Natural Disasters and Decision that Follow Masoumeh Sahraei

Perception and Individual Decision Making

Learning Goals In this case we have 3 examples about the crisis situations and decisions that h ave been made in those situations .

Over View the Case Florida Hurricane 2004 Event In 2004, Florida experienced its worst hurricane season in history four major hur ricanes slammed the state, causing an estimated $40 billion in damage. In the hu rricanes wake, Nationwide received more than 119,000 claims, collectively worth $ 850 million. : Description Decision Making: Jef Rommel who took over Florida operations in 2004 for Nationwide Insurance , d ecided to cancel approximately 40,000 homeowners policies and he announced that N ationwide Insurance Will Not Renew 40,000 Florida Home Policies , Nationwide rec eived a huge amount of media attention as a result, almost all negative. In refl ecting on the decision, Rommel said, Pulling out was a sound business decision. W e have an obligation to act in a responsible and thoughtful manner to ensure lon g-term stability for Nationwide policyholders in Florida and across the country Was it good for the individual customer? No, I cant say it was. But the rationale was sound.

Event Description : Airline industries are affected by all kinds of storms , American Airlines has 8 0,000 employees, 4 of whom make decisions to cancel flights. One of them is Dann y Burgin. Decision Making : when weather systems approach , Burgin considers a host of fac tors in deciding which flights to cancel and how to reroute affected passengers. He argues that of two major weather factors, winter snowstorms and summer thund erstorms, snowstorms are easier to handle because they are more predictable.

Jet Blue Airline situation on February 14,2007 Event Description : On February 14, 2007, JetBlue was unprepared for a snowstorm that hit the East C oast. Due to the lack of planning, JetBlue held hundreds of passengers on its pl anes, at JFK, in some cases for as long as 10 hours (with bathrooms closed!). To the stranded travelers, JetBlues tepid offer of a refund was just as outrageous. For an airline that prided itself on customer service and had regularly been ra ted as the top U.S. airline in customer satisfaction Decision Making : In defending the airline, JetBlues founder and CEO, David Neeleman, said, Is our g ood will gone? No, it isnt. IWe fly 30 million people a year. Ten thousand were a ffected by this. In responding to another interviewer, he said, Youre overdoing it. Delta screwed people for two days, and we did it for three and a half, okay? So go ask Delta what they did about it. Why dont you grill them? Eventually, though, Neeleman himself was affected by it, and he stepped down.

Question 1 Insurance companies in the state of Florida earned record profits in 2006, sugge sting that Nationwide s decision to cancel policies in light of the calm hurrica ne seasons (in Florida) in 2005 2007 may have cost the company potential revenue and customer goodwill. Do you think Rommel s quote about making a sound busines s decision reveals any perceptual or decision-Making biases? Why or why not?

Answer Decision Making Biases y Overconfidence: sound business decision . y Anchoring Bias : It seems that Nationwide didn t tak e into consideration some information that others did. Perceptual Biases: y Selective Perception: They followed their interest, money Overconfidence Bias: Believing too much in our own ability to make good decision s especially when outside of own expertise Anchoring Bias: Using early, first re ceived information as the basis for making subsequent judgments Selective Percep tion: People selectively interpret what they see on the basis of their interests , background, experience, and attitudes.

Question 2 Review the section on common biases and errors in decision making. For companies such as Nationwide, American Airlines, and JetBlue that must respond to natural events, which of these biases and errors are relevant and why?

Nationwide Insurance company Error / Bias Error Definition Clue Overconfidence Bias Believing too much in our A sound decision own ability to make good decisions. Preferring low risk in decision making Risk Aversion To escape from bankruptcy Anchoring Bias Using, early first received information for making a decision. All other companies made a good revenue

America Airli e I stry Error / Bias Error Definition Clue Overconfidence Bias Believing too much in our Danny Burgin: own ability to make good snowstorms are easier to decisions . predict Preferring low risk in decision Risk Aversion Passenger s Safety

Jet l e Airli e Error / Bias Error Definition Clue Overconfidence Bias Believing too much in our David Neeleman: own ability to make good Is our good w ill gone? decisions . No, it isn t Give too little weight to views which are against us Confirmation bias You re overdoing and Why don t you grill them? Passengers safety Risk Aversion Preferring low risk in decision

Organizational Constraints Organizations can constrain decision makers, creating deviation from the rationa l model.

Performance Evaluation Managers want their works to be evaluated well so that so metimes they make some decisions that are not comply with rational model. System Imposed Time Constraints Restrict ability to gather or evaluate information Formal Regulation Some policy restricts managers to make a decision due to the o rganizational purposes.

Historical Precedents Choices made today are largely a result of choices made ov er the years.

Performance Evaluation Nationwide Insurance company American Airline Industry Formal Regulation System-Imposed Time Constraints Historical Precedents Formal Regulations System-Imposed Time Constraints. JetBlue Airline

How do you think people like Rommel, Burgin,and Neelman factor ethics into their decisions? Do you think the welfare of policy owners and passengers enter into their decisions ?

1 - Utilitarianism : Seeking the greatest good for the greatest number. 2 - Righ t : Respecting and Protecting the basic rights of individuals 3- Justice :Imposing and enforcing rules fairly and impartially.

High profit Utilitarianism JetBlue Airline