Sustainable Management Metropolia Business Ethics IP week 10 Sustainable Behavior

Behavioral aspects  Are there systematical errors in our behavior?  At individual  Group  Organizational level  Can we change our value system?

Does free will exist?

conclusion  Decision making process to large extend handled by unconscious mental activity  If decision is prepared by unconscious brain then free will must be illusion  Brain makes decision, not conscious mind

How to make decisions  Unconscious thinking better at solving complex problems  More abstract  Not bogged in details  Get to gist of the problem quicker  When compared to conscious thinking

 Cognitive dissonance  Fooling yourself or rationalizing bad decisions  E.g. smoking  Loss aversion  Loss is harder to cope with than the gain  E.g. why people stick on the wrong path Biases in decision making

Daniel Kahneman 2002  Choose a low reward if it means that they have more than the neighbours, rather than a high reward that is lower than their neighbours.  Competition and relative success are important factors next to simple economic decision making

Source: Judgment in Managerial Decision Making  Max H. Bazerman and Don Moore  7 th edition, 2009  John Wiley & Sons

behaviour  New evidence points to the limitations of the conscious mind, while emphesizing the power of the unconscious mind to drive us in unethical behaviour.  Bounded ethicality = psychological process that leads to unethical behaviour that is inconsistent with conscious beliefs and preferences

Decision making We tend to make our decisions emotionally and then motivate them rationally  Unaware of drivers  Behavioral aspects  Individual  Groups (social)  Aware of drivers  Philosophy  Values  Ethics Intuitions or System 1 thinking Rational, logical or System 2 thinking

Biases 1. Over claiming Credit 2. In-Group Favoritism 3. Discounting the Future 4. Implicit Attitudes 5. Conflict of Interest 6. Indirect Unethical Behavior

1 Overclaiming credit  Student project team members estimation of own effort adds up to 139%.  Joint ventures fail often due to this effect:  Own contribution is considered higher than partner  Leads to lower investment  But partner thinks exactly the same about situation  Leads to downward spiral

2 In-group favoritism  We identify more to people who are like us, who belong to the same social group.  We feel virtuous about doing an in-group member a favor, and are unaware about the negative consequences for out-group members (like when resources are limited)  E.g. banks are more likely to deny Afro- Americans a loan than Caucasians

3 Discounting the future  Our explicit stated concern over the future of our planet with it’s limited resources collides with our implicit desire to consume (the latter wins)  Organizations reason similar. E.g. They prefer cheaper building material to cut cost even though the more expensive material can save money in the future.

4 Implicit Attitudes  When we meet someone, automatically stereotypes of race, sex and age come to mind  75% of all visitors to IAT site prefer white over black, even black persons themselves  IAT tests relative strength, not absolute, of preference (favor one more over the other)  In practice this behavior is rooted deeply, see Morgan Stanley 2004 sex discrimination lawsuit, they paid 54 mln $

Do the test ourself  Implicit.harvard.edu  Choose your first language  Do the test  And read the FAQ!  Beware of interpreting the result to hasty!  Next week we’ll discuss the results

5 Conflict of Interest  E.g. financial advisor get paid a fee over the transaction they have recommended to their client  Arthur Anderson accepted the flawed accounting practices of Enron, why?  It is impossible to be critical and maintain a good relationship with your client (and get future contracts)  All people tend to view data from a self serving perspective

5 Conflict of interest  Solution?  Try to liberate yourself from structural conflicts of interest (like payment system)  Don’t trust honesty (nobody is immune to it)  Don’t trust yourself (nobody is immune to it)

Case  A medicine is sold with low margin, high costs, but it is critical (life saving) to it’s users  Can they raise the price from 3$ to 9 while the production costs are 5$ a pill?  Is it ethical?  Now you sell the rights to produce the pill to a less known firm who will sell it at 15$  Is that ethical?

6 Indirect unethical behavior  Merck sold the rights of a cancer drug called Mustargen to Ovation Pharmacauticals. The latter raised the price 10 fold.  Merck avoids public accountability, the small unknown Ovation can handle it. In fact they are specialized in it.  People tend to obscure their unethical behavior. Or they try to stay ignorant of the consequences of their selfish behavior.

How to improve? 6 strategies 1. Use decision-analysis tools 2. Acquire expertise 3. Debias your judgment 4. Reason analogically (create abstract principles from previous cases so that you create general applicableness and appropriateness) 5. Take an outsiders view 6. Understand biases in others