Chapter 7 - The human element + microfoundations

Question 1

The administrative man - full information

Answer 1

= costly/ impossible

• > consider limited alternatives
• > order in which we search determines our decision

Question 2

The administrative man - as complexity increases…

Answer 2

• use of approximations + simplifications
• substantially differ from reality
• mind is limited in understanding
  => decision less calculus but sociologic + psychologic

Question 3

The administrative man - sociology + psychology base affects how…

Answer 3

• we ‘construct’ simplified decision problem

- we evaluate it

Question 4

The administrative man - what we are …

Answer 4

• determines how we see the world

- how we decide

Question 5

The administrative man and decisions - complex tasks

Answer 5

mind approximates “definition of the situation”

Question 6

The administrative man and decisions

feature routed in individual characteristics:

Answer 6

• > novelty of the stimuli/ problem to the decider
• decisions (partly) determined by precious experiences
• human develop routines/ programs / fixed responses
  
  • > experience = solution from repertoire to defined stimuli

Question 7

The administrative man and decisions - rarely made alone

Answer 7

humans frequently ignore their own preferences when making decisions

Question 8

cognitive bias of overconfidence

Answer 8

humans tend to:
- systematically overestimate their knowledge/ abilities
+ capability to predict
=> this effect more pronounced for “trained persons + experts”

Question 9

cognitive bias of overconfidence - better than average effects

Answer 9

linguistically: overestimate own abilities, knowledge + standing relativ to others
technically: overestimate the mean of uncertain outcomes

Question 10

miscalibration effect

Answer 10

linguistically: exaggerated trust in prediction of uncertain
technically: underestimate the variance of uncertain outcomes

Question 11

CEO narcissism

Answer 11

desire for narcisstic supply : striving for fame, applause + external recognition of superiority

Question 12

CEO narcissism

Answer 12

desire for narcisstic supply : striving for fame, applause + external recognition of superiority

Question 13

CEO narcissism - consequences on strategic actions

Answer 13

• actions aimed at impressing audiences + corresponding performance extremeness
• impact on managerial discretion via lack of political acumen + interpersonal sensitivity
• tendency towards “unique” CSR + sociopolitical activism

Question 14

CEO - greed

Answer 14

“the pursuit of excessive/ extraordinary material wealth”

• greedy CEO behavior reduces shareholder returns (performance)
• powerful boards (governance) reduce this effect

Question 15

Attribution bias

Answer 15

• tendency to over-attribute corporate success to individual CEOs - important contingencies remain underappreciated
• causal attribution of corporate success to CEOs
  -mystification of leadership, romanticized heroic views of CEOs
  => evolutionary reasons : group needed for survival - high fixation on group leading instead of facts

Question 16

halo bias

Answer 16

human tendency to rate unobserved qualities by a visible “bright” quality

Question 17

heroism in management

Answer 17

• We crave heroes to identify with them
• they make us feel good about who we are
  => (irrational) narratives of heroic CEOs popular

Question 18

heroism in management

Answer 18

• We crave heroes to identify with them
• they make us feel good about who we are
  => (irrational) narratives of heroic CEOs popular

Question 19

The story bias

Answer 19

=> the importance of sense-making narratives in management

necessary: a good story

Question 20

CEO cognitive dissonance

Answer 20

• strain of mind occurring when CEOs confronted with inconsistent cognitive elements
• CEOs can reestablish consonance via
  > explaining away failure
  > optimistic reinterpretations

Question 21

halo bias - potential strategic implementations:

Answer 21

• acquisition drive by performance + company reputation, less by corporate facts
• funding due to iconic start-up team, less due to business idea

Question 22

Groupthink in strategy

Answer 22

dysfunctional decision-making of highly competent individuals in a social context due to a desire of conformity and harmony in groups
potentially affects strategic actions of corporate boards, especially:
-when prior performance was exceptionally good (icarus paradox)
- under an “illusion of invulnerability” (underestimation/ Stereotyping competition
- in strongly cohesive groups with low outgroup influence
-under highly powerful CEOs

Question 23

Groupthink in strategy

Answer 23

dysfunctional decision-making of highly competent individuals in a social context due to a desire of conformity and harmony in groups
potentially affects strategic actions of corporate boards, especially:
-when prior performance was exceptionally good (icarus paradox)
- under an “illusion of invulnerability” (underestimation/ Stereotyping competition
- in strongly cohesive groups with low outgroup influence
-under highly powerful CEOs

Question 24

informational social influence

Answer 24

social phenomenon: mimicking of subjectively more knowledgeable individuals
actions in an ambiguous situation/context