behavioral decision making: biases, heuristics and errors.

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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 |
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