The Handbook of Behavioral Operations

5Biases in Individual Decision‐Making

Andrew M. Davis

Samuel Curtis Johnson Graduate School of Management, Cornell SC Johnson College of Business, Cornell University, Ithaca, NY, USA

5.1 Introduction

When making operational decisions, managers may be influenced by a number of behavioral biases. For instance, a planning manager, when constructing a forecast distribution for a product, could be susceptible to overconfidence and underestimate the variance of demand, or a procurement director, when deciding how best to bid for a particular component, may expect to feel regret if they bid too high and obtain the component at a higher price than necessary. Even an executive, in the middle of a lengthy project that requires future investment, could fall prey to a sunk cost bias and make a poor decision. Fortunately, as operations management researchers, there is an extensive literature in both psychology and experimental economics that can inform us and help determine what specific biases may be responsible for any observed operational decisions. In this chapter, I will attempt to convey a summary of what I believe are the most relevant results from these two streams of literature, specifically focusing on one‐shot, individual decisions.

The literature on individual decision‐making in psychology and experimental economics is vast. Therefore, rather than provide an exhaustive list of all results from both fields, this chapter is meant to highlight some of the more prevalent behavioral ...