Natural Disasters and the Decisions that Follow

• 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? Overconfidence bias is identified as ”the tendency to overestimate the probability that one’s judgment in arriving at a decision in correct”.

Rommel’s quote about making a ”sound business decision” reveals an overconfidence decision-making biases. Anchoring bias is ”a tendency to fixate on initial information, and to then fail to adjust adequately for subsequent information”. His decision also disclose an anchoring bias as it is look like that Nationwide did not take into consideration some information that others did. Selective perception is ”selectively interpreting what one sees on the basis of one’s interests, background, experience and attitudes”. Rommel’s quote does reveal selective perception biases since they followed their own interest which is, money.

• 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? The first error/bias that is relevant to Nationwide Insurance company is ”overconfidence bias” since they believed too much in their own ability to make good decision ”A sound decision”.

The second error/bias is ”anchoring bias” as they used the early first received information for making a decision ”All other companies made a good revenue”. The relevant error/bias regarding American Airline industry is ”overconfidence bias” since they overestimated that their judgment in arriving at a decision is correct when Danny Burgin said ”snowstorms are easier to predict”. Overconfidence bias is also relevant to JetBlue Airline as David Neeleman said ”Is our good will gone? No, it isn’t” and he believed too much in his ability to make a good decision. The second error/bias is regarding JetBlue Airline is ”Confirmation bias” which is defined as ”The tendency to seek out information that reaffirms past choices and to discount information that contradicts past judgment”. An example of this bias is 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? ”.

• In each of the three cases discussed here, which organisational constraints were factors in the decisions that were made?

Organisations can constraint decision markers, creating deviation from the rational model. The first organisational constraint that was a factor in the decisions that were made is ”Performance Evaluation” since managers want their works to be evaluated well so that sometimes they make some decisions that are not comply with rational model, this constraint is related to Nationwide Insurance company. The second constraint is ”Historical Precedents” which is relevant to American Airline industry, since choices that were made are largely a result of choices that were made over the years. The last two constraints are, ”System-Imposed time Constraint” as they restricted their ability to gather or evaluate information, and ”Formal Regulation” where due to organisational purposes, some policies restricts managers to make a decision, these constraints are relevant for both American Airline industry as well as JetBlue Airline.

• 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?

People with high ethical standards are less likely to engage in unethical practices, even in organisations or situations in which there are strong pressures to conform. The first ethical theory that arise in this case is Utilitarianism, where Rommel, Burgin and Neeleman did not seek to maximize good for the greatest number of people who were affected by their decisions. The second theory is right theory, as it appears that they also did not respect and protect the basic rights of individuals. Finally, according to the justice theory, Rommel, Burgin and Neeleman did not impose and enforce rules fairly and impartially when they made decisions.