Decision Making and Rationality in the Modern World - Essay Example

Decision Making and Rationality in the Modern World Executive Summary There is a reasonable level of agreement on the range of the discipline of decision making and judgment. Basically, decision making involves the intentional selection of an option or alternative with the purpose of generating the optimal outcome. However, the process of decision making, especially from the point of view of psychology, is not as simple as it seems. Decision making is usually performed in a state of doubt or uncertainty. The project is also subjected to irrational thoughts and biases. Making a rational decision is undoubtedly a challenge. This essay tries to discuss four psychological theories of decision making, namely, (1) cognitive dissonance, (2) memory bias, (3) context dependence, and (4) perception. The essay also integrates a discussion of ‘overconfidence’. These theories are then analysed in the 1957 12 angry men and the Enron case. The objective of this essay is to concretely demonstrate the factors that impede rational decision making, and how to resolve these problems. Thus, after the analysis, the essay provides several recommendations on how decision makers can avoid biases and come up with rational judgments. 1.0 Introduction Cognitive psychologists define ‘decision making’ as a mental task that occurs in weighing relevant information or selecting among options. However, decision making is highly vulnerable to failure due to individuals’ cognitive design (Hardman 2009, 117). Primarily, individuals often evaluate the probability of a situation by the simplicity or convenience with which models can be created in mind. The manner an issue is constructed usually radically influences individuals’ judgments. Individuals perceive, understand, and commit to memory information that confirms their original beliefs (Shapira 2002, 4). Individuals are also hesitant to discard a choice once they have put too much time, effort, and resources in it. Individuals are also very much inclined to have improperly high regard for their skills and knowledge. Cognitive psychologists from different schools of thought have the same opinion that individuals have an inadequate capacity for performing mental activities. Individuals can only hold a limited amount of information and they can process it in sequence, and retain in short-term memory (Plous 1993, 13). This essay tries to illustrate some of the factors that hinder good decision making, namely, (1) cognitive dissonance, (2) memory bias and hindsight bias, (3) context dependence, and (4) perception. In order to concretely demonstrate how these factors generate irrational decisions, these psychological theories are identified and analysed in the movie 12 angry men and the Enron case. 1.1 Research Methodology The essay first gives an overview of the definition and nature of decision making. Then a brief explanation of the scope and limitation and source of data is presented, followed by a short summary of the 12 angry men and the Enron case. Then the next section, which comprises the bulk of the essay, discusses the four psychological theories as regards to the 12 angry men and the Enron case. Afterwards, for the final part, the essay gives a few recommendations on how to make rational decisions, and presents a wrap up of the entire discussion. 1.2 Scope and Limitation This essay solely relies on secondary sources for the analysis. The discussion is also filled with subjective interpretations or analysis of the 12 angry men and the Enron case. And due to a required word limit, the essay is not able to fully cover all the important aspects of the issue. 1.3 Source of Data The author makes use of textbooks, journal articles, magazines, and websites as references. Online libraries, like Questia, Proquest, and Google Books, are used as search engines. Only reliable websites and peer-reviewed articles are used in this essay. 2.0 12 Angry Men and Enron This section briefly summarises the movie 12 angry men and the story of the Enron scandal. 2.1 12 Angry Men This film is about 12 jurors who are assigned to decide the guilt of a boy who allegedly murdered his father, and how one juror wins his case. The film revolves around the discussion and debate among these 12 jurors. In the beginning, 11 of these jurors believe that the boy is ‘guilty’, and only one believes he is not. The debate starts when Henry Fonda, the only one who votes ‘not guilty’, questions the accuracy of the other jurors’ decision. Henry Fonda begins laying down all his doubts about the witnesses’ testimonies and how the entire trial was conducted. The 11 jurors then try to defend their judgment, but four of them immediately changed their decision to ‘not guilty’ when they heard the arguments of Henry Fonda. As time passed by, and after hearing all the arguments of Henry Fonda, the other jurors who initially vote ‘guilty’ decide to change their vote to ‘not guilty’. 