Summary Judgment in managerial decision making

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ISBN-10 0470049456 ISBN-13 9780470049457
435 Flashcards & Notes
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Summary 1:

  • Judgment in managerial decision making
  • Max H Bazerman, Don A Moore
  • 9780470049457 or 0470049456
  • 7th ed.

Summary - Judgment in managerial decision making

  • 1.1 The Anatomy of Deciscion

  • Decision making process:

    1. Gathering information: identify the problem, and the criteria, generate alternatives
    2. Evaluation
    3. Action (make the decision)
    4. Implementation of the decision
    5. evaluation
  • To what refers the term Judgment?

    To the cognitive aspects of the decion making process

  • Which steps should you take when applying a "rational" decision making process?

    1 define the problem; 2 identify the criteria; 3 weight the criteria; 4 generate the alternatives; 5 rate eacht alternative on each criterion; 6 compute the optimal decision

  • 1.2 System 1 and System 2 Thinking

  • System 1 thinking

    Refers to our intuitive system, which is typically fast, automatic, effortless, implicit and emotional

  • By what system are most decisions made?

    System 1 thinking

  • System 2

    Refers to reasoning that is slower, conscious, effortful, ecplicit, and logical

  • In most situations, System 1 thinking is sufficient

    but System 2 logic should preferably influence our most important decisions

     

  • the busier and more rushed people are, the more they have on their minds, and the more likely they are to rely on System 1 thinking

  • 1.3 The Bounds of Human Rationality

  • The rational model is based on a set of assumptions that prescribe how a decision should be made rather than describing how a decision is made

  • The field of decision making can roughly be divided into to parts:

    the study of prescriptive models and the study of descriptive models

  • Prescriptive decision scientists develop methods for making  optmal decisions

    descriptive decision researchers consider how decisions are actually made

  • - Understanding our own decision making processes helps clarify where we are likely to make mistakes and therefor when better decision strategies are needed

    - the optimal decision in a given situation often depends on the behavior of others

    - plenty of good advice about making decisions is available, but most people do not follow it

  • Time and cost constraints limit the quantity and quality of available information.

    Decision makers retain only a relatively small amount of information in their usable memory.

    Intelligence limitagtions and perceptual errors constrain the ability of decision makers to accurately "calculate" the optima choice from the universe of available alternatives

  • we satisfice":

    rather than examining all possible alternatives, we simply search until we find a satisfactory solution that will suffice because it achieves an acceptable level of performance

  • people rely on a number of simplifying strategies, or rules of thumb, when making decisions

    heuristics

  • in general, heuristics are helpful, but their use can sometimes lead to severe errors.

  • Our willpower is bounded, such that we tend to give greater weight to present concerns than to future concerns

    Self-interest is bounded

  • 1.4 Introduction to Judgmental Heuristics

  • Availability heuristic

    people asses the frequency, probability, or likely causes of an event by the degree to which instances or occurrences of that event are readily "available" in memory.

  • The availability heuristic can be a very useful managerial decision making strategy, as our minds generally recall instances of events of greater frequency more easily than rare events.

    Consequently, this heuristic will often lead to accurate judgment. This heuristic is fallible, however, because the availability of information is also affected by factors unrelated to the objective frequency of the judged event.

  • Representativeness heuristic

    when making a judgment about an individual (or object or event), people tend to look for traits an individual may have that correspond with previously formed stereotypes.

  • managers use the representativeness heuristic. They may predict a person's performance based on a established category of people that the individual represents for them.

  • The representative heuristic can also work on an unconscious level. Unfortunately, people tend to rely on representative information even when that information is insufficient for them to make an accurate judgment, or when better, less obviously representative information is available

  • Positive Hypothesis Testing

    there are always at least four separate situations to consider when assessing the association between two events, assuming that each one has just two possible outcomes. however, our everyday decision making commonly neglects this fact. Instead, we intuitively use selective data when testing hypotheses.

  • In the absence of evidence to the contrary , people tend to behave as if they assumed that a given statement or hypothesis is true. This tendency can lead to confirmation bias. It also explains the power of anchoring. In addition, positive hypothesis testing can inspire overconfidence. Finally, positive hypothesis testing can trigger the hindsight bias.

  • confirmation bias

    in which we search for and interpret evidence in a way that supports the conclusions we favored at the outset

  • anchoring

    in which some irrelevant initial hypothesis or starting point holds undue sway over our judgments

  • overconfidence

    leading us to believe too strongly in the accuracy of our own beliefs

  • hindsight bias

    in which we too quickly dismiss, in retrospect, the possibility that things could have turned out differentlu

  • the affect heuristic

    most of our judgments are evoked by an affective, or emotional, evaluation that occurs even before any higher-level reasoning takes place.

  • a manifestation of System 1 thinking, the affect heuristic...

    is all the more likely to be used when people are busy or under time constraints.

  • outrage heuristic

    the fact that legal awards are highly predicted by the jury's affective outrage at the defendant's behavior, rather than simply by logical reasoning about the harm created by the defendant.

  • IN some cases, use of the representativeness heuristic offers a good first-cut approximation, drawing attention to the best options

  • What are the features of the availability heuristic?

    1. Something that pops up in your mind is the most likely choice
    2. Thoughts are structured in a particular way
  • What are the features of the representativeness heuristic?

    1. Not the complete case is being observed
    2. The focus is on (personal) features that have nothing to do with the real answer
    3. The sample size, chances and regression is not viewed
  • What are the features of the confirmation heuristic?

