Read the book "judgment in managerial decision making" 8th edition?written by Don A. Moore, Max H. Bazerman. And write a 500 words memo, do not cite any references.
Here is the requirements:
Business memo to your boss.?
1. "From" line: Your name
2. "To" line: your REAL boss's name, his/her title, and the company name
3. Begin with a brief (2-3 sentence) executive summary (not an intro)
4. Up to 500 words (counting body text only); no other format restrictions (Bullet points, original graphics, etc.)
Drill down on REAL organization, industry, and your role
Find a real organization, and a real boss. Assume you are their employee, write how you can help them improve their management or solve ?problem by using the knowledge in this book.
How do the 2nd-half course topics (chs. 6-11) arise there?
Apply a handful (5 or more than 5) of topics for applications with depth, or
Apply a bunch (10 or more than 10) of topics for applications with breadth
Use lots of 1st-half terms (from chs. 1-5) to streamline your points
Assume the reader knows each term/concept well already, do not need to explain
Advise that boss with insights that combine relevance and value
Imagine that boss had been sponsoring your study time and tuition, and show her/him a positive return on that investment
Attachment is a outline ppt for this book.?
Quality required. Extra $45 reward as tip for a good quality. ?
B&M text chapter 1
? We lack an operating manual for our own brains!
? Nor for our colleagues, customers, companions, etc. ? The RATIONAL decision-making process (idealistic)
? Define the problem
Identify the criteria
Weigh the criteria
Rate each alternative on each criterion
Compute the optimal decision
Idealistic? Very! Six huge assumptions listed, page 3. ? System 1 versus System 2 thinking ? Sys1: intuitive, fast, subconscious, emotional
? Used most by busy, thoughtless people ? Sys2: logical, methodical, intellectual ? Used most by deliberate, conscientious people 1 B&M chapter 1, continued
? Challenge your assumptions and ?overconfidence?
? Figure on p. 4 ? Prescriptive rationality, versus descriptive reality
? These authors bombard us with descriptive realities
? ?Understanding the ugly reality motivates progress?
? Key paragraph: 4th paragraph on p. 5 ? To ?satisfice,? or when we?re ?satisficing?
? Finding a satisfactory solution which suffices
? Why do people settle for this? It?s simpler. ? Heuristics: tools that simplify, for quicker, easier DM
? Availability: habituated responses to similar problems
Representativeness: ?profiling? (contexts, associations)
Confirmation: seeing only desirable data, confirming hunches
Affect: mood, circumstance, Sys1 thinking 2 Ch. 2: Overconfidence
? The root of most biases: confidence regardless of logic ? Lack of critical thinking: Continuing to believe that our views and
judgments are correct, despite logic and evidence of our fallibility
? Without it, we would more readily double-check our opinions and
correct our flaws
? Not just high confidence and hubris ? also occurs with low
confidence and irrationally excessive humility ? Overprecision, without accounting for ?doubt? ? Too sure that our judgments and assumptions are correct
? Dismissive or ignorant of disconfirming evidence ? Overestimation, without allowing for imperfections
? Self enhancement: tendency to view ourselves unrealistically
Illusion of control: poor conception of chance or risk factors
Planning fallacy: overestimate our speed and control in tasks
Unrealistic optimism, but also ?defensive pessimism? (p. 25) 3 Ch. 2: continued
? Overplacement, where everyone is ?above average? ? Belief that we rank/place higher than most opponents
? Neglecting the reality of peers or relevant ?reference group?
? So we tend to compete when we should cooperate or concede ? Prevalence/limits of overconfidence
? Only works when credible ? tennis skills vs. honesty, more skillful negotiator vs. ?fairer? (p. 29) ? The converse also occurs: underestimation and underplacement
? Similar function of disregarding objective evidence ? Benefits/costs of overconfidence
? + Preserves cognitive consonance, coping skills; shortcut
+ Leads to perseverance in the face of challenges
- Contributes to conflicts and discontent
- Decreases learning feedback-loops from poor decisions
4 Ch. 3: Common Biases - Heuristics
? Heuristics: cognitive tools to simplify decision making
? The result of habits, patterns, and quick, un-careful thinking
? You can affect when & how much you rely on your biases. ? Are shortcuts in thinking ? Like ?rules of thumb? we rely on sub-consciously
? Developed to simplify the chaos of modern life; quite necessary
? Often result in quick and adequate decisions (satisficing)
? But don?t always result in a good trade-off. ? Become biases when improperly applied ? Realizing this should lead to <unfreeze, change, refreeze>
? Often subconscious
? Let?s raise consciousness of them!
