Post on 04-Apr-2015
Alireza
Moghadam
zadeh
Masoumeh Sahraei
Mohammad
Amin Firoozabadi
Natural Disasters and
Decision that Follow
Perception and Individual Decision Making
Learning Goals
In this case we have 3 examples about
the crisis situations and decisions that
have been made in those situations .
Florida Hurricane 2004Event Description : In 2004, Florida experienced its worst hurricane season in history—four major hurricanes slammed the state, causing an estimated $40 billion in damage. In the hurricanes’ wake, Nationwide received more than 119,000 claims, collectively worth $850 million.
Decision Making: Jef Rommel who took over Florida operations in 2004 for Nationwide Insurance , decided to cancel approximately 40,000 homeowners’ policies and he announced that Nationwide Insurance Will Not Renew 40,000 Florida Home Policies , Nationwide received a huge amount of media attention as a result, almost all negative. In reflecting on the decision, Rommel said, “Pulling out was a sound business decision. We have an obligation to act in a responsible and thoughtful manner to ensure long-term stability for Nationwide policyholders in Florida and across the country Was it good for the individual customer? No, I can’t say it was. But the rationale was sound.”
Over View the Case
Airline industries are affected by all kinds of storms , American Airlines has 80,000 employees, 4 of whom make decisions to cancel flights. One of them is Danny Burgin.
Decision Making : when weather systems approach , Burgin considers a host of factors in deciding which flights to cancel and how to reroute affected passengers. He argues that of two major weather factors, winter snowstorms and summer thunderstorms, snowstorms are easier to handle because they are more predictable.
Event Description :
Jet Blue Airline situation on February 14,2007Event Description :On February 14, 2007, JetBlue was unprepared for a snowstorm that hit the East Coast. Due to the lack of planning, JetBlue held hundreds of passengers on its planes, at JFK, in some cases for as long as 10 hours (with bathrooms closed!). To the stranded travelers, JetBlue’s tepid offer of a refund was just as outrageous. For an airline that prided itself on customer service and had regularly been rated as the top U.S. airline in customer satisfaction
Decision Making :In defending the airline, JetBlue’s founder and CEO, David Neeleman, said, “Is our good will gone? No, it isn’t. IWe fly 30 million people a year. Ten thousand were affected by this.” In responding to another interviewer, he said, “You’re overdoing it. Delta screwed people for two days, and we did it for three and a half, okay? So go ask Delta what they did about it. Why don’t you grill them?” Eventually, though, Neeleman himself was affected by it, and he stepped down.
Questions
Question 1 Insurance companies in the state of Florida earned record profits in 2006, suggesting that Nationwide’s decision to cancel policies in light of the calm hurricane seasons (in Florida) in 2005–2007 may have cost the company potential revenue and customer goodwill. Do you think Rommel’s quote about making a “sound business decision” reveals any perceptual or decision-Making biases? Why or why not?
Decision Making BiasesOverconfidence: “ sound business decision ”.Anchoring Bias : It seems that Nationwide didn’t take
into consideration some information that others did.Perceptual Biases:Selective Perception: They followed their interest,
”money”
Overconfidence Bias:Believing too much in our own ability to make good decisions – especially when outside of own expertiseAnchoring Bias:Using early, first received information as the basis for making subsequent judgmentsSelective Perception:People selectively interpret what they see on the basis of their interests, background, experience, and attitudes.
Answer
Question 2
Review the section on common biases and errors in decision
making. For companies such as Nationwide, American
Airlines, and JetBlue that must respond to natural events,
which of these biases and errors are relevant and why?
Nationwide Insurance company
Error / Bias Error Definition Clue
Overconfidence Bias Believing too much in our own ability to make good decisions.
A sound decision
Risk Aversion Preferring low risk in decision making
To escape from bankruptcy
Anchoring Bias Using, early first received information for making a decision.
All other companies made a good revenue
American Airline Industry
Error / Bias Error Definition Clue
Overconfidence Bias Believing too much in our own ability to make good decisions .
Danny Burgin:snowstorms are easier to predict
Risk Aversion Preferring low risk in decision
Passenger s’ Safety
JetBlue AirlineError / Bias Error Definition Clue
Overconfidence Bias Believing too much in our own ability to make good decisions .
David Neeleman:“Is our good will gone? No, it isn’t”
Confirmation bias Give too little weight to views which are against us
“You’re overdoing “ and “Why don’t you grill them?”
Risk Aversion Preferring low risk in decision
Passengers’ safety
Organizational Constraints
Organizations can constrain decision makers, creating deviation
from the rational model.
Performance Evaluation
Managers want their works to be evaluated well so that
sometimes they make some decisions that are not comply with
rational model.
System –Imposed Time Constraints
Restrict ability to gather or evaluate information
Formal Regulation
Some policy restricts managers to make a decision due to the
organizational purposes.
Historical Precedents
Choices made today are largely a result of choices made over
the years.
In each of the three cases discussed here, which
organizational constraints were factors in the decision s that were
made?
Nationwide
Insurance
company
• Performance Evaluation
American
Airline Indust
ry
• Formal Regulation• System-Imposed Time Constraints• Historical Precedents
JetBlue
Airline
• Formal Regulations• System-Imposed Time Constraints.
How do you think people like Rommel, Burgin,and
Neelman factor ethics into their decisions? Do you
think the welfare of policy owners and passengers
enter into their decisions ?
1 - Utilitarianism : Seeking the greatest good for the greatest number.
2 - Right : Respecting and Protecting the basic rights of individuals
3- Justice :Imposing and enforcing rules fairly and impartially.
Three Ethical Decision Criteria
Utilitarianism
High
efficiency
High profit
Prod
uctiv
ity
Natio
nw
ide
Insu
rance co
mpan
y
Am
eric
an A
irline
Indust
ry
JetBlue Airline
Right