The Varying Impact of Cognitive Biases on Different Types of Decisions – An Experimental Study

Posted: 2 Jul 2014

See all articles by Omer Dekel

Omer Dekel

Ramat Gan Center of Law and Business

Yoav Dotan

Hebrew University of Jerusalem - Faculty of Law

Date Written: July 1, 2014

Abstract

To what extent are different types of decision-making susceptible to cognitive biases? And to what extent should normative conclusions be derived from such differences? In the current paper, we investigate these questions by referring to decision-making in the field of competitive bidding ("CB"). A substantial concern exists with regard to CB procedures, namely, that when bid evaluators are exposed to the bid price, this may affect their judgment, even with regard to decisions that should not be affected by this information. More specifically, there is a concern that in the first stage of the CB process, bid evaluators will allow defective bids to qualify when they are aware of the fact that such bids carry the lowest bid price. Similarly, there is a concern that at the second stage of the competitive process, the evaluation and scoring of the qualitative criteria of competing bids (such as experience, recommendations, and so forth) could be affected by knowledge of the bid price in a way that gives an undue advantage to the lower bidder. We term this failure the "lower bid bias" ("LBB"). The purpose of the current study is to examine whether, and under what conditions, such bias influences decision-making in CB processes, and to explore the differences between the two stages of the CB process in this regard. To this end, we conducted a series of experiments, with the participation of real decision-makers, in situations that largely resemble their daily work. Our main finding is that even though procurement officials are susceptible to the LBB at the scoring stage of the CB process, they succeed in overcoming this bias at the qualifying stage. We cautiously ascribe this difference in susceptibility to the LBB to differences in the type of decision-making involved, and suggest further ramifications of these insights.

Keywords: behavioral economics, cognitive bias, public procurement

Suggested Citation

Dekel, Omer and Dotan, Yoav, The Varying Impact of Cognitive Biases on Different Types of Decisions – An Experimental Study (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=2461378 or http://dx.doi.org/10.2139/ssrn.2461378

Omer Dekel (Contact Author)

Ramat Gan Center of Law and Business ( email )

26 Ben Gurion Ave. Ramat Gan
POB 852 Bnei Brak
Ramat Gan, 51108
Israel

Yoav Dotan

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel
972548820462 (Phone)

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