Logistics

• Will post updated slides

• Link to readings and video

• Exam questions: study instructions

• Survey: Developmental

• PARTY AT MY HOME in 2015?

The Fixed-Action Response in Ethology

Fixed Action Patterns

A bat and a ball cost $1.10 in total.

The bat cost a dollar more than the ball.

How much did the ball cost?

Kahneman and Tversky: Maps of Bounded Rationality

• Intuition (system 1): Fast, parallel, automatic, effortless

• Reasoning (system 2): Slow, serial, controlled, effortful

Teams: A Blessing or A Curse?

Mission Accomplished?

2003 2011

Ecce Homo?

A Good Man Gone Bad?

Page 9

Shoreham Nuclear Power Plant

• GE plant in NY, 60 miles from Manhattan

• Designed to produce 540-820 megawatts

• Initial estimated cost: $65 million

• Final cost: $6billion• After 11 years

(’73-’84), never opened!

• Construction flaws• Labor unions• Public concerns over

safety• Escalation of

commitment, or failed persistence?

Blowing Up

Consider this scenario…

• You are the manager of a clothing store. The holiday season is underway, but your sales for the month are down by 20% from the same time last year. You have new staff members in the store; the economy is slightly weaker; but a similar store next to you has seen sales go up by 10%.

What to do?

Decision Making• The Rational Model

1. Identify problem

- historical cues (e.g., past trends in sales); - scenario constructions (anti-terrorism); - others’ perceptions (e.g., customer feedback)

2. Generate solutions (e.g., brainstorming)

3. Select solution (e.g., nominal group technique)

4. Implement

Herbert Simon’s Model

• Decision making is not perfectly rational; it is boundedly rational:– Limited information processing (cannot

evaluate all potential alternatives in limited time)

– Satisficing (stop when the solution is “good enough”– pick radio station)

– Judgemental heuristics

Assumptions of the Rational Model

Factors Influencing Decision Making

• Time Pressure• Incomplete information• Limited resources• Cannot know or investigate all possible

alternatives• Conflicting goals; difficult to find optima

• Bounded Rationality

Types of Heuristics• Representativeness error: thinking overly influenced by what is typically

true (e.g., doctors fail to consider possibilities that contradict their

mental templates of a disease.)

• Availability bias: Tendency to judge likelihood of an event by the ease with which relevant examples come to mind

(e.g., this venture will fail because it failed for my friends who tried it)

• Confirmation bias: Confirming what one expects by selectively accepting (or ignoring) supporting (disconfirming) information

(e.g., the problem is the staff)

• Affective error: Tendency to make decisions based on what we wish were true

(to accept otherwise would be psychologically hurtful).

Desert Exercise

• 15 minutes: Rank by yourself

• 30 minutes: Decide as a group

• 15 minutes: Discussion as a class

Desert Survival Debrief

• What processes did your team use in coming up with the consensus decision?

• When you changed your ranking, what factors caused you to change your ranking?

• Did you like or resent the group?

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The Asch Effect

1 2 3

Standard Line Card

Comparison Lines Card

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Asch and Social Conformity• 37 of 50 subjects (74%) conformed to the

majority at least once • 14 conformed on more than 6 of 12 trials• Several reported actually misperceiving

the answer after being confronted by the opposing majority.

“The tendency to conform is so strong that reasonably intelligent well-meaning people are willing to call white black…. This raises concerns about our ways of education and about the values that guide our conduct”

People conform because:

- they want to be liked by the group- they assume that the group is better informed/wiser than they are.

- they “see” differently

Asch Effect: What are the implications of the Asch effect for managers?

– Strong social effects on what we see and do.• How to organize meeting and debates:

– Find ways of getting people to express their views and opinions in ways that prevent those views being swayed by perceived group opinions.

– Emphasize that you are not interested in “yes men.”

– The importance of people who don’t get along with others– Socrates was turned into an outcast… but should not have been.

– Crucially: Once one person dissents, the likelihood of others speaking up goes up dramatically.

