behavioral decision making: biases, heuristics and errors.

BEHAVIORAL DECISION MAKING: BIASES,
HEURISTICS AND ERRORS.
AREA: IE SCHOOL OF PSYCHOLOGY COURSE Nr. 111 SESSIONS: 12
Academic Background
PROFESSOR: LEE NEWMAN
E-mail: lee.newman@ie.edu
Professor of Psychology, IE University
PhD in Psychology and Computer Science, University of Michigan
Certificate in Cognitive Science & Cognitive Neuroscience, University of Michigan
MBA in Strategy and Systems Dynamics, MIT Sloan School of Management
SM in Technology and Policy, Massachusetts Institute of Technology (MIT)
ScB in Engineering, Brown University
Corporate Experience
Engagement Manager, McKinsey & Company (Chicago: 1992-1995)
Founder & Chief Operating Officer, Brainstorm Interactive (New York: 1995-1999)
Founder & EVP Product Development, HR One (New York: 1999-2002)
Published by IE Publishing Department.
Last revised, October 2010.
1 |

OBJECTIVES
Motivation: Reasoning, judging and deciding are important aspects of everyday life and are
particularly critical in the context of business. For example, managers routinely make
decisions amid uncertainty and too little time; the daily life of the entrepreneur involves kneejerk
judgments, quick decisions, and often emotional attachments; marketers, consultants and
financial advisors need to influence by understanding the behavior of their consumers and
clients. Research in the behavioral sciences has demonstrated convincingly that despite our
best intentions, as decision makers we are often prone to err. We are influenced by biases,
swayed by em
approaches to making decisions even when more principled models and methods are
available. When do we err How do we err Why do we do so And how can we do better
Focus: Courses in quantitative methods, economics, and formal decision theory tend to focus
on models that address how we should make decisions. In this complementary course, we´ll
focus on understanding how people actually reason and make decisions in a variety of
commonly faced business contexts with a focus on situations that involve uncertainty. The
course material is based on empirical findings (often counterintuitive) from research in
cognitive and social psychology and from closely allied work in behavioral economics. A few
of the heroes whose ideas are central to the course are Kahneman, Tversky, Thaler,
Loewenstein, Fischhoff, Camerer, and Slovic. This course is designed to be fun and
accessible; therefore, while there is rigorous psychological and economic theory underpinning
all of the topics we will address, our emphasis will be on concepts and practical applications
rather than models and mathematics * .
Audience and goals: The course is intended for a broad audience of future managers,
marketers, consultants, entrepreneurs, or anyone seeking a better understanding of judgment
and decision making from a behavioral perspective. After participating in this course, you
should expect to:
1. Learn to identify the types of situations that pose challenges to our ability to reason and
make good decisions.
2. Recognize important cognitive, emotional and social biases and fundamental limitations
that can influence how we reason and decide.
3. ion
making and the situations in which these lead to good, bad, and decidedly ugly outcomes.
4. Learn how we can reason and decide more effectively by limiting or avoiding our biases,
default approaches, and limitations.
5. Understand how behavioral concepts from the course apply to business contexts such as
consumer marketing, financial investing, consulting, and general management.
Coverage: Behavioral decision making is a broad subject that can be considered from many
perspectives, not all of which we will have time to address. As such, to help you decide, I
think it is important to be clear on the perspectives and topics that will (and will not) be
emphasized in this course:
• Decision making by individuals. The course focuses on individual decision behavior. We
will not cover group and organizational decision making, although we will touch on how
our individual decision processes are affected by other people and by organizational
context.
• : The course focuses on decision contexts typified by lack
of information, uncertain information, and limited timeframes. While we may touch on
major strategic or organizational decisions made over the
course of months or years this will not be emphasized.
• Behavioral perspectives: Although we will very briefly review normative perspectives on
decision making in the first session, and we will sometimes refer to normative ideas as
benchmarks, this course is about understanding behavior. Depending on interest, we
* If you are interested in advanced theory and/or models, I am happy to provide you additional readings, and you might also choose to
focus your Applications Report on an advanced topic of particular interest to you.
