The Influence of Cognitive Bias on Risk Decision-making under Uncertain Conditions: A Case Study of 1986 Challenger

Abstract

Decision-making is full of our lives, but any decision is risky. Every single decision-making mistake may bring losses that are unpredictable. How to make rational decisions and reduce the decision loss is the hot topic in dis-cussion. Although the cognitive biases have been widely studied in many fields, the mechanism of each cognitive biass impact on risk decision-making has not been fully researched. In addition, the relevant risk decision research is mainly focused on the financial management, and the relevant theories have not been applied to the risk decision in daily life. Therefore, this paper will focus on 3 types of cognitive biases including confirmation bias, overconfidence and frame effect. After researching related theories, ex-pected return and risk perception are considered as two main intermediates between cognitive biases and risk decision-making. And then the paper will apply relative theories and analyze 1986 Challenger launch decision case to explain the way cognitive biases acting on risk-decision making behaviors. Finally, the paper will give reasonable suggestions for both individuals and groups to make better risk decision and reduce decision errors.