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Milgram: Obedience to authority (1974)

• Ordinary people, simply doing their jobs, and without any particular hostility on their part, can become agents in a terrible destructive process. Moreover, even when the destructive effects of their work become patently clear, and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority

• http://www.youtube.com/watch?v=BcvSNg0HZwk&feature=related

• What percentage of ordinary, law-abiding, Yale students would deliver the maximum 450 volt shock?

< 10% < 50% > 50% > 60%

• "the essence of obedience consists in the fact that a person comes to view themselves as the instrument for carrying out another person's wishes, and they therefore no longer see themselves as responsible for their actions. Once this critical shift of viewpoint has occurred in the person, all of the essential features of obedience follow"

• [People] have learned that when experts tell them something is all right, it probably is, even if it does not seem so. (In fact, it is worth noting that in this case the experimenter was indeed correct: it was all right to continue giving the "shocks" — even though most of the subjects did not suspect the reason.)

Robert Schiller writing about Milgram’s experiments

Milgram’s experiments: Implications for Managers

Theory of conformism: A subject who has neither the ability nor expertise to make decisions will leave decision making to the group and its hierarchy. The group becomes the person’s behavioral model

- Don’t mistake conformism for conformation

Agentic state theory: The essence of obedience consists in the fact that a person comes to view himself as the instrumentfor carrying out another’s wishes, and therefore no longer sees himself as responsible for the action

- I’m just doing my job…

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Groupthink

• Groupthink: When you feel a high pressure to conform and agree and are unwilling to realistically view alternatives

• What are some of the reasons or factors that promote groupthink?

• What can be done to prevent groupthink?

Mission Accomplished?

2003 2011

Symptoms of Groupthink and Decision Making

Symptoms of Groupthink Invulnerability Inherent morality Rationalization Stereotyped views of

opposition Self-censorship Illusion of

unanimity Peer pressure Mindguards

Decision-making Defects1) Few alternatives2) No reexamination of

preferred alternatives3) No reexamination of

rejected alternatives4) Rejection of expert

opinions5) Selective bias of new

information6) No contingency plans

Figure 10-6

Page 32

Groupthink: Implications for Managers

• Assign to each member the role of critical evaluator– this role involves playing “Devil’s Advocate” by actively voicing doubt and objections.

• Use subgroups and bring in outside experts for exploring the same policy decisions.

• Use different groups with different leaders to explore the same question.

Business Fiascos

Rational risks in uncertain situations or flawed decision making (overestimate benefits, underestimate costs)?

Delusional Optimism

• Due to both cognitive biases and organizational pressures:

- exaggerate own talents; downplay luck

- self-serving attributions: in annual reports

- scenario planning tends to reward most optimistic appraisals.

- anchoring

- competitor neglect.

- pessimism often interpreted as disloyalty

How to Take The Outside View• Select a reference class:

– choose a class that is broad enough to be statistically meaningful but narrow enough to be truly comparable to project at hand-- movies in same genres, similar actors

• Assess the distribution of outcomes: – Identify the average and extremes in the refer- ence-class projects’ outcomes--the studio

executive’s reference-class movies sold $40 million in tickets on average. But 10% sold less than $2 mil- lion and 5% sold more than $120 million.

• Predict, intuitively: – where you fall in the distribution– executive predicted $95 million

• Estimate reliability of your prediction– correlation between forecast and actual outcome expressed as a coefficient ranging from 0

to 1.

• Correct the intuitive estimate for unreliability– less reliable the prediction, more needs to be adjusted towards the mean.

Shoreham Nuclear Power Plant

• GE plant in NY, 60 miles from Manhattan

• Designed to produce 540-820 megawatts

• Initial estimated cost: $65 million

• Final cost: $6billion• After 11 years

(’73-’84), never opened!

• Construction flaws• Labor unions• Public concerns over

safety• Escalation of

commitment, or failed persistence?

Escalation of Commitment: The Flip Side of Persistence

Reducing Escalation of Commitment

• Set minimum targets for performance, and force decision makers to compare against these targets

• Stimulate opposition using “devil’s advocacy”• Rotate managers through roles• Reduce ego-involvement• Provide and study more frequent feedback

about project completion and costs• Reduce risk and penalties for “failure”• Make explicit the costs of persistence