? Let?s ?unfreeze our DM patterns? ? This is just descriptive reality. Prescriptive remedy: ? Awareness: handy summary table (p. 58)
? Distinguish when heuristics help and when they hinder
? ?When stakes are high and decision quality is important, apply
more effortful thought processes? (p. 59) 5 Biases from Availability Heuristic
Ease of recall
o Recency of experience(s)
Vividness of experience(s)
Salience of experience(s)
o performance reviews
o what others? Retrievability o Certain triggers or patterns stir recall and response
o types of words
o selective recruiting
o store locations
o pattern recognition
o what others? 6 Biases from Representativeness Heuristic
? All of these relate to ?statistics ignorance? (see HW1)
? Insensitivity to base rates ? Focus on the best or worst outcome(s)
? Ex: health prognosis, entrepreneurial prospects, others? ? Insensitivity to sample size
? Misconceptions of chance
? Ex: streaks in gambling, other? ? Regression to the mean ? Individuals? streaks versus long-run or group averages
? Streaks almost always end, return to long-run averages
7 Biases from Confirmation Heuristic
? Confirmation trap
? Confirmatory evidence feels good (is received with ?glad heart,? p. 47)
? Overconfidence results from filtering-out disconfirming info
? Example: any choice-making that includes ?selective searches? ? Anchoring ? The starting number clouds subsequent objectivity
? Example: sales or salary negotiations, first impressions, racial bias (p. 51) ? Conjunctive and disconjunctive events ? Overestimating probabilities of conjoined events
? Underestimating probabilities of non-conjoined events
? Example: probabilities of separate events (p. 54), others? ? Hindsight and the curse of knowledge ? Hindsight does not always improve foresight (?navigating backwards?)
? Insight is required to avoid oversight ? Experts can?t see things through non-experts? eyes
? Example: teachers, product designers, marketers, communicators (p. 56)
? Advice: DM logic and process should matter more than results (p. 56)
? Results swing up and down, but good processes will prevail 8 B&M ch. 4: Bounded Awareness
? Why do we ?bound? our awareness? ? To simplify the ?great buzzing, blooming confusion? of life (1890!)
? Especially when ?convenient? to overlook things (Madoff example) ? We learn to distinguish between: ? What is worth paying attention to
? What can be ignored ? But sometimes we overlook valuable info ? Focusing failure: misalignment between info needed for a good
decision and info included in awareness (p. 63) ? Compare/contrast with the Availability Heuristic (p. 81) ? Availability refers to subconscious reactions to stimuli, while bounding
our own awareness is more deliberate, thus controllable ? Bounded awareness (and a camera analogy)
? Distinct from the availability heuristic, which refers to filtering
based on vividness or recency (ease of recall)
o Focalism - like focusing only on parts of the scene, near/far Bounds on awareness limit what we include in consideration
o Like failing to frame all that?s relevant
o We tend to keep our ideas within arbitrary boundaries 9 Current news item relevant to Ch. 4
HOW HEADPHONES KILL. From THE WEEK
As audio players have become increasingly popular, the
number of headphone-wearing pedestrians killed or seriously
injured by vehicles has tripled.
Listening to music while walking can be deadly, especially for young
men. A new study shows that over the past six years, as iPods and other
audio players have become increasingly popular, the number of
headphone-wearing pedestrians killed or seriously injured by vehicles
has tripled. Of the 116 victims last year, two out of three were males
under the age of 30. Half were hit by trains, and in a third of cases, they
had ignored warning horns or sirens before being struck.
