Cognitive biases resulting from the representativeness heuristic in operations management: an experimental investigation

Psychology Research and Behavior Management Dovepress open access to scientific and medical research Original Research Psychology Research and Behavior Management downloaded from https://www.dovepress.com/ by 88.198.20.149 on 19-Aug-2019 For personal use only. Open Access Full Text Article Cognitive biases resulting from the representativeness heuristic in operations management: an experimental investigation This article was published in the following Dove Medical Press journal: Psychology Research and Behavior Management Mohammed AlKhars 1 Nicholas Evangelopoulos 2 Robert Pavur 2 Shailesh Kulkarni 2,† 1 Department of Management & Marketing, College of Industrial Management, King Fahd University of Petroleum and Minerals, Dhahran, Kingdom of Saudi Arabia; 2Department of Information Technology and Decision Sciences, G. Brint Ryan College of Business, University of North Texas, Denton, TX, USA Shailesh Kulkarni passed away on July 6, 2018 † 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. Keywords: behavioral operations management, cognitive reflection, training, logistic regression Introduction Correspondence: Mohammed AlKhars College of Industrial Management, King Fahd University of Petroleum and Minerals, KFUPM Box 5076, Dhahran 31261, Kingdom of Saudi Arabia Tel +966 13 860 7744 Email 263 submit your manuscript | www.dovepress.com Psychology Research and Behavior Management 2019:12 263–276 Dovepress © 2019 AlKhars et al. This work is published and licensed by Dove Medical Press Limited. The full terms of this license are available at https://www.dovepress.com/terms. php and incorporate the Creative Commons Attribution – Non Commercial (unported, v3.0) License (http://creativecommons.org/licenses/by-nc/3.0/). By accessing the work you hereby accept the Terms. Non-commercial uses of the work are permitted without any further permission from Dove Medical Press Limited, provided the work is properly attributed. For permission for commercial use of this work, please see paragraphs 4.2 and 5 of our Terms (https://www.dovepress.com/terms.php). http://dx.doi.org/10.2147/PRBM.S193092 Powered by TCPDF (www.tcpdf.org) Recent research in behavioral operations management (BOM) shows that operations managers make suboptimal decisions, and are prone to different cognitive biases and decision errors.1,2 For example, the newsvendor problem is a model used to study inventory management under demand uncertainty. Normative models in operations management identify an optimal solution to this problem. However, experimental research involving decision makers revealed that the decisions made were suboptimal. Anchoring and insufficient bias and ex post inventory error minimization were shown to explain the suboptimal behavior in inventory management.3 Subsequent behavioral research in newsvendor and other inventory management settings were conducted to Dovepress Psychology Research and Behavior Management downloaded from https://www.dovepress.com/ by 88.198.20.149 on 19-Aug-2019 For personal use only. AlKhars et al shed light on different aspects such as adaptive learning,4 the role of experience and feedback,5 bounded rationality,2 durability and transit lags,6 the effect of review periods,7 and observation bias.8 Recent reviews in BOM have encouraged researchers to conduct studies where optimal solutions are known and comparisons with the decisions made by participants are performed.9–15 The current paper aims to expand studying cognitive biases occurring in operations management contexts. Six scenarios were developed to study the six cognitive biases resulting from the representativeness heuristic proposed by Tversky and Kahneman.16 These six biases include insensitivity to prior probability of outcomes, insensitivity to sample size, misconception of chance, insensitivity to predictability, the illusion of validity, and misconception of regression. The present study is significant for three reasons. First, we identify a certain important group of cognitive biases in the OM context. Since operations managers are prone to cognitive biases, the first step in counteracting their negative impact is to identify these biases and increase awareness of their existence at the OM workplace. In their seminal work, Tversky and Kahneman discuss three heuristics and 13 cognitive biases.16 Our review of the OM literature revealed papers that investigate the anchoring and adjustment bias2–8 or the anchoring in the assessment of subjective probability distributions bias.17 To the best of our knowledge, our paper is the first to study the specific six cognitive biases that result from the representative heuristic in the OM context. These will be discussed in detail in the literature review section. Second, we shed some light onto approaches that can be used to counteract the negative impact of cognitive biases. One effective way is to make people aware of these biases and therefore helps them make more rational decisions. To determine the influence of t (...truncated)