1. Logistics Will post updated slides Link to readings and video Exam questions: study instructions Survey: Developmental PARTY AT MY HOME in 2015?

2. The Fixed-Action Response in Ethology

3. Fixed Action Patterns

4. 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?

5. Kahneman and Tversky: Maps of Bounded Rationality Intuition (system 1): Fast, parallel, automatic, effortless Reasoning (system 2): Slow, serial, controlled, effortful

6. Teams: A Blessing or A Curse?

7. Mission Accomplished? 2003 2011

8. Ecce Homo?

9. A Good Man Gone Bad? Page 9

10. 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?

11. Blowing Up

12. 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?

13. 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

14. 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

15. Assumptions of the Rational Model

16. 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

17. 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).

19. Desert Exercise 15 minutes: Rank by yourself 30 minutes: Decide as a group 15 minutes: Discussion as a class

20. 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?

21. Page 21 The Asch Effect 123123 Standard Line Card Comparison Lines Card

22. Page 22 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

23. 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.

24. Page 24 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=Bcv SNg0HZwk&feature=relatedhttp://www.youtube.com/watch?v=Bcv SNg0HZwk&feature=related What percentage of ordinary, law- abiding, Yale students would deliver the maximum 450 volt shock? 50% > 60%

25. "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"

26. [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

27. 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 instrument for carrying out another’s wishes, and therefore no longer sees himself as responsible for the action - I’m just doing my job…

29. Page 29 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?

30. Mission Accomplished? 2003 2011

31. 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 Defects 1)Few alternatives 2)No reexamination of preferred alternatives 3)No reexamination of rejected alternatives 4)Rejection of expert opinions 5)Selective bias of new information 6)No contingency plans Figure 10-6

32. 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.

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

34. 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

35. 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.

36. 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?

37. Escalation of Commitment: The Flip Side of Persistence

38. 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