GEB 6930 - Managerial Decision Making

Syllabus

Warrington College of Business Administration

Spring 1999

Managerial Decision Making:

Perspectives from Behavioral Decision Research

(GEB 6930)

Professor Lyle Brenner

Office: Bryan 300F Office Hours: Wednesdays 1:00pm – 2:30pm (or by appt)

Phone: 392-0161 x1427 Email: lyle.brenner@cba.ufl.edu

Class Hours/Location: Tues/Thurs 8:30am – 10:25am, Stuzin 102

WWW Page: http://bear.cba.ufl.edu/brenner/geb6930/index.html

Overview

In this class we will explore what constitutes high-quality decision making, how managers and consumers tend to fall short of these standards in predictable ways, and how your decision making can be systematically improved. I hope to provide you with an opportunity to diagnose potential shortcomings in your decision process and change the way you think about decisions. The goal is to help improve the quality of decisions you make in both your professional and personal life.

We will consider insights about decision-making from the fields of economics, marketing, organizational behavior, statistics, and psychology, with considerable emphasis placed on psychological approaches to understanding judgment and decision making under conditions of uncertainty.

The following is a partial list of course objectives:

• Identify quality decision making and provide you with a rational approach to structuring and thinking about decisions.
• Investigate decisions with conflicting objectives and how to reconcile these objectives.
• Clearly separate the roles of beliefs and values in making decisions where uncertainty is present.
• Understand principles for evaluating the quality (or lack thereof) of decisions.
• Understand chance processes and uncertainty, so that you are better able to distinguish outcomes that are within your control from those that are not.
• Identify typical shortcomings in the judgment process and provide some solutions to help you overcome these shortcomings.
• Understand the importance of decision framing, so that you are able to avoid inconsistencies in your own choices and anticipate inconsistencies in the behavior of others.
• Explore the nature of risk and uncertainty, how they influence decisions, and how they can be better managed.
• Better understand the decision-making processes of your customers and competitors.

Required Readings

• Russo, J.& Schoemaker, P. (1990). Decision Traps: The Ten Barriers to Brilliant Decision-Making and How to Overcome Them. New York: Fireside. (R&S)

• Reading Packet (Available at Target Copy, 22 NW 13th St.)

1. Hammond, J., Keeney, R. & Raiffa, H. (1998). The hidden traps in decision making. Harvard Business Review, Sep-Oct 1998, 47-58.
2. Einhorn, H. & Hogarth, R. (1987). Decision making: going forward in reverse. Harvard Business Review, Jan-Feb 1987, 66-70.
3. Langer, E. (1975). The illusion of control. Journal of Personality and Social Psychology, 32, 311-328. (excerpt reprinted in KST, Chapter 16)
4. Tversky, A. & Gilovich, T. (1989). The cold facts about the "hot hand." Chance, 2, 16-21.
5. Dawes, R. (1979). The robust beauty of improper linear models. American Psychologist, 34, 571-582. (reprinted in KST, Chapter 28)
6. Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1131. (reprinted in KST, Chapter 1)
7. Keeney, R. (1994). Creativity in decision making with value-focused thinking. Sloan Management Review, Summer 1994, 33-41.
8. Kahneman, D., Knetsch, J. & Thaler, R. (1990). The endowment effect, loss aversion, and the status quo bias. Journal of Economic Perspectives, 5, 193-206.
9. Staw, B. & Ross, J. (1987). Knowing when to pull the plug. Harvard Business Review, Mar-Apr 1987, 68-74.
10. Thaler, R. (1985). Mental accounting and consumer choice, Marketing Science,4, 199-214.
11. Tversky, A. & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211, 453-458.
12. Kahneman, D. & Lovallo, D. (1993). Timid choices and bold forecasts: A cognitive perspective on risk-taking. Management Science, 39, 17-31.
13. Simonson, I. (1993). Get closer to your customers by understanding how they make choices. California Management Review, 35, 68-84.
14. Loewenstein, G. & Thaler, R.(1989). Intertemporal choice. Journal of Economic Perspectives,3,181-193.

Note: Several of the assigned readings and many articles others of interest are collected in the following recommended but optional edited volume:

• Kahneman, D., Slovic, P., & Tversky, A. (1982). Judgment under uncertainty: Heuristics and biases. Cambridge: Cambridge University Press. (KST)

Course Requirements

1. Class Participation (25%)

As usual, quality of your contribution is valued more than quantity. Yes, there will be cold calling. Attendance is naturally very important. Criteria for your participation grade will include:

a) Attendance

b) Preparation for discussions

c) Quality of comments in class discussions

d) Thoughtfulness of work done in class exercises

2. Short Weekly Written Assignments (25%)

Throughout the module, you will submit brief written answers to questions posed in class. (Each will be one-page, 400 words maximum, and you will include the word count on the page.) You will get one freebie: i.e., you’ll get to drop your lowest score for these assignments.

3. Paper: Topic Illustration (25%)

Before April 19 you will submit a short paper (1500 words maximum), illustrating one or more concepts covered in class or in the readings. The content of the paper is up to you -- it may be drawn from your professional, educational, and personal experiences, or from the media.

For an illustration drawn from the media, you will find a newspaper or magazine article, excerpt from a book, or a video tape segment from a film or television show, etc. that illustrates one or more principles from class, and discuss and analyze its relevance to material that we cover in this course.

The topic illustration will be graded based on the validity, quality, clarity, and insightfulness of your description and analysis, as well as the "interestingness" and/or importance of the example chosen.

The topic illustration is due at noon on April 19 -- no exceptions!

3. Final Exam (25%)

The final exam (Tuesday, April 27, 12:30--2:30pm) will be a straightforward exam that will test your understanding of basic concepts and tools from class and the readings.

Approximate Schedule of Topics

I will assume that you have read the relevant material prior to coming to class. I will often direct your attention to the most important parts of the assigned readings.

The composition and order of topics below is only a guideline; we may deviate from it as circumstances and evolving interests of the class dictate.

Topics and Themes

Introduction: A framework for thinking about decisions

What makes decisions easy/hard/good/bad?

Descriptive, normative, and prescriptive approaches

• Readings: R&S Intro, Ch 1

Chance, control, and learning from experience

Looking forward and back

(Mis)perceptions of chance

Illusory correlation

Learning about cause and effect

• Readings: R&S Ch 8, 9; Langer; Tversky & Gilovich; Einhorn & Hogarth

Looking ahead: Prediction and probability judgment

Intuitive and model prediction

Heuristics and biases; overconfidence

• Readings: R&S Ch 4, 5; Dawes; Tversky & Kahneman (1974)

Building decisions: Frames and values

Framing; status quo and endowment effects

Mental accounting, sunk costs

Creativity in problem structuring

• Readings: R&S Ch 2, 3; Staw & Ross; Kahneman et al; Thaler; Keeney

Decision making under uncertainty

Integrating beliefs and values; Expected utility theory

Prospect theory; loss aversion; nonlinear decision weights

Isolation errors

• Readings: R&S Ch 6; Tversky & Kahneman (1981); Kahneman & Lovallo

Reasons, conflict, and consumer choice

Reason-based choice

Context effects and procedure invariance

• Readings: Simonson

Emotions, self-control, and decisions over time

Time discounting

Intertemporal choice anomalies

• Readings: Loewenstein & Thaler; R&S Ch 10

Multi-person decisions

Negotiation and conflict resolution

Group decision making

Persuasion and influence

• Readings: R&S Ch 7

Ethical Issues