?Everybody is aware of the risk of cellphones and texting in
automobiles, but I see more and more teens distracted with the latest
devices and headphones in their ears?? while on foot, says Richard
Lichenstein of the University of Maryland School of Medicine.
Loud music doesn?t just drown out indications of danger; it also 10
increases ?inattentional blindness,? a zoning-out that causes people to B&M ch. 4: Bounded Awareness, II
? Inattentional blindness ? Concentrating on one thing leaves us ignorant of other things
? Examples: gorilla video, pilots, drivers vs. bikes, cell phones, others?
? http://www.youtube.com/watch?v=vJG698U2Mvo ? Change blindness ? Tiny increments of change tend to go unperceived
? Examples: frog in a pot, ethical ?slippery slopes?, others? ? Key risk factor in ethics: not recognizing incremental compromises in
? Common first-step trigger: sense of entitlement or deserved
? To address: get outsiders? perspective; ?step away? a while ? Focalism and the focusing illusion
? To overweight certain info and underweight other info
Obsession with particular events instead of with contexts
Examples: sports-fan biases, Challenger?s O-rings 11 B&M ch. 4: Bounded Awareness, III
? Bounded awareness in groups
? Boundaries around only that info that gets raised/discussed
? More/diverse people tend to bring up more/more varied insights
? Yet so many ideas don?t get raised ? why? (p. 70)
? Groups discuss more shared info than unshared info ? How to address? Draw out expertise early and explicitly (Lovallo)
? Assign homework, encourage contrarians, etc. ? Examples/exercises ? game theory (more on this later)
? Multiparty ultimatum games
Monty Hall game
Acquiring a company
Auctions, and the winner?s curse (graphic on p. 78) ? Origins and implications ? behavioral and descriptive
? Reference-group neglect (example on p. 79)
System neglect: undervaluing factors in the context
Neglect of broader stakeholder impacts
?Choice overload? can be exhausting, limit decision making (p. 80) 12 Framing (B&M Chapter 5)
Unlike heuristics and biases (which are shortcuts), or bounded
awareness (which is simpler), framing entails more complicated
mental steps (p. 101) Not shortcuts in thinking, but ?longcuts.? ? Framing: ? Alternative perspectives on the same objective information
? ?Should? have no effect on rational decision-making
? Yet choices of framing alter people?s decisions hugely ? ?Seeking a gain, or avoiding a loss? ? big difference
? Location of the ?reference point? (anchor) matters
? Problem 3 (p. 85) regarding stock value ? Critically think about your reference points (p. 85) ? Expected Utility ? Expected utility differs from expect value (how? p. 83)
? Each outcome has an estimated utility
? Often non-monetary benefits/costs (like what?) ? Weighted sum of all utility-outcomes, each x its probability
13 Framing, II
? Prospect theory (p. 84) ? Mental math differs whether > or < the reference point
? So, be aware of your reference point, and alternatives to it ? Reversals of preference ? Why should this matter to managers? ? Sequences of decisions can lead to non-rational choice
? Understand last paragraph on page 86
? Example: self-interests (framing) of sales versus credit departments ? Pseudocertainty ? Perceptions of 100% or 0% probabilities dominate thinking ? Humans can?t process probabilities as easily as certainties ? so we yearn for
imagined, false or ?pseudo? certainties ? Certainty effect: higher salience of ?certain? events ? Not mathematically sensible, but still affects most decision-making ? Decision effects examples: Russian Roulette or cancer (p. 90) ? Framing of insurance products ? Bought not to hedge risk rationally, but to eliminate worry
? Premiums are a certain loss to avoid a future possible loss
? Insurance vs. warranties ? it?s all about framing (p. 90-91) 14 Framing, III
? Types of utility ? Acquisition Utility: value placed on a good/commodity
? All that would matter to a fully rational decision-maker ? Transaction Utility: how good of a ?deal? ? Ever bought something you didn?t want because it seemed a ?great deal?? ? Results in distortions in the rationality of purchasing
? Beer bid example, p. 91
Big vs. small choices (computers vs. accessories)
What savings per gallon to go to the 1-mile-distant gas station?