2.2 Enron In 2001, Enron--an energy company-- became highly successful. However, after several months the stock started to gradually plummet. The people were not aware that the CEOs of Enron were depositing big amounts of stock while attempting to arrange their financial statements. When CEO Jeffrey Skilling resigned all of a sudden, people began to worry. Ken Lay, Enron’s chairman, immediately assumed the vacated position. Yet, the stock continued to drop drastically (Cunningham & Harris 2006, 27). But the actual problem was not exposed until a few months later when Enron shocked Wall Street with hundreds of millions of dollars losses. It was revealed that Enron had covered a huge amount of debt, making its actual liabilities a lot greater than what was stated in the company’s financial statements (Thomas 2002, 41). Because of this, customers and investors started to take off, bringing about Enron’s demise. 3.0 Relevant Theories Applicable to 12 Angry Men and the Enron Case 3.1 Cognitive Dissonance Cognitive dissonance was illustrated as a motivational condition that pushes a person to try to moderate and get rid of it. Since dissonance stems from conflicting ideas and emotions, it can be moderated by reducing or removing the contradiction (Busemeyer, Hastie, & Medin 1995, 168). Cognitive dissonance has been shown several times in the movie 12 angry men. First, basically, the 11 jurors are experiencing cognitive dissonance. The two dissonant cognitions are: (1) they know that there is a reasonable doubt and (2) they have to give a guilty verdict because of the accuracy and veracity of the evidence presented. The presence of reasonable doubt in the minds of these 11 jurors is gradually strengthened while their convictions are challenged one by one. At the beginning of the film, four jurors already show conflicting thoughts (12 angry men, 11:30, 1957), specifically juror # 5, 6, 9, and 11 with their hesitation in voting ‘guilty’. Second, juror # 8 [Henry Fonda], who is the only one who votes ‘not guilty’, also manifests some sort of cognitive dissonance. When Juror # 3 asks him, “you really think he’s innocent”, Henry Fonda answered “I don’t know” (12 angry men, 12:00, 1957). Henry Fonda’s belief that the accused is ‘not guilty’ or ‘innocent’ is somewhat contradicted by his idea of a reasonable doubt. Third, juror # 11 manifests a severe form of cognitive dissonance because he is overwhelmed by the conflicting thoughts in his head, and thus cannot make a final decision. When juror # 4 challenges his sudden change of decision, he obviously wavers then changes his decision back again to ‘guilty’ (12 angry men, 1:22:50, 1957). Fourth, juror # 3 has marked dissonant cognitions between his personal life and professional duty. He knows that it is wrong to let his personal resentment against his son affect his professional judgment, but he really feels that the accused is guilty because of the misdeed his son did, and so he votes ‘guilty.’ And lastly, juror # 4 finds the accused guilty even though he knows that there is compelling evidence [the presence of proof that the primary witness has poor eyesight] against the veracity of the old woman’s [the alleged primary witness of the murder] testimony. But these dissonant cognitions are avoided by juror # 8 [Henry Fonda] and juror # 4 by firmly defending their respective decision. In the case of Enron, cognitive dissonance is evident in Ken Lay’s decision-making. Ken Lay is known as a devout Christian and moral man, and he even confirmed this himself. However, in spite of these Christian values, he is impelled to make deceptive decisions. Even though he is generally skilled in resolving conflicts and building strong rapport with his people, he steers clear of difficult decisions that will definitely anger his people (Fox 2003, 223). Likewise, the company’s auditor, Arthur Andersen, even though completely aware that revealing the true reason for the gradual collapse of the company will greatly tarnish his reputation and endanger the company’s survival, he still publicly exposes that the profit declared by Enron are misrepresented or amplified by roughly $600 million (The Enron Scandal 2012, para 5). 3.2 Memory Bias Limitations of functioning or short-term memory influence the precision of decision-making. Reasoning is influenced by memory bias. Individuals would use all important information in decision-making, but memory bias or constraints promote shortcuts (Plous 2003, 31). The hindsight bias is a particular memory description for biases in decision-making. In hindsight, results that have emerged seem more probable looking back than they appeared before knowing the results (Plous 2003, 31-32). In 12 angry men, memory bias has largely played a role in the decisions of most of the jurors. Most of them are actually reconstructing memories from what they have heard from the courtroom; this is obvious in the way the jurors explain their arguments. For example, when juror # 6 is retelling what he remembers from the witnesses’ testimonies, juror # 10 corrected him (12 angry men, 18:55, 1957), which clearly implies that juror # 6 is re-creating details. In addition, some of the jurors, like juror # 7, 3, & 4, are using previously learned notions about children who grew up in slums and experienced some sort of maltreatment or abuse to prove that the accused-- who lives in poverty and has a history of abuse-- is capable of murder (12 angry