2 |

MATERIALS
The readings will be provided via a course pack and these will be the main source of
materials in the course. These readings will include chapters from popular textbooks
addressing managerial judgment and decision making, articles from the psychology and
behavioral economics literatures, and articles from the popular press.
METHODOLOGY
The course will rely on a range of methods including discussion-oriented lectures, experiential
everyone will complete an on-line behavioral assessment. This will provide a source of
throughout the course to make behavioral concepts
concrete. This data will be augmented by in-class behavioral simulations that will offer
additional insights into decision making challenges, successes and failures.
While there will be some variation from session to session, there will be a common format:
1. Situations: We will address one or more commonly faced judgment and decision making
(JDM) situations using a mini-experiment, simulation, assessment, or set of readings.
2. Data & Interpretation: We will examine the data from the class and/or a set of reference
groups to analyze behavior: how well do people perform in these JDM situations
3. Explanation & Understanding: We will draw on concepts and ideas from the psychology of
judgment and decision making and from behavioral economics (and occasionally,
neuroeconomics) to better understand why people behave as they do.
4. Application
arise in business contexts such as general management, strategy, marketing, finance, and
entrepreneurship.
5. Improvement
and decision making performance. How can we avoid biases, errors and failures
PROGRAM
In terms of workload, for each session you should expect to read one or two short book
chapters (or chapter excerpts), one or two management-oriented papers, and one or two brief
articles from the popular press. To help you determine how much time/effort to put into each
reading, I have marked each reading according to the Key below.
KEY:
[Q] Quick readings, usually from popular press or websites. These are intended to
provide background and to get you thinking about real-world situations and
applications.
[R] Read fully and carefully. These are the core readings for the session and you
should come to class prepared to talk about them.
[E] Read/skim to Extract primary concepts. These will usually be papers presenting
the results of behavioral experiments. Read the Introduction, and focus on
extracting main ideas from the Results and Discussion sections of the papers.
[X] Extra readings you should consider if the topic is of particular interest to you.
The numbers given after each code in the reading lists below denote the approximate
3 |

SESSION 1
Introduction to BJDM: Motivations, Definitions, Contexts, and Challenges.
Readings
[Q, 3] 2Spare.com. (2006). Top 87 Bad Predictions about the Future
[Q, 5] Irrationality: Rethinking Rationality. (Dec 6, 1999). The Economist.
[Q, 2] Gilbert, D. T. (April 6, 2006). I'm OK, You're Biased, The New York Times.
[Q, 1] Altman, D. (October 10, 2002). A Nobel that bridges economics and psychology, The
New York Times.
[Q, 1] Grene, S. (January 3, 2010). More respect for behavioural studies, Financial Times.
[Q, 5]
[R, 6]
Muoio, A. (December 18, 2007). Decisions, decisions. Fast Company.
& Dawes, R. M. (2009). Rational choice in an uncertain world: the psychology of
judgment and decision making (2nd). Thousand Oaks, Calif.: Sage Publications.
[R ,4] -S
H., & Moore, D. (2009). Judgment in managerial decision making (7th). Hoboken, NJ:
J. Wiley & Sons.
[R, 10] Pfeffer, J., & Sutton, R. I. (2006). Evidence-based management. Harvard Business
Review, 84(1), 62-74.
[R, 6] Tingling, P., & Brydon, M. (2010). Is Decision-Based Evidence Making Necessarily
Bad MIT Sloan Management Review, 51(4), 71-76.
[X, 6] Drucker, P. F. (1967). The effective decision. Harvard Business Review, 45(1), 92-98.
[X, 6]
(Note: the language is
Dye, R., Sibony, O., & Truong, V. (2008). Flaws in strategic decision making:
McKinsey Global Survey Results. McKinsey Quarterly.
