Chapter 7 - The human element + microfoundations Flashcards
The administrative man - full information
= costly/ impossible
- > consider limited alternatives
- > order in which we search determines our decision
The administrative man - as complexity increases…
- use of approximations + simplifications
- substantially differ from reality
- mind is limited in understanding
=> decision less calculus but sociologic + psychologic
The administrative man - sociology + psychology base affects how…
- we ‘construct’ simplified decision problem
- we evaluate it
The administrative man - what we are …
- determines how we see the world
- how we decide
The administrative man and decisions - complex tasks
mind approximates “definition of the situation”
The administrative man and decisions
feature routed in individual characteristics:
- > 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
The administrative man and decisions - rarely made alone
humans frequently ignore their own preferences when making decisions
cognitive bias of overconfidence
humans tend to:
- systematically overestimate their knowledge/ abilities
+ capability to predict
=> this effect more pronounced for “trained persons + experts”
cognitive bias of overconfidence - better than average effects
linguistically: overestimate own abilities, knowledge + standing relativ to others
technically: overestimate the mean of uncertain outcomes
miscalibration effect
linguistically: exaggerated trust in prediction of uncertain
technically: underestimate the variance of uncertain outcomes
CEO narcissism
desire for narcisstic supply : striving for fame, applause + external recognition of superiority
CEO narcissism
desire for narcisstic supply : striving for fame, applause + external recognition of superiority
CEO narcissism - consequences on strategic actions
- 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
CEO - greed
“the pursuit of excessive/ extraordinary material wealth”
- greedy CEO behavior reduces shareholder returns (performance)
- powerful boards (governance) reduce this effect
Attribution bias
- 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
halo bias
human tendency to rate unobserved qualities by a visible “bright” quality
heroism in management
- We crave heroes to identify with them
- they make us feel good about who we are
=> (irrational) narratives of heroic CEOs popular
heroism in management
- We crave heroes to identify with them
- they make us feel good about who we are
=> (irrational) narratives of heroic CEOs popular
The story bias
=> the importance of sense-making narratives in management
necessary: a good story
CEO cognitive dissonance
- strain of mind occurring when CEOs confronted with inconsistent cognitive elements
- CEOs can reestablish consonance via
> explaining away failure
> optimistic reinterpretations
halo bias - potential strategic implementations:
- acquisition drive by performance + company reputation, less by corporate facts
- funding due to iconic start-up team, less due to business idea
Groupthink in strategy
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
Groupthink in strategy
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
informational social influence
social phenomenon: mimicking of subjectively more knowledgeable individuals
actions in an ambiguous situation/context
