The American Roman Catholic bishops have made a ________ decision by cutting back their audits of child protection measures on the local level.

“Cutting back their audits of child protection measures” highlights the negative impact, hence some negative word must replace the blank as this phrase is an explanation to their negative decision. Of all these options, “wrongheaded” (stubborn in adhering to wrong opinions) fits our prediction and replaces the blank. 'Pugnacious' is eager and ready to fight; quarrelsome; combative, as it is off the track, therefore ruled out. Hence, (1) is the answer.