Natural Disasters

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Masoumeh Sahraei
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 .
 Over View the Case

Florida Hurricane 2004

Event 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.”
 Event Description :
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.
Jet Blue Airline situation on February 14,2007
Event 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?
 Answer
 Decision Making Biases
 Overconfidence: “ 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 expertise
Anchoring Bias:
Using early, first received information as the basis for
making subsequent judgments
Selective Perception:
People selectively interpret what they see on the basis
of their interests, background, experience, and
attitudes.
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 A sound decision

own ability to make good
decisions.

Risk Aversion Preferring low risk in To escape from

decision making bankruptcy

Anchoring Bias Using, early first received All other companies

information for making a made a good revenue
decision.
American Airline Industry

Error / Bias Error Definition Clue

Overconfidence Bias Believing too much in our Danny Burgin:

own ability to make good snowstorms are easier to
decisions . predict

Risk Aversion Preferring low risk in Passenger s’ Safety

decision
JetBlue Airline
Error / Bias Error Definition Clue

Overconfidence Bias Believing too much in our David Neeleman:

own ability to make good “Is our good will gone?
decisions . No, it isn’t”

Confirmation bias Give too little weight to views “You’re overdoing “ and
which are against us “Why don’t you grill
them?”

Risk Aversion Preferring low risk in Passengers’ safety

decision
 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?
 • Performance Evaluation
Nationwide
Insurance
company

• Formal Regulation
• System-Imposed Time Constraints
American Airline • Historical Precedents
Industry

• Formal Regulations
• System-Imposed Time Constraints.
JetBlue Airline
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 ?
 Three Ethical Decision Criteria

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.

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