Cognitive Bias and Decision Making
During World War II, the U.S. military was studying its combat-tested fighter planes to determine the parts of the plane that were most vulnerable to enemy fire. The purpose of the study was to identify the most vulnerable sections of each plane and then take steps to reinforce those sections to improve pilot safety and airplane durability. The data gathered by the U.S. military showed that certain sections of its combat-tested fighter planes were consistently hit more often with enemy fire than other sections of the plane.
Required:
1. Would you recommend reinforcing the sections of the plane that were hit most often by enemy fire, or would you reinforce the sections that were hit less frequently by enemy fire? Why?
2. Do you think cognitive bias had the potential to influence the U.S. military's decision-making process with respect to reinforcing its fighter planes?
Source: Denrell Jerker "Selection Bias and the Perils of Benchmarking," Harvard Business Review, Volume 83, Issue 4. pp. 114-119.
Want to see the full answer?
Check out a sample textbook solutionChapter P Solutions
Introduction To Managerial Accounting
- The fundamental concept behind strategic performance measurement systems is that an organizations strategy can be represented by a set of performance measures. This basic concept of representing a complex idea (like strategy) with something more tangible (like a measure) goes back hundreds, even thousands of years. Platos Allegory of the Cave provides perhaps the first evidence of this concept. In the allegory, Plato describes a hypothetical scenario in which a group of prisoners is chained to a wall inside a cave, locked in a position facing away from the cave opening. Plato explains that the prisoners have been in this condition their entire lives so their knowledge of the outside world is limited to what they are able to perceive in their current state staring only at the cave wall. Plato then describes how sunlight from the outside casts shadows of anything that passes by the cave opening into the cave. These shadows appear on the wall that the prisoners are facing, and sounds from the outside echo off the shadowed wall. Plato explains that, to the prisoners, reality is not outside the cave but the shadows are reality. To them, sounds dont come from the outside but rather from the shadows on the wall before them. Plato then goes on to discuss the status of a prisoner freed from this bondage and his initial reaction to exposure to a different reality. Plato says, Will he not fancy that the shadows which he formerly saw are truer than the objects which are now shown to him? This allegory illustrates that reality can really only be indirectly perceived via imperfect representations of reality. That is what accounting is all about. Accounting measures are imperfect representations of economic ideas that cannot be seen directlyjust like Platos shadows in the cave. Accounting measures are merely reflections of more interesting and important concepts. Consider financial statements and answer the following: Why do people care about what is on a firms balance sheet or income statement? Are they really interested in the financial statements in and of themselves, or do they use the financial statements to learn something about the issues they really care about? What are some of those issues?arrow_forwardProductivity and Quality: Prospective Analysis Analytic Company is considering the acquisition of a computerized manufacturing system. The new system has a built-in quality function that increases the control over product specifications. An alarm sounds whenever the product falls outside the programmed specifications. An operator can then make some adjustments on the spot to restore the desired product quality. The system is expected to decrease the number of units scrapped because of poor quality. The system is also expected to decrease the amount of labor inputs needed. The production manager is pushing for the acquisition because he believes that productivity will be greatly enhanced—particularly when it comes to labor and material inputs. Output and input data follow. The data for the computerized system are projections. Current System Computerized System Output (units) 30,000 30,000 Output selling price $40 $40 Input quantities: Materials 120,000…arrow_forwardAccording to Dib (2022), “Sustainable aviation fuel production contributes to ending hunger and malnutrition by promoting resilient agricultural practices that improve productivity and output. The third objective is to ensure healthy lives and promote well-being for all” (para. 7 & 8). Let’s say that you want to create a quantitative study to define forecasts for the sustainable development of air forecasts in the United States. The respondents in the survey are to be airport managers. What sampling method should be used to identify respondents?arrow_forward
- Richins Company is considering the acquisition of a computerized manufacturing system. The new system has a built in quality function that increases the control over product specifications. An alarm sounds whenever the product falls outside the programmed specifications. An operator can then make some adjustments on the spot to restore the desired product quality. The system is expected to decrease the number of units scrapped because of poor quality. The system is also expected to decrease the amount of labor inputs needed. The production manager is pushing for the aquisition because he believes that productivity will be greatly enhanced - particularly when it comes to labor and material inputs. Output and input data follow. The data for the computerized system are projections. Current System Computerized System Output (units)…arrow_forwardA feasibility study for a new computer system should a. consider costs, savings, controls, profit improvement, and other benefits analyzed by application area. b. provide the preliminary plan for converting existing manual systems and clerical operations. c. provide management with assurance from qualified, independent consultants that the use of a computer system appeared justified. d. include a report by the internal audit department that evaluated internal control features for each planned application.arrow_forwardWhat internal control or procedure(s) would provide protection against the following threats? A factory supervisor wrote off a robotic assembly machine as being sold for salvage but actually sold the machine and pocketed the proceeds. A factory supervisor accessed the production planning file and inflated the standards for work completed in his department. Consequently, future performance reports show favorable budget variances for that department. Overproduction of a slow-moving product resulted in excessive inventory that had to eventually be marked down and sold at a lossarrow_forward
