Managerial
Decision Making Session-By-Session Outline
Week 2
Survey for Week 2 (insert link
here)
Week 2PPT Slides
(pdf format/ six per page) Day 3: Rationality
Week
2PPT Slides (pdf format/ six per page) Day 4: Bayesian Updating
Week 2 Writing Assignment Options:
(At
least one of the
Writing
Assignments for Weeks 2 or 3 must be chosen, due
at the beginning of class) Remember that you must turn in 4 assignments over
the course of the next 8 weeks.
Try
to keep to 700 words (there are 2 options you may choose from
this week. Submit only your Tuck ID, not your name, and please
copy the question below at the top of the paper that you turn
in):
Option 1:
"Think carefully about
the managerial decison(s) that you know the best
from prior work experience, be it investment banking, capital
budgeting, sales promotion, brand management, international franchising,
or whatever (choose one specific area), and answer the following
two-part question:
1) What are the key mental models that key decision makers repeatedly
use? It is OK or even good to draw a schematic diagram of key
mental models and how they fit together.
2) Critique these mental models focusing on the following:
- Why are these models effective (or at least considered effective
by key decision makers)?
- Are the predictable errors involved in the decision-making process
when these models are used? What are they?
- What are the "building blocks" that you think should
be taken out of the models (or be added to the models) to make
them more effective and/or less prone to errors? Be specific.
Option 2:
Think
for a while and write down an “internal only” list (i.e. a personal
list, not to be shared) of the worst decisions you have
ever made. Please
focus on conscious decisions, not simply mistakes (e.g. like crashing
your car). Do you
see a pattern or common theme in your list of poor decisions?
If so, do you know why?
Choose one or a connected series of your poor decisions
(that you feel comfortable to share) and analyze it or them.
Define the errors, faulty judgments, etc.
Your focus should be on objectively analyzing your “decision
errors”. How does
the use or misuse of framing, heuristics, and probabilistic thinking
fit in? N.B. Your
writing in this paper will be kept confidential.
The objective of the assignment is for you to learn to
analyze your own decisions and decision-making processes.
Session 3:
Monday, March 31
Rationality and Probability
in Decision Making
Topics:
--Rational" Decision Making-the Paradigm: its strengths and
weaknesses
--Basic Ideas of Probability
--Expected Utility Theory
--Unbounded versus Bounded Rationality
--Satisficing, Mental Shortcuts, and Heuristics
Class
Preparation and Discussion Questions:
-
(from Week 1 discussion) What are the heuristics
you use that you "discovered" in this last week? Have
you found a few that need to be revised after thinking about
them explicitly?
-
(from Week 1 discussion) Be ready to
discuss decisions in the last week where framing had a major
role in what option was chosen. Were you able to find examples
of when you were framing a problem too narrowly?
-
A
very big idea/assumption in business and economics is that people
are “rational.” How would
you personally define "rational" behavior (and hence,
decision making) in 3 to 10 bullet points (without looking in
economics or other academic textbooks)? We will discuss the "officially accepted" academic notions of rationality
in class and which
of these appear palatable and which are untenable in describing
actual human behavior?
-
On the first
anniversary of the 9/11 terrorist attack, the evening numbers
drawn in the New York lottery were 9-1-1. The numbers
were picked in the standard random fashion. What are the
odds of that according to the laws of probability in Chance
Rules? What factors mentioned in "The Odds of
That" explain a normal person's first reaction to this
event?
BEFORE-class Readings:
**** Belkin, The Odds of That, New York Times Sunday Magazine, August
11, 2002, CP 3-1
AFTER-class Readings:
** Hammond, Keeney, and Raiffa, Smart Choices, Chapters 4-6,
RT
Session 4: April 1
Conditional Probability and Bayesian Updating
Topics:
--Using new information
--Information versus noise
--Getting information: Is it Random or is it a Trend?
--Priors, Information Acquisition, and Posteriors
--Bayes Rule and Bayesian model of updating
AFTER-class Readings:
*** Hacking, An Introduction to Probability and Inductive Logic,
chapters 5, 6, & 7, CP 4-1
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