Questions to Consider
• What sense (if any) do you have that YOU are biased in the way you make judgments
and decisions
• Think about how you (have) typically approach(ed) analyzing a situation to make a
decision or a recommendation at work, particularly in situations where difference of
opinion are likely. How many -
completely open mind An initial preference How do you split your time and effort in
terms of looking for confirming and disconfirming information
SESSION 2
Probabilistic Reasoning: Snubbing Bayes, Predicting Outcomes & Making Choices.
Readings
Part I: Choosing Among Uncertain Options
[R, 5] The psychology of
judgment and decision making. Philadelphia: Temple University Press.
[E, 9] Lichtenstein, S., & Slovic, P. (1971). Reversals of preference between bids and
choices in gambling decisions. Journal of Experimental Psychology, 89(1), 46-55.
[E, 16] Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational
Behavior and Human Decision Processes, 35(1), 124-140.
[Q, 2] Larrick, R. P., & Soll, J. B. (2008). ECONOMICS: The MPG Illusion. Science,
320(5883), 1593-1594.
Part II: Reasoning over Posterior Probabilities
Rule, consider thumbing through your old materials.
[Q, 2] In praise of Bayes. (September 28, 2000). The Economist.
[Q, 2] Modeling Surprise in "10 emerging technologies 2008". (2008). Technology Review,
111(2), 51.
[Q, 1] Gregory, T. H., Lauren, G., Ivan, A., Wade, R., & et al. (2004). 10 emerging
[R, 7]
technologies that will change your world. Technology Review, 107(1), 32.
Sections 5.8 and 5.9 in Hastie, R., & Dawes, R. M. (2009). Rational choice in an
uncertain world: the psychology of judgment and decision making (2nd). Thousand
Oaks, Calif.: Sage Publications.
[E, 22] Bar-Hillel, M. (1980). The base-rate fallacy in probability judgments. Acta
Psychologica, 44(3), 211-233.
[X, 4] Prelec, D. (2004). A bayesian truth serum for subjective data. Science, 306(5695),
462-466. Note: For the more mathematically inclined, an interesting proposal for
reducing judgment bias using Bayesian methods.
4 |

[X, 22] Lichtenstein, S. and Fischhoff B. (1980). "Training for calibration." Organizational
Behavior and Human Performance 26(2): 149-171. Note: Explores the effects of
training on probabilistic reasoning. If you are interested in consulting or HR, this
paper may be worth a quick read.
Questions to Consider
• Part I: Is car buying problem discussed in the Science article a probabilistic reasoning
task How is it relevant to this topic
• Part II: After the readings you may realize that the Engineers & Lawyers IExperiment, the
Taxicab problem, and the Down Syndrome problem from the pre-course questionnaire
(refer to your Questionnaire) are all problems that involve using base rates. People tend
to ignore/underuse base rates in Engineer, Taxicab and Down Syndrome problem -- but
for different reasons. How are they different Bar-Hillel suggests several alternative
explanations for why we frequently seem to err by ignoring base rates. What are these
alternatives Which seem more/least compelling In what business contexts could you
see these biased was of reasoning happening, and how might you avoid this Any ideas
how this might apply to consumer choice
SESSION 3
Misconceptions of Chance: What Happens in Vegas Should Stay in Vegas.
Readings
[R, 8] Sections 7.3, 7.4, 8.6 an d8,7 in Hastie, R., & Dawes, R. M. (2009). Rational choice
in an uncertain world: the psychology of judgment and decision making (2nd).
Thousand Oaks, Calif.: Sage Publications.
[Q, 1] ´Hot Hands' phenomenon: A myth (1988, April 19). The New York Times.
[R, 5] Tversky, A., & Gilovich, T. (1989). The cold facts about the 'Hot Hand' in basketball.
Chance, 2(1), 16-21.
[Q, 6] Wolff, A. (2002, January 21). The cover that no one would pose for: Is the SI jinx for
real Sports Illustrated.
[R, 7] Wainer, H. (2007). The most dangerous equation. American Scientist, 95(3), 249-256.
[Q, 1] Business History Fan. (2007). In Search of Excellence - 25th Anniversary:
Innovation. (Blog Entry)
[X, 26] Joyce, E. J. and Biddle G. C. (1981). "Are Auditor's Judgments Sufficiently
Regressive" Journal of Accounting Research 19(2): 323-349.
