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CMA Foundation · Fundamentals of Business Economics and Management · Decision-making - Types and Process

A Mumbai retailer must choose a new store site. The manager fixes on the first rent figure quoted, Rs 90,000 per month, and judges every later site only by how far it is above or below that figure, though cheaper and better sites exist. Which statement correctly identifies the bias and its remedy?

It is anchoring bias, and the remedy is to set evaluation criteria in advance and judge each site independently of the first quoted rent. The manager is relying too heavily on the initial Rs 90,000 figure as a reference point, which distorts comparison with better alternatives.

  1. AAnchoring bias; evaluate each option independently against criteria set beforehandCorrect
  2. BHindsight bias; review past decisions more often
  3. COverconfidence bias; reduce the number of alternatives
  4. DConfirmation bias; seek only supporting data

Explanation

Judging all later options relative to the first figure quoted is anchoring. The remedy is to set objective criteria beforehand and assess each site independently. Confirmation bias is seeking supportive evidence, and seeking only supporting data would worsen, not cure, a bias. Hindsight and overconfidence biases do not describe fixation on an initial figure.

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