PRFS 4633: Decision-Making in Organizations

is a negative emotion that shares many features with happiness, such as increased confidence and decreased sensitivity to risk.

Anger

Because they are risk-averse, negotiators in final-offer arbitrations tend to believe that the chance of their final offers to be accepted is lower than it actually is.

False

Bounded ethicality has replaced the assumption of conscious choice as the best explanation for unethical behavior.

False

Cognitive neuroscience research has refuted the "multiple-selves" theory, finding that both short-term and long-term gratifications activate the same regions in the brain.

False

In a negotiation, the party with the better alternatives is more likely to hold out and wait for the other side to make the first offer.

False

Succumbing to heuristics is inevitable, and there is no way to make judgment less prone to them. Rather, one can only be aware of the biasing effect heuristics have on one's judgment

False

The Slippery Slope theory explains why a single instance of unethical behavior can be justified.

False

The acquisition utility derived from buying a good is a function of the price paid for the good and its objective value.

False

The best strategy in negotiation is to get the most important issue resolved in the beginning and then move on to less important issues.

False

What are the reasons for the difference between groups and individuals in the likelihood of escalating commitment and in the degree to which commitment is escalated?

Groups tend to be less prone to escalation of commitment because of the presence of multiple opinions and the higher likelihood of someone recognizing the irrationality of escalating. However, groups display agreement-reinforcing dynamics that unite them behind choices that they made. Therefore, if recognition of the irrationality of escalation does not occur, these group dynamics may lead groups to escalate commitment to a higher degree than individuals.

Why is it so hard for managers to internalize the sunk-cost concept when making decisions?

It is hard to recognize the reasons for including sunk costs in our calculations in the first place.

Explain the paradox that a manager faces, when choosing between changing course of action and escalating commitment to it.

Making the best decision for the organization means that the manager should focus on future costs and benefits. However, organizations value consistency. Thus, while the good of the organization demands ignoring previous commitments and choosing the course of action that best meets the organization's present and future needs, the manager will more likely be rewarded for escalating commitment than for changing course. The manager faces a conflict between what the organization wants and what the organization needs.

In what ways is our rationality bounded? Discuss the aspects that are bounded in our judgment and how they are bounded.

Our willpower is bounded, such that we tend to give greater weight to present concerns than to future concerns. Our self-interest is bounded, such that we care not only about our own outcomes, but also about the outcomes of others. Our awareness is bounded in a way that makes us overlook obvious, important, and readily available information that lies beyond our immediate attention. Our ethicality is also bounded, or is limited in ways of which we are unaware.

Why, according to research, do people tend to be overconfident in estimating outcomes? Suggest a mechanism for tackling overconfidence.

Overconfidence occurs because we are more able to recall confirming than disconfirming evidence for the believed outcome. Our initial beliefs produce selective mental accessibility of information that is consistent with these beliefs. One possible debiasing mechanism is forcing oneself to consider scenarios that include different outcomes than the believed one. Such forced consideration increases the salience and vividness of other possibilities in one's memory. Another one is simply artificially decrease one's estimations of the outcome's likelihood.

A price war between two companies that sell the same product is analogous to what theoretical game?

Prisoner dilemma game

Sadness has been found to focus one's attention to

Self

Two groups of people are given score sheets of yesterday's games in a professional league. One group is given the scores of yesterday's games in the National Basketball Association, and the other group is given the scores of yesterday's games in the National Hockey League. The groups are then asked to estimate the average ticket price for a game in the sport of which they read the scores. How will the two groups differ in their estimates? What bias is responsible for this difference?

The "NBA" group will estimate higher ticket prices than the "NHL" group. Due to the anchoring bias, the scores that they see, which are higher for basketball games than for hockey games, affects their estimates.

What affects whether System 1 or System 2 thinking will occur? What are the conditions which make the use of one system more likely than the use of another?

The chosen system depends in part on the level of constraint on people's resources - mainly cognitive load, time, and money. When these resources are not limited, i.e., when people have enough time, money and peace of mind to conduct a thorough decision-making process, they will use system 2 thinking. In contrast, the busier and more rushed people are, the more they have on their minds, therefore they are more likely to rely on system 1 thinking. System 2 is also more likely to take over when people realize that system 1 is failing to produce satisfactory results.

In many organizations, the most competent employees are usually poor in tutoring subordinates and new employees. Indicate the bias that is responsible for this phenomenon and explain how this phenomenon occurs.

The curse of knowledge is responsible for this phenomenon. People are unable to ignore knowledge they have when assessing others' knowledge. A highly knowledgeable employee takes for granted knowledge that is available to him or her, and therefore may not put enough emphasis on such things as transferring basic knowledge, or explaining jargon, when instructing subordinates and new employees.

How do anchors affect judgments of experts in negotiations?

The effect of anchors remains strong even for experts.

What is meant by the term "satisfice?"

To satisfice is to end the search for alternatives when we find a satisfactory solution that achieves a satisfactory level of performance, rather than examine all possible alternatives or look for the best solution.

Groups that display lesser unity and consistency of views and beliefs across members are less susceptible to the confirmation trap.

True

In choices that involve uncertainty, our judgments are affected not only by the framing of the choice in terms of the level of risk, but also by the framing of the choice in terms of gains or losses.

True

In negotiations, the endowment effect creates a bias primarily in seller's evaluations.

True

Knowing one's own reservation price is sufficient for making the decision of whether to accept or reject the final offer from the other party.

