people act as if they are calculating the "expected utility" of each option, choosing the one that they believe has the highest value. It has been criticized however, as some researchers doubted whether humans actually perform the mental multiplications and additions suggested by SEU. Simon (1955) was the first to challenge the assumptions of optimizing decision theories (such as SEU) making strong arguments concerning the limited capacity of the decision maker, for which he introduced the term “bounded rationality”...
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...alternative and ultimately make a good decision. Accurate estimation cannot be done without valid inputs. The information for estimations can only come from two sources: 1) Historical data or data about previous similar projects. This data can be captured in the project manager’s brain or obtained as a result of data analysis. 2) Measurements of the current project’s performance. Analysis of current project performance project makes is possible to forecast what will happen in the future. The human brain processes this information extremely fast using certain simplification techniques. In many cases, they work very well, in others they can lead to systemic mistakes or biases e.g. ➢ Motivational biases are caused by the personal interest of the person making the estimation. ➢ Cognitive biases are related to simplification techniques that people use to process information. According to the theory he developed together with Amos Tversky, people use heuristics or “rules of thumb” as a basis for their...
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...What approaches can an analyst use to reduce cognitive and perceptual biases? An analyst is faced with many challenges throughout the information process, especially when dealing with large volumes of debatable or uncertain information. Automatically, our minds will evaluate or conclude a piece of information based off our personal experiences, perceptions, or through our world ‘lens’. This type of unconscious bias leads to an analyst being closed-minded, resistant to change, or not willing to think outside the box. In addition, this “can cause analysts to overlook, reject, or forget important incoming or missing information that is not in accord with their assumptions and expectations” (US Government 2009, 1). However, there are tools and...
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...As a member of society am I susceptible to many versions of racism in my day to day life, after so much negligence I start to think to myself how can we change cognitive biases towards race? In this course I learned about different types of cognitive biases and one I believe plays a big part in racism is implicit biases. For example, two people come in for an interview and most individuals would assume that one is going to do better than the other because of race/appearance. I believe my question is important because it shows how biases appear in our lives without us even noticing them. It is important to me because I’ve seen how judgments and assumptions can affect ones confidence and can lead to more serious emotional problems. In learning...
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...Why Accounting Fraud? & Possible Solutions Brian Faanes Rasmussen College Author Note This research is being submitted on 9-12-2011 for Wendell Ellis A140 Financial Accounting 1 course at Rasmussen College by Brian Faanes Most accountants and auditors want to be accurate and honest when it comes to the recording of financial records and statements of the company or firm they work for. However, because of tight relationships between accounting firms and their clients, auditors may unintentionally distort the numbers. In this research paper let us examine some of the conflicts with current accounting practices and possible solutions to improve the corporate accountability and the financial reports they convey to the public and investors. There have been a number of accounting fraud sandals in the last decade, some of these companies include; Enron 2001, Worldcom 2002, Tyco International 2002 and locally, Tom Peters Company 2008. As a result of these most recent accounting frauds, congress passed the Sarbanes-Oxley act in 2002. The Sarbanes-Oxley Act * Applies to publicly traded companies * Established the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a private sector, nonprofit corporation that oversees the auditors of public companies. The PCAOB protects the interests of investors by helping ensure fair, independent audit reports. * Requires that external auditors report to an audit committee, rather than to an organization’s management...
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