Risk factors for cognitive biases when making management decisions

Abstract

Decision-making in case of sudden changes in the external environment of the enterprise can occur in a situation of time interval restrictions. Cognitive biases inherent in a manager can influence such decisions when there is not enough time. The purpose of this work is to clarify the influence of cognitive biases on the subjective perception of the probability of events occurring when making decisions. Such cognitive biases can also affect risk analysis and assessment, consumer behavior etc. The development of anti-risk control impacts will be implemented with this in mind. The research is based on the methodological tools of the operational theory of risk management, the fundamentals of behavioral economics developed in the works of D. Kahneman and A. Tversky, and the so-called «theory of two systems (Systems 1 and Systems 2)». Individual examples of cognitive biases in decision-making under the influence of System 1 are considered. The results of an experiment to identify quantitative estimates of the perception of the probability of events occurring based on a visual series of images presented to subjects with System 1 turned on and System 2 suppressed are described. The solutions to predictive problems are assessed. It seems reasonable to take into account all the problems identified during the implementation of the experiment. It is planned to conduct a new series of experiments with specified conditions, since expanding and clarifying the understanding of the subjective perception of probability by economic agents can help revise many theories in the field of preparing managerial decision-making and consumer behavior. Recommendations for the introduction of anti-risk control impacts with the inclusion of System 2 to minimize the impact of cognitive distortions on decisions are proposed