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Interpersonal Skills for Managers – Psychology in Business - Decision making and irrationality

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Interpersonal Skills for Managers – Psychology in Business - Decision making and irrationality

  1. 1. Interpersonal Skills for Managers – Psychology in Business Class 4 Karol Wolski
  2. 2. HEURISTICS
  3. 3. Heuristics• When people are faced with a complicated judgment or decision, they often simplify the task by relying on heuristics, or general rules of thumb.• In many cases, these shortcuts yield very close approximations to the "optimal” answer, that which results from purely rational thinking.
  4. 4. HeuristicsUncertanity Gather all information necessary for rational judgment Heuristic Decision
  5. 5. HeuristicsIn certain situations, heuristics lead to predictable biases andInconsistencies (Porter, 2008). Uncertanity Gather all information necessary for rational judgment Heuristic Bias Decision
  6. 6. Amos Tversky and Daniel Kahneman
  7. 7. Availability heuristic • 1) Which is a more likely cause of death in the United States: being killed by falling airplane parts or being killed by a shark?Adapted from The Psychology of Judgment and Decision Making, by Scott Plous. McGraw-Hill Higher Education, 1993
  8. 8. Availability heuristic • In the United States, the chance of dying from falling airplane parts is 30 times greater than dying from a shark attack. Because shark attacks receive more publicity and because they are easier to imagine (after seeing the film Jaws, for example), most people rate shark attacks as the more probable cause of death. Since information about shark attacks is more readily available, the availability heuristic helps explain why people overestimate the chances of dying in this unusual way.Adapted from The Psychology of Judgment and Decision Making, by Scott Plous. McGraw-Hill Higher Education, 1993
  9. 9. Availability heuristic • 2) Do more Americans die from a) homicide and car accidents, or b) diabetes and stomach cancer?Adapted from The Psychology of Judgment and Decision Making, by Scott Plous. McGraw-Hill Higher Education, 1993
  10. 10. Availability heuristic • More Americans die from diabetes and stomach cancer than from homicide and car accidents, by a ratio of nearly 2:1. Many people guess homicide and car accidents, largely due to the publicity they receive and in turn, their availability in the mind.Adapted from The Psychology of Judgment and Decision Making, by Scott Plous. McGraw-Hill Higher Education, 1993
  11. 11. Availability heuristic • 3) Which claims more lives in the United States: lightning or tornadoes?Adapted from The Psychology of Judgment and Decision Making, by Scott Plous. McGraw-Hill Higher Education, 1993
  12. 12. Availability heuristic • More Americans are killed annually by lightning than by tornadoes. Because tornadoes are often preceded by warnings, drills, and other kinds of publicity, the most common answer is tornadoes. The large amount of information about tornadoes, coupled with the availability heuristic, leads to the misconception that tornadoes are a more frequent cause of death.Adapted from The Psychology of Judgment and Decision Making, by Scott Plous. McGraw-Hill Higher Education, 1993
  13. 13. Availability heuristic• The availability heuristic is a phenomenon (which can result in a cognitive bias) in which people predict the frequency of an event, or a proportion within a population, based on how easily an example can be brought to mind.
  14. 14. Availability heuristic
  15. 15. Availability heuristic
  16. 16. Availability heuristic - example• Someone is asked to estimate the proportion of words that begin with the letter "R" or "K" versus those words that have the letter "R" or "K" in the third position. Most English-speaking people could immediately think of many words that begin with the letters "R" (roar, rusty, ribald) or "K" (kangaroo, kitchen, kale), but it would take a more concentrated effort to think of any words where "R" or "K" is the third letter (street, care, borrow, acknowledge); the immediate answer would probably be that words that begin with "R" or "K" are more common. The reality is that words that have the letter "R" or "K" in the third position are more common. In fact, there are three times as many words that have the letter "K" in the third position, as have it in the first position.
  17. 17. Representativeness heuristic - example• Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations. Please check off the most likely alternative. – Linda is a bank teller. – Linda is a bank teller and is active in the feminist movement.
  18. 18. Representativeness heuristic - example (Porter, 2008)
  19. 19. Representativeness heuristic http://www.google.com/url?sa=t&rct=j&q=representativeness%20heuristic&source=web&cd=4&ved=0CEgQFjAD&url=h ttp%3A%2F%2Fwww.turtletrader.com%2Fheuristics.pdf&ei=68uvTr6jDIjBtAaNu41o&usg=AFQjCNERltN_olsjcnVYYn- qH_f5FwC_7A&sig2=sLhbMopQjZNSqFM1L1UH_Q&cad=rja
  20. 20. DECISION-MAKING AND PROBABILITYBIASES
  21. 21. Anchoring and Adjustment• Examples – How many percent of African countries belong to the United Nations
  22. 22. Anchoring and Adjustment• Used to estimate value or size of quantity• Start from initial value and adjust to final estimate• People are influenced by an initial anchor value – anchor may be unreliable, irrelevant – adjustment is often insufficient• People overestimate probability of conjunctive events• People underestimate probability of disjunctive events• Anchors may be qualitative: – people form initial impressions that persist and are hard to change

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