Identify the effect of cognitive biases of motivated reasoning and surrogation on the usefulness of balanced scorecard.

Question

Biases like motivated reasoning and surrogation are very prevalent in the business world. Man- agers are often compensated and evaluated based on performance measures such as production costs and profit margin. Hence, when subjective decisions need to be made regarding joint cost allocation, support department cost allocation, and budgeting, managers are motivated to believe and overvalue evidence that supports their products receiving less cost allocations, more budgeting, and other favorable outcomes. At the same time, managers will discount any evidence or reasoning that does not produce a favorable outcome for them. This is all part of the bias known as motivated reasoning. It is important to note, as well, that people exhibit the motivated reasoning bias unconsciously. In other words, people commonly overvalue favorable information and discount unfavorable information without realizing it. (Continued)

Answer 1

Question

Chapter 28, Problem 1TIF

a.

To determine

Identify the effect of cognitive biases of motivated reasoning and surrogation on the usefulness of balanced scorecard.

b.

To determine

Identify some ideas to protect oneself from falling prey to each of these biases.

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Biases like motivated reasoning and surrogation are very prevalent in the business world. Man- agers are often compensated and evaluated based on performance measures such as production costs and profit margin. Hence, when subjective decisions need to be made regarding joint cost allocation, support department cost allocation, and budgeting, managers are motivated to believe and overvalue evidence that supports their products receiving less cost allocations, more budgeting, and other favorable outcomes. At the same time, managers will discount any evidence or reasoning that does not produce a favorable outcome for them. This is all part of the bias known as motivated reasoning. It is important to note, as well, that people exhibit the motivated reasoning bias unconsciously. In other words, people commonly overvalue favorable information and discount unfavorable information without realizing it. (Continued)

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