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