What savings per square foot to buy the 10-mile-distant house?
Trade-offs at small and large scales require critical thinking, p. 92-93 ? Endowment effect ? People over-value things they already own ? Why? (Confirmation bias - to justify owning it in the first place)
? Why do 1/3 of all items on e-bay fail to sell? (p. 94) ? ?Frame of ownership? ? The reference point is inflated by owners? irrational attachment
? Whether you own it already, or are in the market for it, vastly changes your
value perception (problems 11 & 12)
? What else might this affect? (p. 94)
15 Framing, IV
? Mental accounting ? Different ?accounts? used for budgets, vacations, emergencies, etc.
? Reference points for computing costs/values
? Wine example, problem 13, page 95 ? Declining marginal cost of losses ? Best way to ?milk? gifts?or bonus pay-outs (p. 96) ? Rebates vs. bonuses ? Communications by marketers affects framing by recipients (p. 97) ? Joint vs. separate evaluations differ?why? ? ?Shoulds? top joint evaluations, ?wants? are more prominent separately
? Sys 1 thinking is more prevalent in separate, simple evaluations
? Sys 2 thinking is more prevalent in joint, complex evaluations ? Evaluability of information raises its prominence in DM ? Hard-to-evaluate info is less likely to rise in uncritical thinking ? Broad effects and power of framing ? Unlike shortcuts (biases/bounds), framing takes extra thinking & choices
? Reference points entail continuous re-calibration to circumstances
? ?Thus, we find ourselves on a hedonic treadmill in which we strive for an
imagined happiness that forever slips out of our grasp, beckoning us
onward.? (p. 102) Grasp that paragraph!
16 After Chapter 6 17 B&M ch. 6: Motivation and
? How would you program a robot for the bridge or trolley? (p. 104)
? When emotions and cognition collide ? Additive role of emotions on top of cognitive errors (p. 117)
? What we want to do vs. what we think we should do ? Affect heuristic vs. rationality, like devils and angels on our shoulders
? Emotional brain areas vs. sophisticated brain areas (p. 106) ? Preference reversals ? Emotional wants are stronger when evaluating one option at a time
? Cognitive shoulds are stronger when evaluating complex options ? Temporal differences (thinking across periods of time) ? Discounting ? just like time value of monetary value?or utility
? Affects evaluations of both benefits and costs
? Leads to crises like climate inaction and burst housing bubbles
? Decisions about the present: more emotional (due to vividness)
? Decisions about future: more cognitive (due to complexity) ? Reconciling internal conflicts ? Set up policies and procedures for avoiding conflicts (Ch. 12, strategy 1)
18 ? When the issue is not at hand, make ?models? to capitalize on that objectivity Motivation and emotion, II
? Self-serving reasoning (egocentrism, motivated reasoning)
? Three vivid examples on p. 112 (i.e. legal fees from suits)
? People believe they deserve more than a fair allocation ? Problem lies in inability to interpret information without bias ? Differences between self and Rawlsian objective judgments
? Compare wants with judgments of archetypal ?objective person?
? Consult with your wise archetype?s outsider?s view (Ch. 12, strategy 5) ? Confirmation heuristic ? Favorable information accepted, unfavorable info overlooked, discounted
? We pre-consciously see what we want to see (hilarious example, p. 113) ? Paragraph on p. 113-114: everyday examples of poor DM ? Auditors, CEOs, physicians, politicians, etc. Personal examples?
? Apply insights from this class to improve your execution in these areas! ? Emotional influences on DM ? Facts/perceptions affected by emotion, via mood-congruent recall
? anger, disgust, fear, joy, sadness ? spill across contexts ? Regret avoidance ? tends to cause decision-makers to:
? Avoid or defer risky decisions, and/or avoid feedback
Choose options based mainly on how they may appear in later review
Distort decisions today to avoid potentially negative feedback later
Overcome by: Having should and want selves negotiate over fair judgment 19 Motivation and emotion, III
? Neutralizing negative effects of emotions on DM (p. 117) (in yourself and also in colleagues/partners/others)
? Recognize role of your emotions and their effects
? And anticipate them in others ? Identify, label, and be aware of emotions and influences
? ?Articulation is itself part of a System 2 process? ? Declare/admit and take responsibility for temporal influences
? Apply System 2 thinking to counteract them
? Accountability reduces likelihood of acting on emotions ? Institutionalize controls on emotion in DM processes
? Form policies/procedures while objective, then stick to them
? Cost/benefit analyses must be objective and trusted
20 Ch. 7: Escalation of commitment
Regards serial decisions, building on prior choices sequentially.
? Non-rational escalation of commitment ? Often, persistence pays off. Don?t quit at the first setback!
? But sometimes, escalation wastes time, energy, and money ? Can be caused by inertia and/or self-justification (?saving face?)
? Negative feedback can be dissonant, and hard to confront
? Dissonance ?eliminated? by escalation, like doubling-down ? Includes failure to see sunk costs as sunk and irrevocable
? Failure to reset reference points ? Examples of irrational escalation
? Favorites from chapter? ? Competitive escalation ?traps?
? Auctions, bidding wars, mindset on winning, games, etc.
American Airlines? approach: threat/bluff (strat. of commitment)
J&J vs Boston Scientific ? bidding war hurt both
? Consider carefully the other people?s perspective
? Rotate responsibilities among managers 21 Escalation of commitment, II
? Additive factors that feed into non-rational escalation:
? Perceptual biases ? Seeking only confirmatory evidence; avoiding regret ? Judgmental biases ? Framing; reference points; differences between upsides/downsides ? Impression management ? To ?save face? and look steady
? Kerry (?ambivalent?) vs Bush (?resolute?) in 2004
? Best two paragraphs in the whole book? (p. 129-130) ? Kennedy: courage is shown in realizing errors; changing despite image
? Keys for teams: align reward systems, devalue impression management ? Competitive irrationality ? Entering into traps
? Focus on ?winning? instead of on rational value
? Not considering the interests and actions of other ?players? ? Caveat (p 131) ? Escalating commitment is usually a good thing (rational)
? It advances progress, and keeps options open ? Requires focus on future costs/benefits instead of what?s sunk 22 Chapter 8: Fairness & ethics
? Rarely are people deliberately unfair/unethical ? As with all DM, biases and boundedness compromise outcomes
? Perceptual and cognitive errors occur on both sides of every action
? This chapter compares humans? intended ethics versus actual (p. 158) ? ?Fairness? ? the receiving side of others? ethics (p. 143) ? Judgments of fairness may not be logical or economically rational
? Based on people?s perceptions and ?intuitive social rules?
? Susceptible to people?s framing (top of p. 134)
? And to comparisons and anchoring (p. 140 and 141) ? ?Utilities for fairness? more valuable than money (p. 137)
? Unfair ultimatums: flyers (p. 136) and monkeys (p. 139)
? Depends on reference points (p. 140)
? ?Altruistic punishment? ? accept costs to oneself just to punish ?unfair
opponent? (p. 142) ? Why is fairness relevant to managerial decision making? (p. 142) ? People (customers, suppliers, partners, colleagues) will use fairness and
social comparison to judge your actions (p. 143)
? Ignoring others? fairness perceptions can be costly Ch. 8: Fairness & ethics, cont.
? Bounded Ethicality (concerning how we assess our own behavior) ? People unknowingly behave in ways inconsistent with their own ethics
? The vast majority of unethical behaviors occur without intent (p. 143) ? Thus reducing it lies in better understanding and adapting to humans? foibles ? Cognitive biases bound humans? ethics, with motivated reasoning
? Protective cognitions are Sys1 shortcuts (heuristics) avoiding ethical reflection
? Exacerbated by high-paced demands of managerial life (p. 144) ? Types of ?protective cognitions? (to avoid cognitive dissonance) ? Overclaiming credit (or underclaiming responsibility) ? key risk-factor ? Can lead to entitlement mentality, or ?payback time? starting down slippery slope
? Favoritism to your own group(s); socio-centric thinking ? unethical (p. 146) ? Implicit attitudes occur with Sys1, while explicit attitudes triggered by Sys2
? Indirectly unethical behavior
? Deliberate ignorance (regret avoidance), and selfish ?silent exits? (p. 152) ? Holding certain values as sacred ? Cause emotional reactions that preclude objective decision-making (p. 153) ? Downplaying conflicts of interest ? They overwhelm objectivity, though conspicuous corruption is rare (p. 154)
? Motivated blindness: incentives overwhelm objectivity (p. 156)
? How to moderate conflicts of interest: (p. 158) 24 Ch 9: irrationality in investment DM
? Why is investing relevant to managerial decision making?