[X, 10] Koning, R. H. (2003). An econometric evaluation of the effect of firing a coach on
team performance. Applied Economics, 35(5), 555.
[X, 22] Kahneman, D., & Tversky, A. (1972). Subjective probability: A judgment of
representativeness. Cognitive Psychology, 3(3), 430-454.
Questions to Consider
• Hot Hand: What bias (that we have already discussed) is likely driving at least some of
(relevant to you) might the Hot Hand bias/error apply Could this bias work in the
opposite direction, leading people to miss real patterns when they actually are present If
so, in what business contexts and how might this happen
• Sample Size Insensitivity: The article focuses on an epidemiological example and refers
to a few others. How might you extend this type of bias/error in judgment to
management, business or economic contexts
• Non-
that the blogger, the Booz-Allen consultant, the money manager, Business Week and the
writer(s) of the Wikipedia entry all seem to be missing How else might you explain
between blindly inve
performance, which would you choose
Conjunctive & Disjunctive Reasoning: Research shows we often err in judging the
multiple components. To what management and business tasks might this behavioral
finding apply How would it apply and what negative outcomes would you predict What
could you do to prevent these outcomes
5 |

SESSION 4
Memory: Decision Making with a Tiny Whiteboard and a Low-Fidelity Hard Drive.
Readings
[R, 6] Chapter 3 and sections of Chapter 4 from Plous, S. (1993). The psychology of
judgment and decision making. Philadelphia: Temple University Press.
[R, 6]
Rational choice in an uncertain world: the psychology of judgment and decision
making (2nd ed.). Thousand Oaks, Calif.: Sage Publications.
[R, 8] Tversky, A. and Kahneman D. (1982). Availability: A heuristic for judging frequency
and probability. In D. Kahneman, P. Slovic and A. Tversky (Eds.), Judgment under
uncertainty: heuristics and biases (pp. 163-178). Cambridge ; New York: Cambridge
University Press.
[Q, 1]
[Q, 1]
Public Broadcasting Service. (2010). The public demands it (Webpage excerpt)
Sunstein, C. R. (2003, May 10). Fear Factor: Truth Is, Sunbathing is Probably More
Dangerous Than Terrorism, Commentray, Los Angeles Times, p. B11.
[R, 4] Kahneman, D., Fredrickson, B. L., Schreiber, C. A., & Redelmeier, D. A. (1993).
When more pain is preferred to less: Adding a better end. Psychological Science,
4(6), 401-405.
[E, 17] Schacter, D. L. (1999). The seven sins of memory. Insights from psychology and
cognitive neuroscience. American Psychologist, 54(3), 182-203.
Questions to Consider
• What are some practical implications of Primacy, Recency, Hindsight, and Halo effects in
the workplace and in business practices
• In what real-world contexts might Availability be of particular concern What steps could
-
SESSION 5
Confidence: How Good (We Think) We Are!
Readings
[R, 7] Chapter 19 Overconfidence in Plous, S. (1993). The psychology of judgment and
decision making. Philadelphia: Temple University Press.
[R, 8]
Lovallo, D. and Kahneman D. (2003). Delusions of success. Harvard Business
Review, 81(7), 56-63.
[R, 10] Russo, J. E. and Schoemaker P. J. H. (1992). Managing overconfidence. Sloan
Management Review, 33(2), 7.
[X, 11] Cooper, A. C., Woo C. Y., et al. (1988). Entrepreneurs' perceived chances for
success. Journal of Business Venturing, 3(2), 97-108.
Note: This is study of confidence in 2994 entrepreneurs. Some interesting findings
for those interested in seeing entrepreneurship or in reading about additional realworld
findings of overconfidence.
[X, 12] Koriat, A., Lichtenstein S., et al. (1980). Reasons for confidence. Journal of
Experimental Psychology-Human Learning and Memory, 6(2), 107-118.
