behavioral decision making: biases, heuristics and errors.

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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 |
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