1. Introduction to behavioral decision making
Concepts: behavioral econ, decisions; systems 1 and 2; intuition; heuristics.
- Read Bazerman & Moore, Ch 1, the book is here. Save the book.
- Read Gladwell, Blink chapters – intuitive decisions
- Ariely: What is behavioral economics? – big think
- The science of thinking – fast and slow systems, 12m video
- Thinking fast and slow by Kahneman – animated 1
- Thinking fast and slow: cognitive biases – animated 2
- Thinking fast and slow: more biases – animated 3
- System 1 and 2 thinking – with applications to management
- Slides from class 1 – pdf
- HW1: After doing the readings & watching the videos for this module, respond to the following questions (2-3 pages single-spaced).
- 1) Explain what is system 1 and system 2 thinking. Give examples of situations when do you personally rely on intuitive snap judgments, and situations you rely on a more controlled, systematic, deliberate analysis. When do you find system 1 to be most effective, and when is it better not to rely on it?
- 2) Based on Gladwell’s book ‘Blink’, what are his examples of situations when snap judgements can be more accurate than System 2 decisions? Why might it be the case?
- 3) Suppose there is a proposal to replace workplace hiring system with a review of applicants’ resume and a skills test, and to eliminate in-person interviews. Given what you have learned about Systems 1 and 2, explain why you think this hiring method work better or worse than an interview.
2. Cognitive biases
Concepts: ease of recall, retrievability, base rate, sample size, chance, regression to the mean, conjunctive & disjunctive events, confirmation bias, anchoring, overconfidence, hindsight, the curse of knowledge
- Read Bazerman & Moore, Ch 2,3
- Ariely: Are we in control of our own decisions? – TED
- Dan Gilbert: Why we make bad decisions – TED, intro to biases
- The curse of knowledge and how a business can adapt – HBR
- Type of heuristics: representativeness, availability, base rate
- How to make good guesses – Harford, base rate neglect, Bayesian thinking
- A guide to Bayesian thinking – learn to update your believes
- Slides from class 2 – pdf
- HW2: 1) Summarize the main ideas of the textbook chapters (1 page). 2) Choose any 5 cognitive biases from this module. Give definitions. For each, explain how it can influence your decision making using your own examples of relevant situations; how you possibly benefit from this bias; how it makes you prone to mistakes; and what you can do to avoid it. (2-3 pages)
Concepts: framing, risk, uncertainty, endowment effect, selective attention, mental accounting, status quo bias, preference reversal & commitment, optimism & positive illusions, self-serving
- Read Bazerman & Moore, Ch 4
- Predictably Irrational – Ch1: Everything is Relative- happiness too
- List of cognitive biases – wikipedia
- Teaching kids to think slow may reduce crime – fivethirtyeight.com
- Why more and more means less – Harford, status quo bias
- Your brain is primed to reach false conclusions – illusion of causality, fivethirtyeight
- 20 cognitive biases that screw up our decisions – business insider
- What is behavioral economics –10min talk
- Managing overconfidence – management journal article
- Decision making biases – 4min, business approach
- Delusions of objectivity – Harford, naive realism
- Expected utility and prospect theory – 7min video
- The cognitive biases tricking your brain – the Atlantic
- Chapter 4 slides from class 3 – pdf
- HW3: 1) Summarize the main ideas of the textbook chapters (1 page). 2) Pick any 5 cognitive biases from this module, including ‘framing effect’. Give definitions. For each, explain how it can influence your decision making using your own examples of relevant situations; how you possibly benefit from this bias; how it makes you prone to mistakes; and what you can do to avoid it. (2-3 pages)
4. Motivations, emotions, escalation of commitment
- Read Bazerman & Moore, Ch 5,6
- 4 cognitive biases to avoid – self-serving, cognitive fluency, sunk cost, confirmation biases
- The Cognitive Science Behind Repeating Mistakes – atlantic
- Sharot: The optimism bias – ted
- Emotional Accounting: How Feelings About Money Influence Consumer Choice – video
- How to keep your gym habit – Harford, commitment strategies
- How can you trick yourself into going to the gym? – atlantic
- Mind games – what is neuroeconomics?
- Chapter 5 slides from class – pdf, emotions and motivation
- Chapter 6 slides from class – pdf, escalation of commitment
- HW4: 1) Summarize the main ideas of the textbook chapters. 2) Explain in more detail how emotions affect our decision making. What biases do emotions cause? Have you observed people making these biases? What advice does behavioral research offer to reduce the harmful effects? 3) What leads to escalation of commitment? What are some of the ways to avoid escalation?
5. Fairness and ethics
- Read Bazerman & Moore, Ch 7
- The end of rational economics –Ariely, trust, cheating, revenge, prices
- Ariely: Our buggy moral code -TED talk
- Dan Ariely’s Animated Talk : How and Why We’re All Dishonest -short
- Upside of Irrationality Ch5: The Case for Revenge – how can it be useful
- Predictably Irrational – Ch 4: The Cost of Social Norms -$ and love
- What makes people give? – article on philanthropy and altruism
- Trust and economic growth – evidence from development econ
- Behavioral Economics: Crash Course – perception, prices, ultimatum game, framing, nudges
- Play The Evolution of Trust game – the effectiveness of different strategies in a repeated Prisoner’s Dilemma game
- Slides chapter 7 – pdf
- HW5: 1) Summarize the main ideas of the textbook chapters (1 page). 2) In what kind of situations do people care about fairness? Why should a business be concerned with fairness? 3) What are some of the common ethical mistakes that people make, and why? How honest are people overall? Extra credit: Play ‘The Evolution of Trust ‘game. What have you learned from playing this game?
6. Investments and consumer choices
- Read Bazerman & Moore, Ch, 8
- Shortcut and biases that lead to bad investment decisions – aaii
- Barry Schwartz: The paradox of choice -TED talk
- Paradox of choice may be a myth – the Atlantic
- The psychological difference between $12 and @11.67 – Atlantic
- The psychology behind Costco’s free samples – Atlantic
- Predictably Irrational – Ch3: The Cost of Zero – FREE!
- Upside of Irrationality Ch3: The IKEA effect- Ariely
- Predictably Irrational – Ch2: Supply and Demand? – what else affects prices
- HW6: 1) Summarize the main ideas of the textbook chapters. 2) Explain why we make investment mistakes . What lessons have you learned that might be useful for your investment strategy? 3) What are some of the ways in which firms can influence consumer choices?
- Read Bazerman & Moore, Ch 9,10
- Slides on negotiations – pdf
- HW7: Explain any 5 lessons that you learned from these chapters regarding negotiations.
8. Improving decision making
- Read Bazerman & Moore, Ch 11
- Rationality in Action: Look at a Problem as an Outsider
- Daniel Kahneman: Adversarial Collaboration
- What marshmallow test teaches about self-control – atlantic
- One way to deal with gender bias – 3min video
- HW8: Explain any 5 approaches to improving decision making. You can speak from the perspective of an individual, a manager, or a policy maker (or a mix).