? As with all DM, biases and boundedness compromise outcomes
? So many managerial decisions comprise investing something ? Money, time, energy, resources, reputation, emotion, hopes?what else? ? Perceptual and cognitive errors are unavoidable for humans
? Observation insight improvement ? Course objective: to develop comfort with reasoning through complex
decisions, for yourself and in teams/organizations
? But NOT so you can better exploit others? compromised DM! (p. 163) ? Investment decisions ? studied in Behavioral Finance ? Focus on ?Prescriptive? or ?Descriptive??
? Involves emotional and rational centers of the brain, together
? Reveals how biases affect individuals and entire markets (p. 162)
? Individuals/teams/units will be our focus ? Yours, as well as your customers, suppliers, partners, etc. ? Point out analogies where ?investment? is in other than $ terms
? Investing your careers with a company is far bigger than mere $ 25 Irrationality in investing, II
? Main causes of poor investment decisions ? Overconfidence in own knowledge, beliefs, predictions
? ?Active trading is hazardous to your wealth? (p. 164). Men usually worse.
? How do brokerages reconcile their conflicts of interest? ? Optimism about choices made ? Relates to availability heuristics, confirmation bias, and regret avoidance
? Encouraged by financial media ? why? (p. 166) Analogies? ? Denying randomness, and/or regression to the mean ? The past usually predicts the future, but not the way most people believe ? Anchoring, status quo, and procrastination ? Tendency toward status quo, consistency, omission, and/or inaction ? Poor framing and misuse of reference points ? Complexicating gains/losses; not treating sunk costs as irrelevant; regret avoid.
? Prospect theory: risk-averse when faced with gains, risk-seeking with losses ? Active trading ? Traders, like everyone, are likely to regress to the mean of their peers
? The mean is losing money, since the bank/casino always get its cut ? Many jumped into the role based on vivid data
? Skewed by availability and affect heuristics ? Most neglected the other side of each transaction
? Other party is likely better equipped than you; exploiting you 26 Irrationality in investing, III
? Steps to better decision-making in investing
? Recognize impossibility of outsmarting the market
? Keynes? analogy of meta thinking in markets (p. 173)
? Relates to the ?pick a number between 0 and 100? game
? No perfect solution because human nature determines the outcome ? Determine goals and plans, then act on and stick with them
? Balance ?shoulds? and ?wants? (listen to the angel, mostly)
? Deploy your heuristics in useful ways ? Make long-term plans without near-term emotions
? Develop formulas (plans and policies) objectively
? Then stick to them! ? Extensions to non-monetary investments
? Most of these concepts apply to investments of other resources
? Time, energy, reputation, careers, emotion, hopes, what else? ? Analogies, examples? 27 Rationality in Negotiations, Ch. 10
? Negotiation? ? Occurs whenever parties? preferences are not identical
? So, virtually all the time! ? Is always more complicated than individual decision making ? And usually more complicated than game theory could model (p. 176)
? Impossible to perfectly model all moves, options, and outcomes
? Presumes rational behavior by all players. As if! ? So, even just one person improving their rationality helps
? Quality of outcomes rises with quality of process (see Lovallo article) ? System 2, decision-analytic approaches to negotiation
? Each party?s best negotiated agreement (plan A) ? BATNA = plan B, best alternative to a negotiated agreement
? Reservation point or indifference point = edge between plan A and B ? Each party?s interests ? Principles, rather than (op)positions (see Fisher & Ury chapter)
? And their relative importance (in...
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