Biases like motivated reasoning and surrogation are very prevalent in the business world. Managers are often compensated and evaluated based on performance measures such as production costs and profit margin. Hence, when subjective decisions need to be made regarding joint cost allocation, support department cost allocation, and budgeting, managers are motivated to believe and overvalue evidence that supports their products receiving less cost allocations, more budgeting, and other favorable outcomes. At the same time, managers will discount any evidence or reasoning that does not produce a favorable outcome for them. This is all part of the bias known as motivated reasoning. It is important to note, as well, that people exhibit the motivated reasoning bias unconsciously. In other words, people commonly overvalue favorable information and discount unfavorable information without realizing it.

Surrogation is another bias that managers frequently unintentionally exhibit. A brief example of this bias is illustrated in the following story:

The management of a restaurant chain seeking to improve customer satisfaction uses online customer reviews as a measure of this strategic objective. To encourage this objective, management offered a generous bonus to all employees at restaurant locations that increase their online customer review rating by one star. After a few months, management noticed the online customer review rating had dramatically increased at one particular location and paid out the increased bonus. Upon further investigation, management discovered that the manager of this location was offering 15% discounts on all purchases to anyone who gave the restaurant a 5-star review.

This story illustrates surrogation bias because, at that particular location, the performance measure was being treated like the strategic objective. While the performance rating improved, it was not reflective of the strategic objective it was meant to measure (customer satisfaction). 

a. How can the cognitive biases of motivated reasoning and surrogation affect the usefulness of the balanced scorecard?

b. Develop some ideas of how you can protect yourself from falling prey to each of these biases.