Note: If you are particularly interested in the topic of confidence, this paper delves
further into some of the possible sources of overconfidence as well as how evidencebased
methods affects levels of confidence.
Questions to Consider
• Try to bring to mind your typical behaviors in situations (professional or personal) in which
you offer your opinion, or make predictions decisions. Think through some of these
situations in your mind: Do you see any signs of over- or under-confidence What
time/effort do you put into thinking about the strength of information you consider What
about the weight (importance or credibility) of the information you consider Do you
consider strength and weight equally
• What relationships can you identify between Overconfidence and other biases and
heuristics we have discussed so far in the course Can you identify any interactions
between the various biases that might make it even more difficult to calibrate your
confidence
• Either thinking about yourself or people with whom you work, what plausible management
practices could you change or develop to try to avoid overconfidence
6 |

SESSION 6
Readings
[Q, 1] Finance and Economics: Carrots dressed as sticks; Designing rewards. (2010). The
Economist, 394(8665), 72.
[Q, 2] Goode, E. (2001, January 9). In Weird Math of Choices, 6 Choices Can Beat 600,
[Q, 2]
The New York Times.
Johnson, E. J., & Goldstein, D. G. (2003). Medicine - Do defaults save lives Science,
302(5649), 1338-1339.
[R, 10] Chapter 4 Framing and Reversal in Bazerman, M. H., & Moore, D. (2009). Judgment
in managerial decision making (7th ed.). Hoboken, NJ: J. Wiley & Sons.
[R, 16] Chapter 2 in Belsky, G., & Gilovich, T.
(2010). Why smart people make big money mistakes...and how to correct them:
Lessons from the life-changing science of behavioral economics (Simon & Schuster
ed.). New York: Simon & Schuster Paperbacks
[X, 12] Chapter 5 Dropping Anchor in Belsky, G., & Gilovich, T. (2010). Why smart people
make big money mistakes...and how to correct them: Lessons from the life-changing
science of behavioral economics (Simon & Schuster ed.). New York: Simon &
Schuster Paperbacks
Questions to Consider
• What relationship do you see (if any) between the Anchoring and Adjustment heuristic
and other heuristics and biases we have covered so far in the course
• How are Framing Effects and the Anchoring and Adjustment heuristic consistent with
Prospect Theory
• In what ways can you see (have you seen) Framing being used beneficially on the job in
your area of work What about negative effects
SESSION 7
The 13 th Floor: Causes, Effects and Associations between (un)Related Events.
Readings
[Q, 4] Belkin, L. (2002, August 11). The Odds of That, New York Times.
[R, 6] Chapter 15 Correlation, Causation and Control in Plous, S. (1993). The psychology of
judgment and decision making. Philadelphia: Temple University Press.
[R, 7] Chapter 16 Attribution Theory in Plous, S. (1993). The psychology of judgment and
decision making. Philadelphia: Temple University Press.
[E, 13] Chapter Conclusion in Fung, K. (2010). Numbers rule your world: The hidden
influence of probability and statistics on everything you do. New York: McGraw-Hill.
[X, 5] Gmelch, G. (1978). Baseball Magic. Human Nature, 1(8), 32-39.
[X, 17] Langer, E. J. (1975). The illusion of control. Journal of Personality and Social
Psychology, 32(2), 311-328.
Questions to Consider
•
debias yourself and avoid errors. Two important steps are: (1) forcing yourself to
generate and analyze multiple hypotheses (ideas, explanations, proposals) and (2)
collecting and considering both confirmatory and disconfirmatory data and facts. If you
consider your own "thinking" as "data" (a good idea), what do the readings for this
session suggest you should worry about in using this "mental data" as part of your JDM
process What are our biases in "thinking" and how can we avoid them
7 |

SESSION 8
The Role of Expertise & Intuition in JDM: Trusting, Ignoring, and Exploring your Gut.
Readings
[Q, 5] Sunstein, C. R., & Thaler, R. (2003, September 1). Who's on First The New
Republic.
[R,10] Kahneman, D., & Klein, G. (2009). Conditions for Intuitive Expertise: A Failure to
Disagree. American Psychologist, 64(6), 515-526.