men, 20:40, 1957). Also, when juror # 4 is recounting about what he heard in the testimonies about the fight between the father and son and he says ‘after being slapped by his father several times’, juror # 6 interjected and says it is not ‘slapped’ but ‘punched’ (12 angry men, 26:25, 1957). The inaccuracy of word choice is an obvious indication of memory bias. Lastly, hindsight bias is evident in the scene where Henry Fonda is trying to re-enact the old man’s testimony about how he witnessed the boy running away from the murder scene. The jurors began to disagree about the details of the old man’s testimony (12 angry men, 55:15, 1957). At this point, it becomes obvious that one of their strongest proofs is questionable at best. 3.3 Context Dependence Context dependence in decision-making describes an effort to acquire the distinctive or particular features of the existing situation and to ‘tailor fit’ the response of the individual. Having stumbled upon an unfamiliar situation, the individual tries to distinguish it as a known pattern. Once done, the individual uses the particular experience of handling these known situations (Cook, Noyes, & Masakowski 2007, 48). However, confronted with an unfamiliar situation, the individual’s effort at pattern recognition will fall short. Thus, an individual using a context-dependent method will try to acquire the distinctive features of the existing situation at once, although the given information could be highly inadequate (Stanovich 2009, 62). There are four theories of context dependence as regards to decision-making, namely, (1) contrast effect, (2) primacy effect, (3) recency effect, and (4) halo effect. All these four are shown in 12 angry men. 3.3.1 Contrast Effect In the decision-making process, individuals have a tendency to accomplish it by contrasting between the major point and the enclosing points. When two objects are placed side by side, individuals have a tendency to contrast them to one another than to established or predetermined notions (Plous 2003, 38). In 12 angry men, the jurors who vote ‘guilty’ are at first certain about the veracity of their arguments and decision. But when Henry Fonda starts to lay down all the doubtful features of the testimonies, the 11 jurors become convinced that their decision is questionable. The 11 jurors evaluate the ‘guilty’ arguments against the ‘not guilty’ arguments. The ‘not guilty’ arguments win because it is the ‘distinctive’ or ‘unique’ feature of the situation at the time. 3.3.2 Primacy Effect Basically, the primacy effect leads to details given earlier being more likely or more intensely committed to memory than details given later on (Plous 2003, 42). In 12 angry men, juror # 7 manifests primacy effect because what he remembers very well are the testimonies of minor witnesses who testify first, such as the kind of person the accused is, the skill of the accused in handling knives, the kind of relationship the accused has with his father, and so on. 3.3.3 Recency Effect Contrary to the primacy effect, the recency effect leads to stronger recall of the latest or last details given (Busemeyer et al. 1995, 51). In 12 angry men, the 11 jurors who vote ‘guilty’ all manifest recency effect because what they remember well are the testimonies of the last two major witnesses, the old man, who says he heard the fighting between the accused and his father, and the old woman, who says she saw the accused stab his father. 3.3.4 Halo Effect Halo effect is linking positive views about a particular feature (e.g. appearance) of an individual to another, perhaps different, features (e.g. personality) (Hardman 2009, 203). In 12 angry men, Henry Fonda is seen as a calm, soft-spoken man; hence, the other jurors, particularly juror # 9, see him as an intelligent, reasonable man. Also, juror # 4 looks smart because of his stature, eyeglasses, and speech, so the other jurors are easily persuaded by his arguments. In a similar way, the CEOs of Enron, particularly Kenneth Lay and Jeffrey Skilling, and the company’s chief financial officer, Andrew Fastow, are seen by the employees as intelligent and influential people, and so they immediately thought that they will handle the business honestly and ethically. 3.4 Perception The perception of circumstances, or the mental image of a situation, is fundamental to the process of making a decision. This perception is defined as what an individual knows about a situation and every decision made are derived from such perception (Plous 1993). However, this perception may result in several forms of biases: (1) selective perception, (2) self-fulfilling prophecy, (3) self-serving bias, (4) confirmation bias, and (5) groupthink. These biases are illustrated in 12 angry men and Enron. 