The document discusses a case study analyzing whether new fund managers perform better than experienced managers and examines the heuristics and biases that may influence investment decisions. It presents three propositions that new managers are eager to prove themselves, managers become attached to their previous analyses, and success for managers is temporary. The document analyzes each proposition in terms of relevant heuristics and biases and considers criticisms of the propositions.

1. CASE: NEW FUNDS HAVE
BETTER PERFORMANCE
Ada, Marie & Susanne Judgment and Decision Making 02.02.2011

2. Questions & Main
Case Concepts
Agenda Critics &
Conclusions
Propositions
 Questions
 Article vs. case
 Main concepts
 Propositions
 Critics Questions & Main
Case Concepts
 Conclusion
Critics &
Propositions
Conclusion

3. Questions & Main
Case Concepts
Questions Critics &
Conclusions
Propositions
 To what extent do existing theories in
judgment and decision making reject or
support the propositions made?
 Identify and exemplify which heuristics and
biases that may or may not be in play here.

4. Questions & Main
Case Concepts
Article vs. Case Critics &
Conclusions
Propositions
 Compare case and article
 Context
 Generalizability of the findings

5. Main
Questions & Concepts
Case
Main Concepts Critics &
Conclusions
Propositions
 Funds pool of investments from many investors for the purpose of investing
in securities (stocks, bonds)
 Fund Manager responsible for investing the fund's capital and attempt
to produce capital gains and income for the fund's investors
 Heuristics experience-based techniques for problem solving, learning,
and discovery
 Speed up the process of finding a good enough solution
 Common sense & Rules of thumb
 Biases Errors occurring when the rules of thumb do not fit the situation
 Decision Involvement Inertia
 Decision Involvement Distortion
 Belief Inertia Distortion

6. Questions & Main
Case Concepts
Proposition 1 Critics &
Conclusions Propositions
”New managers are eager to prove themselves“
H1 : High involvement  High escalating
behavior  Biases
 Heuristic: Availability - Imagination
 Bias: Decision Involvement Inertia
 Fear of loosing face
 Effort required to justify change
 Risk seeking
Proposition 1: Supported (Hypothesis 1: Rejected)

7. Questions & Main
Case Concepts
Proposition 2 Critics &
Conclusions Propositions
”Managers have ’love affairs’ with their old
analysis”
H2: High involvement DID  Updated Belief Structure  Action
New info
 Heuristic: Conservatism
 Bias: Decision Involvement Distortion
 Misinterpretation of new information
Proposition 2: Supported (Hypothesis 2: Rejected)

8. Questions & Main
Case Concepts
Proposition 3 Critics &
Conclusions Propositions
“Limited time in paradise”
 Heuristics: Representativeness – non
regressive predictions
 Bias:
 Tendency to overlook regression
 Replicating the formula. But, “success does not
breed success” (Professor Johnsen).

9. Questions & Main
Case Concepts
Critics Critics &
Conclusions
Propositions
 Generalizability
 Products vs. securities
 Product markets vs. stock exchange
 Rookies vs. experienced managers
 A 4th proposition – The Easy Mover Advantage
 Other influences
 “Objective” measures
 Timing
 Investment field > Age as an advantage

10. How to Avoid Biases in Questions &
Case
Critics &
Main
Concepts
Propositions
Conclusions
Decision Making
 Heuristic:
 Availability – Imagination
 Imagination of an outcome – far from reality
 Conservatism
 Open mindedness
 Always search for better alternatives
 Representativeness
 Success does not breed success, it does not always
rain where it is wet
 Unusual good luck in the past is not representative for
the future. Regression towards the mean

11. Questions & Main
Case Concepts
Conclusion Critics &
Conclusions
Propositions
 The implications of biases in organization
 Belief Inertia Distortion
 How to make a good investment