Week 8

Question 1

problem

Answer 1

• a discrepancy between some current state of affairs and some desired state

Question 2

opportunity

Answer 2

• something unplanned happens, giving rise to thoughts about new ways of proceeding

Question 3

decision

Answer 3

• choice made from two or more alternatives

Question 4

“rational” decision making

Answer 4

• makes consistent, value maximizing choices with specified constraints
• assumption of classical/neoclassical economics

Question 5

problem clarity

Answer 5

• the problem is clear and unambiguous

Question 6

known options

Answer 6

• the decision maker can identify all relevant criteria and viable alternatives

Question 7

clear preferences

Answer 7

• the criteria and alternatives can be ranked and weighted

Question 8

constant preferences

Answer 8

• specific decision criteria are constant and the weights assigned to them are stable over time

Question 9

no time or cost constraints

Answer 9

• full information is available because there are no time or cost constraints

Question 10

maximum payoff

Answer 10

• the choice alternative will yield the highest perceived value

Question 11

Actual decision making

Answer 11

1) bounded reality
2) satisficing
3) intuition
4) judgement shortcuts

Question 12

bounded rationality

Answer 12

• liiations on one’s ability to itnerpret, process, and act on information

Question 13

satisficing

Answer 13

• identifying solution that is “good enough”

- the first acceptable option rather than the optimal one

Question 14

intuition

Answer 14

• a non-conscious process created form distilled experience that results in quick decision
• relies on holistic associations

Question 15

when making decisions we often:

Answer 15

1) take shortcuts

2) have biases

Question 16

overconfidence bias

Answer 16

• believing too much in our own ability to make decisions - especially when outside of own expertise
• the weaker the ability, the more likely to overestimate performance/ability

Question 17

Dunning-Kruger effect

Answer 17

• low ability individuals think they are better than they are
• you need a certain level of skill/knowledge in an activity to realize how truly bad you are

Question 18

anchoring bias

Answer 18

• using early, first received information as the basis for making subsequent judgements

Question 19

confirmation bias

Answer 19

• selecting and using only facts that support our decision

Question 20

availability bias

Answer 20

• emphasizing information that is most readily at hand

Question 21

Irrational Escalation of Commitment

Answer 21

• increasing commitment to a decision in spite of evidence that is wrong - especially if responsible for the decision

Question 22

randomness error

Answer 22

• the tendency to believe that we can predict the outcome of random events

Question 23

risk adversion

Answer 23

• the tendency to prefer a sure gain over a riskier outcome (will take $50 rather than a 50/50 chance for $100)
• people prefer to take chances to prevent a negative outcome (will take a 50/50 chance on losing $100 rather than paying $50)

Question 24

ethics

Answer 24

• broadly applied social standards for what is right or wrong in a particular situation
• ethics are socially constructed

Question 25

Milton Friedman (1970)

Answer 25

• managers have a “responsibility to conduct business in accordance with their (shareholders) desires, which will be to make as much money as possible - while conforming to the basic rules of the society, both those embodied in law and those embodied by ethical custom”