[R, 6] Hayashi, A. M. (2001). When to TRUST Your GUT. Harvard Business Review, 79(2),
59-65.
[R, 2] Klein, G. (2007). Performing a project premortem. Harvard Business Review, 85(9),
18-19.
[X, 18] Dane, E., & Pratt, M. G. (2007). Exploring intuition and its role in managerial decision
making. Academy of Management Review, 32(1), 33-54.
[X, 11] Miller, C. C., & Ireland, R. D. (2005). Intuition in strategic decision making: Friend or
foe in the fast-paced 21(st) century Academy of Management Executive, 19(1), 19-
30.
Questions to Consider
• What is expertise, how do we get it, and how do we use it
• What is the difference between expertise and intuition Do you think intuition is related to
expertise or something completely different
• In what ways do Kahneman, Klein, and Hayashi agree and disagree about the role of
• The next time you are trying to make a decision and your intuition seems to favor one
option over others, what will you do
SESSION 9
Emotion and Intertemporal Choice: What We (Think We) Feel and Time Traveling in JDM.
Readings
[Q, 3] Carey, B. (2010, July 5). The benefits of blowing your top, The New York Times.
[R, 8] Chapter 5 Motivational and Emotional Influences on Decision Making in Bazerman,
M. H., & Moore, D. (2009). Judgment in managerial decision making (7th). Hoboken,
NJ: J. Wiley & Sons.
[R, 3] A framework excerpted from Loewenstein, G., & Lerner, J. S. (2003). The role of
affect in decision making. In R. Davidson, H. Goldsmith & K. Scherer (Eds.),
Handbook of Affective Science (pp. 619-642). New York: Oxford University Press.
[R, 3] Gilbert, D. T. and Wilson T. D. (2007). Prospection: Experiencing the Future. Science,
317(5843), 1351-1354.
[R, 4] Tversky, A. and Shafir E. (1992). Choice under conflict: The dynamics of deferred
[E, 8]
decision. Psychological Science, 3(6), 358-361.
Chapter 10 Judgment and Choice Across Time in Hardman, D. (2009). Judgment and
decision making. Malden, MA: Wiley-Blackwell.
[X, 7] Chapter 32 Preferences for Sequences of Outcomes in Kahneman, D. and Tversky A.
(2000). Choices, values, and frames. New York: Cambridge University Press.
[X, 24] Loewenstein, G., & Lerner, J. S. (2003). The role of affect in decision making. In R.
Davidson, H. Goldsmith & K. Scherer (Eds.), Handbook of Affective Science (pp. 619-
642). New York: Oxford University Press.
Questions to Consider
• What is an emotion How is an emotion different from thinking about emotions Can
emotions arise from thinking about emotions In what stages and ways can emotion
influence judgment and decision processes Can emotions play a useful role in JDM
should they be avoided
• -
are prone to bias. What are these biases and how might we avoid them
• Reconstructing the past using our memory and simulating the future are both mental
processes that involve reasoning across time. Looking back at the many biases and
heuristics that we have discussed in the course, in which do you see an important role of
time
• According to the Tversky & Shafir paper and the Hardman chapter, what are some ways
in which time enters into JDM
8 |

SESSION 10
Mental Accounting, the Pursuit of Happiness, and other topics.
[E, 14] Thaler, R. (2000). Mental Accounting Matters. In D. Kahneman & A. Tversky (Eds.),
Choices, values, and frames (pp. 241-268). New York: Cambridge University Press.
[R, 3] Kahneman, D., Krueger, A. B., Schkade, D., Schwarz, N., & Stone, A. A. (2006).
Would You Be Happier If You Were Richer A Focusing Illusion. Science, 312(5782),
1908-1910.
[R, 6] Hsee, C. K., & Hastie, R. (2006). Decision and experience: why don't we choose what
makes us happy Trends in Cognitive Sciences, 10(1), 31-37.
[X, 16] Richard, T. (1985). Mental Accounting and Consumer Choice. Marketing Science,
4(3), 199-214.