3.4.1 Selective Perception Selective perception, as a kind of bias, is defined as the processing or interpretation of information in a manner that fits our existing ideas and beliefs (Plous 2003, 16-17). In the 12 angry men, juror # 3 is obviously applying selective perception because he sees the accused as a damaged boy capable of murder based on how he sees his disobedient son. Also, juror #7 and 10 are guilty of selective perception because they based their decision on their existing belief about the character of a person who grew up in the slums. In the case of Enron, Kenneth Lay’s decision to ignore what is actually happening within the company is a form of selective perception. As revealed by the company’s vice president, Sherron Watkins, Lay failed to recognise the severity of the situation (Akhigbe, Madura, & Martin 2005, 188). Lay apparently chooses to believe that there is nothing wrong in the company’s operations. 3.4.2 Self-Fulfilling Prophecy This is defined as an expression that changes actions or behaviour and thus becomes real. If an individual sees another person as dim-witted, that individual will deal with that person that way (Plous 1993). If that person is dealt with as though s/he is dim-witted, s/he will behave, and even turn out to be this way. In 12 angry men, juror # 9 exhibits this bias in this statement: “are we supposed to believe this kid, knowing what he is, I have lived among them all my life, I mean they are born liars” (12 angry men, 14:25, 1957). He based his decision on his experiences with kids just like the accused, particularly on how he treated them and how they became the kind of people he expected them to be. As regards to Enron, the individuals responsible for the company’s downfall perceive deceitful practices as an answer to their objective of gaining quick-fix profit. This perception leads them to the successful realisation of their goal. 3.4.3 Self-Serving Bias This is defined as the inclination of individuals to refute any involvement or part in a failure and to claim recognition for success (Busemeyer et al. 1995, 99). In 12 angry men, some of the jurors who confidently vote for ‘guilty’, especially juror # 3, 10, and 12, are obviously preventing any form of criticism or reproach from the other members of the jury by going with the decision of the ‘majority’. But while it is gradually revealed that their initial decision is questionable, these jurors, one by one, shifted to the other position. Nobody from the original 11 jurors who vote ‘guilty’ stood his ground until the end. Even juror # 3, who seems to be the most steadfast among the 11 jurors, falters in the end because his basis for voting ‘guilty’ is weak and subjective. Each of these jurors harbours subjective or self-serving reasons for their decision. In the Enron case, all the involved people are guilty of self-serving bias. The employees and investors decide to entrust their entire investments to the company’s leaders because they believe that these leaders are capable of enlarging their assets. But when everything blows up these shareholders immediately blamed the company’s demise to the company’s CEOs, particularly the permanent resignation of Jeffrey Skilling, who they fully trusted at first. 3.4.4 Confirmation Bias This is when an individual has made a judgment or decision, s/he will vigorously look for ideas or factors which will back up his/her decision. That individual will also discard factors which will refute his/her decision (Busemeyer et al. 1995, 385). Henry Fonda, throughout the movie, seeks confirmation for his decision by either asking the other jurors for some of the details of the trial and the witnesses’ testimonies or looking for proofs by himself. For example, he tries to prove that the knife the accused allegedly used to kill his father is not one of a kind or the only one in existence by looking for an identical knife, and he is able to find a copy of it (12 angry men, 28:05, 1957). On the other hand, the other jurors, besides trying to strengthen their arguments by looking for confirmation, attempt to contest any arguments that go against theirs’. This confirmation bias plague Kenneth Lay of Enron which leads him to believe that the accounting practices of the company is working absolutely fine. Even though there are reports, like that of Watkins, that there are fraudulent accounting practices happening (The Enron Scandal at-a-Glance 2002, para 8), Lay chooses to shut his eyes and keep his confidence in his partners. 3.4.5 Groupthink Groupthink takes place when a group makes flawed judgments due to the pressure from the group. This group pressure promotes a weakening of mental competence and moral decision (Stanovich 2009, 61). In the 12 angry men, the jurors, except for Henry Fonda, are overwhelmed by group pressure. In fact, if analysed deeper, these jurors are in fact largely influenced by the pressure to conform to the majority. This is proven by the fact that some of the jurors who initially vote ‘guilty’, namely, juror # 5, 6, 9, and 11, show unwillingness from the start to go with the majority’s decisions, but they still yield to the strong group pressure. Group pressure is also evident in the Enron case, which is manifest in its strong corporate culture. This corporate culture is portrayed as a fraudulent, damaged culture. Within this culture, money is God and being greedy is wise (Hyde 2002, 58). There is almost no consideration for ethical conduct. These unethical practices reign all over the organization, from the leaders to the subordinates. 