Question

In 300 words: Several years ago, senior executives at energy company CanOil wanted to acquire an exploration company (HBOG) that was owned by another energy company, AmOil. Rather than face a hostile takeover and unfavorable tax implications, CanOil’s two top executives met with the CEO of AmOil to discuss a friendly exchange of stock to carry out the transaction. AmOil’s chief executive was previously unaware of CanOil’s plans and, as the meeting began, the AmOil executive warned that he was there merely to listen. The CanOil executives were confident that AmOil wanted to sell HBOG because energy legislation at the time made HBOG a poor investment for AmOil. AmOil’s CEO remained silent for most of the meeting, which CanOil executives interpreted as an implied agreement to proceed to buy AmOil stock on the market. But when CanOil launched the stock purchase a month later, AmOil’s CEO was both surprised and outraged. He though he had given the CanOil executives the cold shoulder, remaining silent to show his disinterest in the deal. The misunderstanding nearly bankrupted CanOil because AmOil reacted by protecting its stock. What perceptual problem(s) likely occurred that led to this misunderstanding?

Answer 1

The perceptual problem that most likely occurred that led to this misunderstanding was with regards to selection, organization and interpretation of the information during the meeting between the executives of CanOil and AmOil. In the meeting AmOil’s CEO clearly mentioned in implicit terms that he was present in the meeting only to listen and so he will not be involved in any type of decision making. This clearly meant that AmOil’s CEO was disinterested in the purpose and objective of the meeting and did not want to enter into a business transaction with CanOil and did not want to sell HBOG to CanOil.

In this case the executives of CanOil falsely believed that silence of AmOil’s CEO meant no objection and hence they assumed that they can go ahead with the transaction and started buying AmOil stock from the secondary market. This was, however, a false notion and impression being held by the executives of CanOil as they wrongly made use of categorical thinking for their perceptual organization. The executives of CanOil indulged in the non-conscious process of organizing people and organizing objects into pre-conceived categories. This process led to the development of a mental model for them and this mental model was based on a false knowledge structure that they had developed to explain and describe the different situations around them. This eventually led them to wrongly interpret the incoming stimuli from AmOil’s CEO.

The executives of CanOil were also the victim of false consensus effect and this clouded their perceptions. They had developed a cognitive bias during the meeting and had overestimated their opinions and beliefs, values and preferences and deemed their beliefs to be normal (while it was not for the executives of AmOil). This formed a cognitive bias and developed the perception in the mind of CanOil’s executives that a consensus exists, when in fact, there was no consensus.

(313 words).