Questions to Consider
•
• What examples of mental accounts are covered in the reading and how do you see these
accounts affecting JDM behavior in business and management contexts As a marketing
and/or as a manager, what practices could you implement to take advantage of mental
accounting in consumer behavior and the behavior of your co-workers
• Making judgments and decisions about your own career and personal life is of obvious
importance, as is careful consideration of how your decisions affect the satisfaction and
happiness of others. What biases and challenges are raised in the readings Are any of
the other biases that we have discussed relevant in the context of making life decisions
What steps might you take to debias your important life decisions
SESSION 11
Are You Ready for JDM Integrations, Prescriptions and Conclusions.
[Q,1] Ticking off: Cutting down on errors. (2010). The Economist, 394, 84.
[Q,5]
[Q,4]
Muoio, A. (2007, December 18). Decisions, Decisions. Fast Company.
Hopkins, M. S., & McAfee, A. (2010). Putting the Science in Management Science.
MIT Sloan Management Review, 51(4), 77-82.
[Q,10] How we do it: Three executives reflect on strategic decision making. (2010). The
McKinsey Quarterly.
[R, 10] Bazerman, M. H., & Moore, D. (2009). Improving Decision Making. In Judgment in
managerial decision making (7th ed., pp. 179-199). Hoboken, NJ: J. Wiley & Sons.
[R, 10] Lovallo, D., & Sibony, O. (2010). The case for behavioral strategy. The McKinsey
Quarterly (2), 1-14.
[X, 6] Chase, R. B., & Dasu, S. (2001). Want to Perfect Your Company's Service Use
Behavioral Science. Harvard Business Review, 79(6), 78-84.
Questions to Consider
• This course has shown over and over (and over) just how susceptible we are to biases in
judgment and decision making in the relatively simple types of judgments and decisions
we used in the course. After reading the Fast Company and McKinsey interviews and
studies, do you think you (and everyone else) are more or less likely to be affected by
bias in the types of complex tasks found in real business and management contexts
better real-world JDM using what you have learned int his
course
• If there is bottom-line value to be created by debiasing individual and team JDM, why
personal and/or team processes could you put in place to improve JDM outcomes
SESSION 12
Final Exam
9 |

EVALUATION CRITERIA
Final evaluation will be based on (1) class participation (presence, level of preparation and
contribution to the discussion of simulations, experiments, and readings), (2) an Application
Report that applies one or more ideas from behavioral decision making/behavioral economics
to a real-world business context of your choosing, and (3) performance on a final exam.
• Class participation 10%
• Application Report 40%
• Exam 50%
BIBLIOGRAPHY
The following are the books from which chapters in the course readings are drawn.
Baron, J. (2008). Thinking and deciding (4th ed.). New York: Cambridge University Press.
Bazerman, M. H., & Moore, D. (2009). Judgment in managerial decision making (7th ed.).
Hoboken, NJ: J. Wiley & Sons.
Belsky, G., & Gilovich, T. (2010). Why smart people make big money mistakes...and how to
correct them: Lessons from the life-changing science of behavioral economics (Simon &
Schuster ed.). New York: Simon & Schuster Paperbacks.
Davidson, R., Goldsmith H. & Scherer K. (Eds.), Handbook of Affective Science. New York:
Oxford University Press.
Fung, K. (2010). Numbers rule your world: The hidden influence of probability and statistics
on everything you do. New York: McGraw-Hill.
Gilovich, T., Griffin, D. W., & Kahneman, D. (2002). Heuristics and biases: The psychology of
intuitive judgment. Cambridge: Cambridge University Press.
Glimcher, P. W. (2008). Neuroeconomics: Decision making and the brain. London: Academic
Press.
Hardman, D. (2009). Judgment and decision making. Malden, MA: Wiley-Blackwell.
Hastie, R., & Dawes, R. M. (2009). Rational choice in an uncertain world: The psychology of
judgment and decision making (2 nd ). Thousand Oask: Sage Publications.