- An existing robot is used in a commercial material laboratory to handle ceramic samples in the hightemperature environment that is part of several test procedures. Due to changing customer needs, the robot will not meet future service requirements unless it is upgraded at a cost of $2,000. Because of this situation, a new advanced technology robot has been selected for potential replacement of the existing robot. The accompanying estimates have been developed from information provided by some current users of the new robot and data obtained from the manufacturer. The firm’s before-tax MARR is 25% per year. Based on this information,should the existing robot be replaced? Assume that a robot will be needed for an indefinite period.arrow_forwardNed Thompson Labs performs tests on superalloys, titanium, aluminum, and most metals. Tests on metal composites that rely upon scanning electron microscope results can be subcontracted or the labs can purchase new equipment. Evaluate the sensitivity of the economic decision to purchase the equipment over a range of ±20% (in 10% increments)of the estimates for P, AOC, R, n, and MARR (range on MARR is 12% to 18%). Use the AW method and plot the results on a sensitivity graph. For which parameter(s) is the AW most sensitive? least sensitive? First cost, P = $-180,000 Salvage, S = $20,000 Life, n = 10 years Annual operating cost, AOC=$-30,000 per year Annual revenue, R = $70,000 per year MARR = 15% per yeararrow_forwardThe Department of Transportation wishes to choose between two alternative accident prevention programs. It has identified three benefits to be gained from such programs: 1. Reduced property damage, both to the vehicles involved in an accident and to other property (e.g., real estate that may be damaged at the scene of an accident) 2. Reduced injuries 3. Reduced fatalities The department’s experts are willing to provide dollar estimates of property damage savings that are expected to accrue from any program, but they will estimate only the number of injuries and fatalities that may be averted. The first program is relatively moderate in its costs and will be concentrated in a large city. It involves upgrading traffic signals, improving road markers, and repaving some potholed streets. Because of the concentration and value of property in the city, savings from reduced property damage are expected to be substantial. Likewise, a moderate number of traffic-related deaths and…arrow_forward
- The Department of Transportation wishes to choose between two alternative accident prevention programs. It has identified three benefits to be gained from such programs: 1. Reduced property damage, both to the vehicles involved in an accident and to other property (e.g., real estate that may be damaged at the scene of an accident) 2. Reduced injuries 3. Reduced fatalities The department’s experts are willing to provide dollar estimates of property damage savings that are expected to accrue from any program, but they will estimate only the number of injuries and fatalities that may be averted. The first program is relatively moderate in its costs and will be concentrated in a large city. It involves upgrading traffic signals, improving road markers, and repaving some potholed streets. Because of the concentration and value of property in the city, savings from reduced property damage are expected to be substantial. Likewise, a moderate number of traffic-related deaths and…arrow_forwardBrandon Technology makes two models of a specialized sensor for the aerospace industry. The difference in the two models relates to the required accuracy of the sensor. The Standard model is used for most normal operations while the High-Performance model is used for high-altitude and specialized missions. Before shipment, the two models are passed through a machine that, among other things, certifies the accuracy of the sensor. The company only has one testing machine. The price and costs of the two sensor models are shown here: Standard High-Performance Price per sensor $ 52 $ 96 Variable cost per sensor $ 34 $ 41 Testing hours per sensor 0.04 0.11 The testing machine used for both models has a capacity of 8,250 hours annually. Fixed manufacturing costs are $2,400,000 annually. Required: a. Suppose that the maximum annual unit sales that is possible for Brandon Technology is 250,000 units of the Standard model and 80,000 of the High-Performance model. How many…arrow_forwardLazer Technologies Inc. (LTI) has produced a total of 20 high-power laser systems that could be used to destroy any approaching enemy missiles or aircraft. The 20 units have been produced, funded in part as private research within the research and development arm of LTI, but the bulk of the funding came from a contract with the U.S. Department of Defense (DoD). Testing of the laser units has shown that they are effective defense weapons, and through redesign to add portability and easier field maintenance, the units could be truck-mounted. DoD has asked LTI to submit a bid for 100 units. The 20 units that LTI has built so far cost the following amounts and are listed in the order in which they were produced: Use Exhibit 4A.5 and Exhibit 4A.6. UNITNUMBER COST($ MILLIONS) UNITNUMBER COST($ MILLIONS) 1 14.0 11 2.3 $ 2 8.1 12 2.2 3 6.2 13 2.0 4 4.9 14 2.0 5 4.3 15 1.8 6 3.7 16 1.8 7 3.3 17 1.6…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningEssentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning