Transcript Document

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Link to readings and video
Exam questions: study instructions
Survey: Developmental
• PARTY AT MY HOME in 2015?
The Fixed-Action Response in
Fixed Action Patterns
A bat and a ball cost $1.10 in total.
The bat cost a dollar more than the ball.
How much did the ball cost?
Kahneman and Tversky: Maps of
Bounded Rationality
• Intuition (system 1): Fast, parallel,
automatic, effortless
• Reasoning (system 2): Slow, serial,
controlled, effortful
A Blessing or A Curse?
Mission Accomplished?
Ecce Homo?
A Good Man Gone Bad?
Page 9
Shoreham Nuclear Power Plant
• GE plant in NY, 60
miles from
• Designed to produce
540-820 megawatts
• Initial estimated cost:
$65 million
• Final cost: $6billion
• After 11 years (’73’84), never opened!
• Construction flaws
• Labor unions
• Public concerns over
• Escalation of
commitment, or
failed persistence?
Blowing Up
Consider this scenario…
• You are the manager of a clothing store.
The holiday season is underway, but your
sales for the month are down by 20% from
the same time last year. You have new
staff members in the store; the economy is
slightly weaker; but a similar store next to
you has seen sales go up by 10%.
What to do?
Decision Making
The Rational Model
1. Identify problem
- historical cues (e.g., past trends in sales);
- scenario constructions (anti-terrorism);
- others’ perceptions (e.g., customer feedback)
2. Generate solutions (e.g., brainstorming)
3. Select solution (e.g., nominal group technique)
4. Implement
Herbert Simon’s Model
• Decision making is not perfectly rational; it
is boundedly rational:
– Limited information processing (cannot
evaluate all potential alternatives in limited
– Satisficing (stop when the solution is “good
enough”– pick radio station)
– Judgemental heuristics
Assumptions of the Rational
Factors Influencing Decision
Time Pressure
Incomplete information
Limited resources
Cannot know or investigate all possible
• Conflicting goals; difficult to find optima
• Bounded Rationality
Types of Heuristics
Representativeness error: thinking overly influenced by what is typically
(e.g., doctors fail to consider possibilities that contradict their mental
templates of a disease.)
Availability bias: Tendency to judge likelihood of an event by the ease with
which relevant examples come to mind
(e.g., this venture will fail because it failed for my friends who tried it)
Confirmation bias: Confirming what one expects by selectively accepting
(or ignoring) supporting (disconfirming) information
(e.g., the problem is the staff)
Affective error: Tendency to make decisions based on what we wish were
(to accept otherwise would be psychologically hurtful).
Desert Exercise
• 15 minutes: Rank by yourself
• 30 minutes: Decide as a group
• 15 minutes: Discussion as a class
Desert Survival Debrief
• What processes did your team use in
coming up with the consensus decision?
• When you changed your ranking, what
factors caused you to change your
• Did you like or resent the group?
The Asch Effect
Standard Line Card
Comparison Lines
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Asch and Social Conformity
37 of 50 subjects (74%) conformed to the
majority at least once
14 conformed on more than 6 of 12 trials
Several reported actually misperceiving
the answer after being confronted by the
opposing majority.
“The tendency to conform is so strong that
reasonably intelligent well-meaning
people are willing to call white black….
This raises concerns about our ways of
education and about the values that
guide our conduct”
People conform because:
- they want to be liked by the group
- they assume that the group is better
informed/wiser than they are.
- they “see” differently
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Asch Effect:
What are the implications of the Asch effect for managers?
– Strong social effects on what we see and do.
How to organize meeting and debates:
Find ways of getting people to express their views and opinions in ways that prevent those views
being swayed by perceived group opinions.
Emphasize that you are not interested in “yes men.”
– The importance of people who don’t get along with others–
Socrates was turned into an outcast… but should not have been.
– Crucially: Once one person dissents, the likelihood of others
speaking up goes up dramatically.
Milgram: Obedience to authority
Ordinary people, simply doing their
jobs, and without any particular
hostility on their part, can become
agents in a terrible destructive
process. Moreover, even when the
destructive effects of their work
become patently clear, and they are
asked to carry out actions
incompatible with fundamental
standards of morality, relatively few
people have the resources needed to
resist authority
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What percentage of ordinary, lawabiding, Yale students would deliver
the maximum 450 volt shock?
< 10% < 50% > 50% > 60%
• "the essence of obedience consists in the
fact that a person comes to view
themselves as the instrument for carrying
out another person's wishes, and they
therefore no longer see themselves as
responsible for their actions. Once this
critical shift of viewpoint has occurred in
the person, all of the essential features of
obedience follow"
• [People] have learned that when experts
tell them something is all right, it probably
is, even if it does not seem so. (In fact, it is
worth noting that in this case the
experimenter was indeed correct: it was all
right to continue giving the "shocks" —
even though most of the subjects did not
suspect the reason.)
Robert Schiller writing about
Milgram’s experiments
Milgram’s experiments:
Implications for Managers
Theory of conformism: A subject who has neither the ability nor expertise to
make decisions will leave decision making to the group and its hierarchy. The
group becomes the person’s behavioral model
- Don’t mistake conformism for conformation
Agentic state theory: The essence of obedience consists in the fact that a
person comes to view himself as the instrument
for carrying out another’s wishes, and therefore no longer sees himself as
responsible for the action
- I’m just doing my job…
Groupthink: When you feel a high pressure to conform and agree and
are unwilling to realistically view alternatives
What are some of the reasons or factors that promote groupthink?
What can be done to prevent groupthink?
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Mission Accomplished?
Figure 10-6
Symptoms of Groupthink and Decision Making
Symptoms of Groupthink
Inherent morality
Stereotyped views of
Illusion of
Peer pressure
Decision-making Defects
1) Few alternatives
2) No reexamination of
preferred alternatives
3) No reexamination of
rejected alternatives
4) Rejection of expert
5) Selective bias of new
6) No contingency plans
Groupthink: Implications for
• Assign to each member the role of critical evaluator– this
role involves playing “Devil’s Advocate” by actively
voicing doubt and objections.
• Use subgroups and bring in outside experts for exploring
the same policy decisions.
• Use different groups with different leaders to explore the
same question.
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Business Fiascos
Rational risks in uncertain situations or
flawed decision making (overestimate
benefits, underestimate costs)?
Delusional Optimism
• Due to both cognitive biases and organizational
- exaggerate own talents; downplay luck
- self-serving attributions: in annual reports
- scenario planning tends to reward most
optimistic appraisals.
- anchoring
- competitor neglect.
- pessimism often interpreted as disloyalty
How to Take The Outside View
Select a reference class:
Assess the distribution of outcomes:
where you fall in the distribution– executive predicted $95 million
Estimate reliability of your prediction
Identify the average and extremes in the refer- ence-class projects’ outcomes--the studio
executive’s reference-class movies sold $40 million in tickets on average. But 10% sold less
than $2 mil- lion and 5% sold more than $120 million.
Predict, intuitively:
choose a class that is broad enough to be statistically meaningful but narrow enough to be
truly comparable to project at hand-- movies in same genres, similar actors
correlation between forecast and actual outcome expressed as a coefficient ranging from 0
to 1.
Correct the intuitive estimate for unreliability
less reliable the prediction, more needs to be adjusted towards the mean.
Shoreham Nuclear Power Plant
• GE plant in NY, 60
miles from
• Designed to produce
540-820 megawatts
• Initial estimated cost:
$65 million
• Final cost: $6billion
• After 11 years (’73’84), never opened!
• Construction flaws
• Labor unions
• Public concerns over
• Escalation of
commitment, or
failed persistence?
Escalation of Commitment: The
Flip Side of Persistence
Reducing Escalation of
• Set minimum targets for performance, and force
decision makers to compare against these
• Stimulate opposition using “devil’s advocacy”
• Rotate managers through roles
• Reduce ego-involvement
• Provide and study more frequent feedback
about project completion and costs
• Reduce risk and penalties for “failure”
• Make explicit the costs of persistence