Kahneman, D., Slovic, P., & Tversky, A. (1982). Judgment under uncertainty: heuristics and
biases. Cambridge ; New York: Cambridge University Press.
Kahneman, D., & Tversky, A. (2000). Choices, values, and frames. Cambridge: Cambridge
University Press.
Plous, S. (1993). The psychology of judgment and decision making. Philadelphia: Temple
University Press.
BOOKS OF INTEREST
Comprehensive, More Academic and Behavioral Economics
Baron, J. (2008). Thinking and deciding (4th ed.). New York: Cambridge University Press.
Beach, L. R., & Connolly, T. (2005). The Psychology of Decision Making: People in
Organizations (2 nd ). Thousand Oaks: Sage Publications.
Gilovich, T., Griffin, D. W., & Kahneman, D. (2002). Heuristics and biases: The psychology of
intuitive judgment. Cambridge: Cambridge University Press.
Glimcher, P. W. (2008). Neuroeconomics: Decision Making and the Brain. London: Academic.
Hastie, R., & Dawes, R. M. (2009). Rational choice in an uncertain world: The psychology of
judgment and decision making (2 nd ). Thousand Oask: Sage Publications.
Hogarth, R. (1987). Judgment and Choice (2 nd ). New York: J. Wiley.
Kahneman, D., Slovic, P., & Tversky, A. (1982). Judgment under uncertainty: heuristics and
biases. Cambridge ; New York: Cambridge University Press.
Kahneman, D., & Tversky, A. (2000). Choices, values, and frames. Cambridge: Cambridge
University Press.
March, J. G., & Heath, C. (2009). A Primer on Decision Making: How Decisions Happen. New
York: Free Press.
Newell, B. R., Lagnado, D. A., & Shanks, D. R. (2007). Straight Choices: The Psychology of
Decision Making. New York: Psychology Press.
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Plous, S. (1993). The psychology of judgment and decision making. Philadelphia: Temple
University Press.
Thaler, R. H. (1992). The Winner's Curse: Paradoxes and Anomalies of Economic Life. New
York: Free Press.
Managerial & More Practice-Oriented
Bazerman, M. H., & Moore, D. (2009). Judgment in managerial decision making (7th ed.).
Hoboken, NJ: J. Wiley & Sons.
Hammond, J. S., Keeney, R. L., & Raiffa, H. (1999). Smart choices: A Practical Guide to
Making Better Decisions. Boston: Harvard Business School Press.
Russo, J. E., & Schoemaker, P. J. H. (2002). Winning Decisions: Getting It Right the First
Time. New York: Currency.
Hoch, S. J., Kunreuther, H., & Gunther, R. E. (2001). Wharton on making decisions. New
York: Wiley.
JDM in the Context of Consumer Psychology & Behavior
Blackwell, R. D., Miniard P. W., et al. (2006). Consumer behavior (10th ed.). Mason, Ohio:
Thomson Business and Economics.
Peter, J. P. and Olson J. C. (2010). Consumer behavior & marketing strategy (9th ed.). New
York: McGraw-Hill Irwin.
Underhill, P. (2009). Why we buy: the science of shopping (Updated and rev. ed.). New York:
Simon & Schuster Pbks.
Zaltman, G. (2003). How customers think: essential insights into the mind of the market.
Boston, Mass.: Harvard Business School Press.
JDM For Fun
Ariely, D. (2008). Predictably irrational: The hidden forces that shape our decisions (1st). New
York: Harper.
Ariely, D. (2010). Perfectly irrational: The unexpected ways we defy logic at work and at
home. New York: Harper.
Belsky, G., & Gilovich, T. (2010). Why smart people make big money mistakes...and how to
correct them: Lessons from the life-changing science of behavioral economics (Simon &
Schuster ed.). New York: Simon & Schuster Paperbacks.
Cialdini, R. B. (2009). Influence : science and practice (5th ed.). Boston: Pearson Education.
Fung, K. (2010). Numbers rule your world: The hidden influence of probability and statistics
on everything you do. New York: McGraw-Hill.
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