The Effects of Cognitive Biases on Managerial Decision Making

Abstract

In this study I examined how cognitive biases affect the performance appraisal ratings and recommended actions for an employee in a hiring simulation. The biases that were originally anticipated were self-serving bias, escalating commitment, and cognitive dissonance. There were 170 participants with many being professors and management level employees as well. Results overall did not support my hypotheses. There was slight evidence found for the assimilation-contrast theory as participants who were asked for input into the hiring process rated the employee as doing better than the control group when the employee was performing well, but then rated the employee as doing worse than the control group when the employee was performing poorly. Some demographics were also found to relate to various performance appraisal questions. It was found that management level participants tended to view themselves as doing better at the simulation as compared to others. The participant’s size of company related to initial confidence in employee A and shows slight evidence for the possibility of institutional trust affecting first impressions of new organizational members. Overall, even though my predicted biases were not found, this study added additional evidence on how subjective performance appraisals can be, even when the participants had high education and experience.