Employees’ judgment and decision making in the banking industry

Abstract

Purpose Heuristics are used in the judgment and decision-making process of bank employees; however, discussions and research on the type or range of judgmental heuristics are very difficult to find throughout the world. In light of this, the purpose of this paper is to empirically analyze what types of heuristics are used in bank employees’ judgment and decision-making processes and the extent to which those types of heuristics prevent rational decision making due to the systematic biases they generate. In particular, this study aims to conduct empirical research based on various scenarios related to the banking industry. Design/methodology/approach To examine the heuristics in decision-making circumstances and the level of subsequent biases, the present study narrowed the scope of research to the three main types of heuristics introduced by Tversky and Kahneman (1974), namely, representativeness heuristics, availability heuristics and anchoring and adjustment heuristics. To analyze the bank employees’ decision making, this study specifically investigated the level of decision-making heuristics and the level of bias by focusing on these three types of heuristics. This study targeted bank employees who either sell financial products or are engaged in customer service work at a real/physical bank. Findings For representativeness heuristics, this study found bank employees’ judgment of probability was influenced by biases, such as insensitivity to prior probability, insensitivity to sample size, misconception of chance and insensitivity to predictability. Regarding availability heuristics, it found that bank employees judge the probability of events based on the ease of recalling an event instead of the actual frequency of the event, and so they fall prey to systematic biases. Finally, regarding anchoring and adjustment heuristics, this study found that employees fall prey to judgment biases as they judge the probability of conjunctive events and disjunctive events based on anchoring and insufficient adjustment. Originality/value Although people who are well-trained in statistics can avoid rudimentary errors, they fall prey to biased judgment at a similar level to those who are not properly trained in statistics when it comes to more complicated and ambiguous issues. It clearly indicates that it is risky to determine that financial experts would be more rational than the general public in making various judgments required in the policy-making process. To conclude, it is imperative to recognize the existence of heuristics-based systematic biases in the judgment and decision-making process and, furthermore, to reinforce the education and training system to improve bank employees’ rational choice and judgment ability.

Evidence of probability misconception in engineering students—why even an inaccurate explanation is better than no explanation

“…Insensitivity to sample size is applied when people believe that the probability of the judged sample statistic is independent of the sample size. Actually, in many cases, people believe that the similarity of the sample statistic and population parameter is independent on the sample size (Kang & Park, 2019;Tversky & Kahneman, 1974). More precisely, the fact that, in a small sample, large deviations can occur from the actual value of a parameter is often overlooked.…”

“…In such an environment, engineers are often in a situation to make decisions in uncertain situations, as well as to argue their solutions and choices with a purpose to convince employers, colleagues, or others in the correctness of their decisions. The modern work environment requires engineers to possess competencies in the decision-making under uncertainty, where they should be able to identify, understand, and apply basic concepts from probability and statistics in both their professional and personal life (Kang & Park, 2019). Besides decision-making under uncertainty, one of the important non-technical competences of engineers is also ability to explain and justify the provided decisions or solutions.…”

“…Making decisions in uncertain situations is not only important for engineers but also for the general population, which is the reason why the research of misconceptions in probability has been in focus several decades (Kang & Park, 2019;Kustos & Zelkowski, 2013;Paul & Hlanganipai, 2014;Tsakiridou & Vavyla, 2015;Tversky & Kahneman, 1974). Although many engineering curricula are updated in line with the needs of modern society, it is questionable to what extent engineering students can avoid probability misconceptions which can be crucial for making decisions under uncertainty.…”

“…This study investigates the presence of five common probability misconceptions in students of electrical engineering using localized versions of tasks which were previously used in similar studies (Blanco & Chamberlin, 2019;Kahneman & Tversky, 1973;Kang & Park, 2019;Kustos & Zelkowski, 2013;Nabbout-Cheiban, 2017). We investigate the extent to which students of electrical engineering are prone to following types of misconceptions: insensitivity to sample size, base rate neglected, misconception of chance, illusory correlation, and biases in evaluation of conjunctive and disjunctive events.…”

“…Despite of existence of the vast body of studies on this topic among adults in various professions-from health professionals or bank employees (Bramwell, West, & Salmon, 2006;Gigerenzer, Gaissmaier, Kurz-Milcke, Schwartz, & Woloshin, 2007;Kang & Park, 2019) to secondary or university students (Hirsch & O'Donnell, 2001;Khazanov & Prado, 2010;Kustos & Zelkowski, 2013;Paul & Hlanganipai, 2014)-to the extent of our knowledge, there is a lack of investigations of these misconceptions, especially among engineering students. Our aim is to contribute to narrowing the knowledge gap in this area by providing a novel perspective on the testing of this kind of misconceptions among engineers with special examination of relationship between students' explanations and their test scores, as an original contribution in this area.…”