Comsats University Islamabad, Lahore Campus

Assignment #____

Course: ______________________________
Submitted to: _________________________
Submitted by: _________________________
____________________________________

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Q1: Insurance companies in the state of Florida earned record profits in 2006, suggesting that
Nationwide’s decision to cancel policies in light of the calm hurricane 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 business decision” reveals any perceptual or decision-making biases? Why or
why not?

Yes we can say that the decision made by Rommel was biased and the quote on his decision was also
biased.

Firstly, we need to know that all the Errors and Biases that happen in decision making have one thing in
common “Not considering all the possible outcomes/alternatives”. Here decision made by Rommel was
not the best option there might be some other solution as well. Some solution through the company
may have suffered a little less loss. Now giving the name to biased decisions. Cancelling 40,000
homeowners’ policies was a decision which we can say. Bounded rationality (It is the idea that in
decision-making, rationality of individuals is limited by the information they have, the cognitive
limitations of their minds, and the finite amount of time they have to make a decision) because it was
the season of hurricane in which Florida has suffered a huge loss so did Nationwide. Canceling the
policies was an Overconfidence biases and bad decision for the reputation of the company at the same
time it was the easy way out temporarily so it was also Risk Aversion (Making as decision wither lesser
risks. Here risk of getting bankrupt was involved). And giving quote “sound business decision” was
biased in a sense it was similar to Escalation of Commitment (staying with a decision despite clear
evidence that it is wrong.)

Q2: Review the section on common biases and error 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?

Overconfidence Biases, Anchoring Biases and Confirmation biases.

By observing the decision making of companies especially toward natural disaster we can see that these
three biases are practiced in the case study given above.

We can see Overconfidence Biases where Danny Burgin one of the 4 out of 80,000 employs of American
Airlines says that snowstorms are easy to handle because they are predictable. Here he is being
overconfident as humans we cannot challenge nature. After the incident of JetBlue David Neeleman said
”Is our good will gone? No, it isn’t” this statement itself seems being overconfident even after suffering
a loss,

Anchoring Biases (the tendency to fixate on the first piece of information we receive) is when JetBlue did
not delayed the flight of 14 Feb 2007 which was later stucked in a snowstorm.

Confirmation Biases (selectively gathering information that supports our existing views) we can see this
bias when the CEO, David Neeleman said “You’re overdoing it, so go ask Delta what they did about it.
Why don’t you grill them? ” here is he is pointing out somewhere rather than accepting his decision as a
mistake and trying to please the audience that it would not happen again.

Q3: In each of the three cases discussed here, which organizational constraints were factors in the
decisions that were made?

The organization itself constrains decision makers and thus can create deviations from the rational
model. Managers, for instance, shape their decisions to reflect the organizational performance
evaluation and reward system, to comply with the organizational formal regulations, and to meet
organizationally imposed time constraints

Here in this case we can see organizational performance evaluation (biased decisions for the sake of
organizational performance) where Nationwide canceled 40,000 policies to save their own organizations
rather than fulfilling their responsibilities in customers’ point on view

Organizational formal regulations is where in American Airline only 4 out of 80,000 people are
responsible for decision making in flight cancelation.

Historical Precedents (repeating the historical decision) can be seen in American airlines. Taking
snowstorms lightly.

Reward system or imposed time constrain may or may not be the reason behind not canceling the
flight of 14 Feb 2007 by JetBlue.

Q4: How do you think people like Rommel, Burgin, and Neeleman factor ethics into their decisions?
Do you think the welfare of policy owners and passengers enter into their decisions?

Ethics can be defined as “the discipline dealing with what is good and bad and with moral duty and
obligation”

There are four basic approaches in Decision making

Utilitarianism approach (a decision must favor the maximum) where Rommel, Burgin and Neeleman
made such decisions from which maximum number of people suffered.

Moral right approach (a decision must not be against moral rights on individual), decisions discussed
above did not respected the basic rights of all the stakeholders.

Justice approach (decision must be fair and impartial), Rommel, Burgin and Neeleman made decisions
which were neither fair nor impartial.

Practical approach (make such a decision which you can announce publicly) all the decisions above are
public but they are not accepted by public.

By all of this information we can say that all most all the decisions made above are somehow unethical
and welfare of policy makers and passengers in not considered in these decisions.