3.5 Overconfidence Overconfidence encourages individuals to overrate their knowledge and experience, miscalculate or misjudge risks, and magnify their power or capacity to determine outcomes or control occurrences (Hardman 2009, 97). In the 12 angry men, most of the jurors are unduly confident of their decision, to the point of aggressively defending their judgment. Enron’s CEOs, especially Jeffrey Skilling, are seen to be overconfident. Skilling’s overconfidence in his knowledge and capacity spurred the rational motivation of employees to accept his decisions unquestioningly (Hake 2005, 595). Offering unreasonably high salaries and benefits was the tactic used by the CEOs to dispel any uncertainties in the mind of employees (Easy Guide to Understanding ENRON Scandal Summary 2011, para 15-16). This generated a culture of fraud by overconfidently challenging the principles of corporate governance, corporate responsibility, and ethical conduct, resulting in Enron’s downfall. 4.0 Recommendations The essay briefly discussed cases of irrational or biased decision-making evident in the film 12 angry men and Enron’s scandal. The discussion also opened up a variety of difficulties in the decision-making process, which are, in a nutshell, having ambiguous or indecisive goals and principles, biased processing of relevant information, and emotional responses to uncertainty. Because of these cognitive limitations, individuals have to use methods to process or handle information, to strengthen focus, to transform vast amount of relevant information into a convenient and manageable form. In principle, uncertainty is an essential component of decision-making. In order to come up with appropriate and correct decisions, it appears likely that decision makers might have to remain in a position of uncertainty for longer, while they collect relevant information, take into consideration various possibilities, modify their thoughts, incorporate different viewpoints, form the judgment, and make a decision (Hardman 2009, 30). In other words, hasty, impulsive, or untimely decisions can generate negative outcomes. 5.0 Conclusions As shown in the 12 angry men and the Enron case, because decisions are usually made without a strong form of certainty, some fail to produce the desired outcomes, even if the decisions is made after meticulously, impartial, and unbiased weighing of relevant information or evidence. Due to this, the ‘accuracy’ of decision making cannot be assessed by the favourable outcomes of individual judgments; for example, good fortune usually plays a major role. Rather, the measure of accomplishment is usually considered to be the decision’s rationality. As seen in the 12 angry men and the Enron case, the major characters, except for Henry Fonda (juror # 8), evidently failed to make rational decisions because they were overwhelmed with different kinds of bias and irrational thinking (e.g. cognitive dissonance, memory bias, context dependence, overconfidence, etc). The process of decision-making is obviously not an easy job. Decision makers have to gain the skills of proper information gathering and processing, and to handle biases and irrational thoughts that impede good decision making. Prioritization of objectives or goals is one of the most effective solutions. But this process is riddled with difficulty. However, once harnessed and mastered, this helps decision-makers filter minor goals and focus on major ones. References Secondary Sources Busemeyer, J., Hastie, R., & Medin, D. (1995) Decision Making from a Cognitive Perspective. UK: Academic Press. Cook, M.J., Noyes, J., & Masakowski, Y. (2007) Decision Making in Complex Environments. UK: Ashgate Publishing Ltd. Fox, L. (2003) Enron: The Rise and Fall. Hoboken, NJ: John Wiley & Sons. Hardman, D. (2009) Judgment and Decision Making: Psychological Perspectives. Hoboken, NJ: John Wiley & Sons. Plous, S. (1993) The Psychology of Judgment and Decision Making. New York: McGraw-Hill. Plous, S. (2003) Understanding Prejudice and Discrimination. New York: McGraw-Hill. Shapira, Z. (2002) Organisational Decision Making. UK: Cambridge University Press. Stanovich, K. (2009) Decision making and rationality in the modern world. UK: Oxford University Press. Journal Articles Akhigbe, A., Madura, J., & Martin, A. (2005) “Accounting Contagion: The Case of Enron,” Journal of Economics and Finance, 29(2), 187+ Cunningham, G. & Harris, J. (2006) “Enron and Arthur Andersen: The Case of the Crooked E and the Fallen A,” Global Perspectives on Accounting Education, 3, 27+ Hake, E.R. (2005) “Financial Illusion: Accounting for Profits in an Enron World,” Journal of Economic Issues, 39(3), 595+ Hyde, A.C. (2002) “Enron: ‘Lessons’ for Public Managers?” The Public Manager, 31(1), 57+ Thomas, C.W. (2002) “The Rise and Fall of Enron; When a Company Looks Too Good to be True, It Usually Is,” Journal of Accountancy, 193(4), 41+ Websites Easy Guide to Understanding ENRON Scandal Summary (2011) available at http://finance.laws.com/enron-scandal-summary (last date accessed at 19th July 2012) The Enron Scandal available at http://whatreallyhappened.com/WRHARTICLES/enron.html (Last date accessed 20th July 2012) The Enron Scandal at-a-Glance (2002) available at http://news.bbc.co.uk/2/hi/business/1780075.stm (Last date accessed 20th July 2012) Read More