    1. People are not trying to falsify, eventhough this is necessary.
    2. Anchoring
    3. Overestimating their judgment
    4. People do not use all the information they got
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Summary 2:

  • Judgment in Managerial Decision Making
  • Max H Bazerman, Don A Moore
  • or

Summary - Judgment in Managerial Decision Making

  • 1 Introduction to Managerial Decision Making

    1. Define the problem
    2. Identify the criteria
    3. Weight the criteria
    4. Generate alternatives
    5. Rate each alternatie on each criterion
    6. Compute the optimal decision
  • System 1 thinking

    • intuitive
    • fast
    • automatic
    • effortless
    • implicit
    • emotional

    Most decisions are made by system 1 thinking. The busier and more rushed people are, the more likely they are to rely on System 1 thinking

  • System 2 thinking

    • slower
    • conscious
    • efforful
    • explicit
    • logical

    system 2 logic should preferably influence our most important decisions

     

  • normative-prescriptive models

    what is optimal decision making?

  • descriptive models

    how are decisions actually made>

  • We satisficerather than examining all possible alternatives, we simply search until we find a satisfactory solution that will suffice because it achieves an acceptable level of performance

  • The availability heuristic

    People assess the frequency, probability, or likely causes of an event by the degree to which instances or occurences of that event are readily "available"in the memory.

  • the representative heuristic

    assessing the likelihood of A by the degree to which A is representative of B, that is, resembles B

  • Positive hypothesis testing

    we intuitively use selective data when testing hypotheses

  • the affect heuristic

    most of our judgments are evoked by an affective, or emotional, evaluation that occurs even before any higher-level reasoning takes place

     

  • Assumptions of economic theory

    • Complete information about the choice alternatives
    • calculation of utility of combinations
    • individualism, self-interest
    • knowledge about short-term and long-term utility
    • stable preferences
    • maximisation of optimisation of utility
    • no role for emotion
  • decision is defined as amoment in an ongoing process of evaluting alternatives for meeting an objective, at which expectations about a particular course of action impel the decision maker to select that course of action most likely to result in attaining the objective

  • Judgment

    • the cognitive part of decision making
    • a judgment requires a choice to become a decision

    problem solving - may or may not require action

  • decision

    • one moment in a larger process
    • when alternatives are evaluated
    • leading to the selection of one alternative
    • aimed at a specific goal
    • eventually leading to action
  • value

    outcomes are expressed in objective units

     

  • utility

    subjective value

  • 2 Common Biases

  • Availability heuristic

    • ease of recall (based on vividness and recency)
    • retrievability (based on memory structures)
  • Representativeness heuristic

    • Insensitivity to base rates
    • insensitivity to sample size
    • misconceptions of chance
    • regression to the mean
    • conjunction fallacy
  • confirmation heuristic

    • the confirmation trap
    • anchoring
    • conjunctive- and disjunctive-events bias
    • overconfidence
    • hindsight and the curse of knowledge
  • ease of recall

    individuals judge events that are more easily recalled from memory, based on vividness or recency, to be more numerous than events of equal frequency whose instances are less easily recalled

  • retrievability

    individuals are biased in their assessments of the frequency of events based on how their memory structures affect the search process

  • insensitivity to base rates

    when assessing the likelihood of events, individuals tend to ignore base rates if any other descriptive information is provided - even if it is irrelevant

  • insensitivity to sample size

    when assessing the reliability of sample information, individuals frequently fail to appreciate the role of sample size

  • misconceptions of chance

    individuals expect that a sequence of data generated by a random process will look "random", even when the sequence is too short for those expectations to be statistically valid

  • regression to the mean

    individuals tend to ignore the fact that extreme events tend to regress to the mean on subsequent trials

  • conjunction fallacy

    individuals falsely judge that conjunctions (two events co-occurring) are more probable than a more global set of occurrences of which the conjunctions is a subset

  • confirmation trap

    individuals tend to seek confirmatory information for what they think is true and fail to search for disconfirmatory evidence

  • anchoring

    individuals make estimates for values based upon an initial value (derived from past events, random assignment, or whatever information is available) and typically make insufficient adjustments from that anchor when establishing  a final value

  • conjunctive- and disjunctive-events bias

    individuals exhibit a bias toward overestimating the probability of conjunctive events and underestimating the probability of disjunctive events 

  • overconfidence

    individuals tend to be overconfident of the infallibility of their judgments when answering moderately to extremely difficult questions

  • hindsight and the curse of knowledge

    after finding out whether or not an event occurred, individuals tend to overestimate the degree to which they would have predicted the correct outcome. Furthermore, individuals fail to ignore information they possess that other do not when predicting other's behavior

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Latest added flashcards

What is the self-serving bias?

Tendency for people to define what is fair in ways that favour themselves

What is hyperbolic discounting?

We view all gains and losses in the future to be worth less than they would be in the present.

What is discounting?

Any choice that involves a tradeoff between current and future benefits should discount the future to some extent. 

What is the endowment effect?

People demand far more money to sell their product than the amount they would be willing to pay for another one's same product.

What is acquisition utility?

It describes the value you place on a commodity

What is transactional utility?

It refers to the quality of the deal that you receive, evaluated in reference to "what the item should cost".

What is the certainty effect?

A reduction of the probability of an outcome has more importance when the outcome was initially certain than when it was merely probable

What is 'declining marginal utility of gains'?

The more we get of something, the less pleasure it provides us

What is the Spotlight effect?

The spotlight effect is the tendency of an individual to overestimate the extent to which others are paying attention to the individual's appearance and behavior. 

What are the features of the confirmation heuristic?
  1. People are not trying to falsify, eventhough this is necessary.
  2. Anchoring
  3. Overestimating their judgment
  4. People do not use all the information they got