Cognitive Biases & Heuristics in Decision Making: A Case Study Analysis

Author: Keshav Gupta

Affiliation: Woodside Priory School

Abstract:

Business and finance decision-making often occurs under conditions of uncertainty, time pressure, or both, making it challenging to adopt a goal-oriented, rational approach without relying on heuristics and cognitive biases. This paper discusses the pervasively important—but often invisible—role that psychological factors, namely availability and representativeness heuristics, confirmation bias, and overconfidence, play in decision-making, often leading to inferior outcomes. Through real-world examples such as the 2022 GameStop short squeeze, the Volkswagen emissions scandal, and the Valeant Pharmaceuticals collapse, the practical effects of these cognitive biases are examined. Research demonstrates that cognitive shortcuts and blind overconfidence result in suboptimal and often incorrect decisions, leading to market instability, moral failures, and organizational collapse. This article highlights the psychological risks that can undermine decision-making and suggests practical strategies, such as prioritizing transparency, encouraging reflective decision-making, and improving governance, to enable more effective and ethical decision-making. By examining the relationship between psychology and decision-making, this study emphasizes the need for better individual and institutional techniques to navigate complex business and financial situations successfully and ethically, highlighting approaches that lead to superior outcomes.

Keywords: Representativeness Heuristics, Availability Heuristics, Anchoring Heuristics, Cognitive Bias, CEO Overconfidence

ISSN 3069-8200

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