Week 6 Writing Assignments: (if chosen, due in class)

Write a memo to your boss describing a decision heuristic (preferably representativeness, availability, or anchoring) problem at your last (or, a fictitious) organization. Assume that your boss has zero knowledge in behavioral science, and thus you need to use non-technical language to explain what you mean by "representativeness, availability, or anchoring" heuristics before elaborating how these heuristics (can be one of them) adversely affect the decision-making process in the organizataion.

Session 6: (Feb 10/11) Overconfidence and Hindsight Bias

PowerPoint slides (to be available Feb 12th)

Topics: 

The Causes and Costs of Overconfidence
Self-fulfilling Prophecies
Controlling Overconfidence
Good Decisions vs. Good Outcomes
Hindsight Bias

BEFORE-CLASS Readings:   

*** Griffin and Tversky, “The Weighing of Evidence and the Determinants of Confidence, Cognitive Psychology, 1992. CP #12

*** Russo and Schoemaker, "Managing Overconfidence", Sloan Management Review, 1992. CP #13

Class Preparation and Discussion Questions:

What is the concept of calibration with respect to overconfidence? Plous, p. 223, provides an excellent graphic which lays the framework for our discussion. Where on the graph is overconfidence? Under-confidence?

Griffin and Tversky frame the idea of overconfidence with the concepts of "strength" vs. "weight". What do these concepts mean and how do they relate to statistical ideas? Identify other ideas of heuristics that loom large in their framework. You may skip the details of the various experiments that were done.

Take as a given that you, as well as your bosses and subordinates, will be overconfident in many if not most probabilistic judgments. What can you do to control and remedy it? Or, do the benefits of overconfidence outweigh the costs?

Explain the idea of hindsight bias. When is hindsight bias most likely to occur?

Think back to your remembrances of the first-year (first-term, for first years) exams on Accounting, and Finance etc..What do you remember? Why do you remember it? Are these memories influenced by what grade you ultimately received? Or, about the stress of personal or job-related things going on at the same time? Or, what else?

Do you keep records of important meetings, conference calls, etc? Gives compelling reasons why you should. What are they?