True

Spontaneous behaviors are better predicted by implicit attitudes, while thoughtful behaviors are better predicted by explicit attitudes.

True

The fixed-pie assumption makes the value claiming component of negotiation too salient.

True

When people are asked to predict their emotional responses to a negative event, such as a job termination, they expect that their emotional reaction will last longer than it actually does.

True

When people are overwhelmed by an excessive amount of information regarding a particular decision, they often respond by not making a decision at all.

True

Businesses that adjust their prices upward in response to high demand, consistent with economic laws of supply and demand, can experience which of the following outcomes:

Which of the following conditions can increase one's willingness to engage in altruistic punishment?

When different parties to a social dilemma openly discuss the issues, this causes:

a decrease in the magnitude of self-serving biases.

The most critical barrier to a creative decision is:

a narrow definition of the problem space.

Which of the following is not likely to produce escalation of commitment?

a present decision that is likely to generate further losses

How can a sure loss be presented in a less unattractive way?

a. Framing the loss in pseudocertain terms b. Framing the sure loss in probability terms, having a 100% probability c. Emphasizing the low degree of risk Correct d. None of the above.

Which of the following can serve as a cognitive explanation for misconceptions of chance?

a. People expect probabilities to even out. b. People remember unusual sequences better than ones that appear more random. c. People judge probabilities of future events as contingent on past events. Correct d. All of the above.

What explanation does the book provide for the fact that people are loss-averse, but still accept the sure loss of paying insurance?

a. The vividness of the possibility of losing a big amount of money if they are uninsured leads people to overestimate their risk. b. The special value pseudocertainty has. c. Social norms that favor having insurance. Correct d. All of the above

An extreme offer made by one side:

a. increases the likelihood of a better deal for the side that makes the offer. b. increases the likelihood of reaching an impasse. c. will have less influence if the other side has a good sense of the bargaining zone. Correct d. all of the above.

The human mind is better at remembering information that is

a. interesting. b. emotionally arousing. c. recently acquired. Correct d. all of the above.

Which of the following helps to eliminate the influence of fairness considerations?

a. repeating games b. raising the stakes in games c. reducing the amount of available resources after an initial offer is rejected Correct d. none of the above

The tendency to escalate commitment is more pronounced when:

a. the commitment to a failed decision is made by oneself. b. the failure of the initial commitment can be explained with a causal, unrelated account. c. the escalation is made by an individual, compared with escalation made by a group. Correct d. all of the above

Businesses that adjust their prices upward in response to high demand, consistent with economic laws of supply and demand, can experience which of the following outcomes:

a. underperform other businesses that consider the norms of fairness. b. are punished by customers who are more sensitive to fairness than to economic rationality. c. make larger profit than businesses that comply with norms of fairness. Correct d. all of the above.

Game theory provides the most precise prescriptive advice to negotiators, on the condition that:

all players are perfectly rational.

An optimal search for alternatives should last:

as long as the cost of the search does not outweigh the value of the added information.

Which of the following decreases the reliance on stereotypes?

being sad

Which of the following conditions can increase one's willingness to engage in altruistic punishment?

d. when the person who is treated unfairly belongs to an in-group

Which emotion may decrease the endowment effect, causing an owner of a good to lower his or her selling price?

disgust

Which of the following is NOT a key set of information in Raiffa's framework for approaching negotiations?

each party's known information and the other party's position

The fact that heavy advertising of a company's or a product's name on billboards and in the media makes that name stick in people's memory as bearing high quality is an example of what bias?

ease of recall

Entrepreneurs often fall prey to self-focus, which makes them too eager to enter [x1] contests and too reluctant to enter [x2] competitions.

easy, hard

An example of bounded awareness in negotiations is when negotiators:

fail to consider the impact of their decisions on others outside the organization.

Self-serving reasoning causes people to pay less critical attention when assessing:

favorable information.

People are more likely to rate themselves highly on:

general attributes.

Negotiators often are reluctant to give away information because they assume that:

giving away information is giving away power.

Face-to-face interaction in negotiations has been found to:

help overcome the inefficient outcome predicted by game theory.

Rating alternatives on each of the decision criteria is considered the most difficult stage of the decision-making process because:

it requires us to forecast how each alternative solution will achieve each of our decision criteria.

Specific actions of parties engaged in competitive irrationality are:

not easily identified as irrational.

People display inconsistency by:

preferring a nominal wage increase that does not cover inflation over a wage cut.

When deciding whether or not to escalate commitment to a chosen course of action, our choice should depend on:

self-justification

Trust enables value creation through:

sharing information between the parties.

Which of the following helps promote more rational decision making?

standards of comparison

The affect heuristic can explain why:

stock prices go up on sunny days.

Inner city crime in the U.S. gets considerable media coverage, such that every homicide is reported in the news. In contrast, a story of a person who died from a heart attack rarely makes the news. This leads people to overestimate the frequency of deaths due to homicides relative to those due to heart failure. This best describes:

the availability heuristic.

Drake is a department manager in a company which has recently decided to hire a new analyst. After interviewing all candidates, Drake recommended the company hire Anne, but senior management preferred to hire Beth. Drake argued that Beth is an inferior choice, but agreed to accept her for a trial period of six months. At the end of the trial period, Drake evaluated Beth's performance as poor. Although this evaluation may have been fair, is it also possible that it was biased by:

the confirmation trap.

Which bias occurs only AFTER the true outcome of an event is known?

the hindsight bias

When do people use base-rate data correctly?

when there is no other information available