Framing Bias

Framing bias is another concern for decision makers. Framing bias refers to the tendency of

decision makers to be influenced by the way that a situation or problem is presented. For example,

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when making a purchase, customers find it easier to let go of a discount as opposed to accepting a

surcharge, even though they both might cost the person the same amount of money. Similarly,

customers tend to prefer a statement such as “85 percent lean beef” as opposed to “15 percent

fat.” [6] It is important to be aware of this tendency, because depending on how a problem is

presented to us, we might choose an alternative that is disadvantageous simply because of the way it

is framed.

 

Escalation of commitment occurs when individuals continue on a failing course of action after

information reveals it may be a poor path to follow. It is sometimes called the “sunken costs fallacy,”

because continuation is often based on the idea that one has already invested in the course of action.

For example, imagine a person who purchases a used car, which turns out to need something

repaired every few weeks. An effective way of dealing with this situation might be to sell the car

without incurring further losses, donate the car, or use it until it falls apart. However, many people

would spend hours of their time and hundreds, even thousands of dollars repairing the car in the

hopes that they might recover their initial investment. Thus, rather than cutting their losses, they

waste time and energy while trying to justify their purchase of the car.

 

A classic example of escalation of commitment from the corporate world is Motorola Inc.’s Iridium

project. In the 1980s, phone coverage around the world was weak. For example, it could take hours of

dealing with a chain of telephone operators in several different countries to get a call through from

Cleveland to Calcutta. There was a real need within the business community to improve phone access

around the world. Motorola envisioned solving this problem using sixty-six low-orbiting satellites,

enabling users to place a direct call to any location around the world. At the time of idea development, the

project was technologically advanced, sophisticated, and made financial sense. Motorola spun off Iridium

as a separate company in 1991. It took researchers a total of fifteen years to develop the product from idea

to market release. However, in the 1990s, the landscape for cell phone technology was dramatically

different from that in the 1980s, and the widespread cell phone coverage around the world eliminated

most of the projected customer base for Iridium. Had they been paying attention to these developments,

the decision makers could have abandoned the project at some point in the early 1990s. Instead, they

released the Iridium phone to the market in 1998. The phone cost $3,000, and it was literally the size of a

brick. Moreover, it was not possible to use the phone in moving cars or inside buildings. Not surprisingly,

the launch was a failure, and Iridium filed for bankruptcy in 1999. [7] In the end, the company was

purchased for $25 million by a group of investors (whereas it cost the company $5 billion to develop its

product), scaled down its operations, and modified it for use by the Department of Defense to connect

soldiers in remote areas not served by land lines or cell phones.

 

 

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