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Why is investing relevant to managerial decision making?
· As with all Decision Making, biases and boundedness
compromise outcomes
· So many managerial decisions comprise investing something
· Money, time, energy, resources, reputation, emotion,
hopes…what else?
· Perceptual and cognitive errors are unavoidable for humans
· Observation insight improvement
· Course objective: to develop comfort with reasoning through
complex decisions, yourself and in teams/organizations
· But NOT so you can better exploit others’ compromised DM!
Investment decisions – studied in Behavioral Finance
· Focus on “Prescriptive” or “Descriptive”?
· Reveals how biases affect both individuals and markets
· Individuals/teams/units will be our focus
· Yours, as well as your customers, suppliers, partners, etc.
· Point out analogies where “investment” is in other than $
terms
Main causes of poor investment decisions
· Overconfidence in own knowledge, beliefs, predictions
· “Active trading is hazardous to your wealth”. Men usually
worse.
· How do brokerages reconcile the conflicts of interest?
· Optimism about choices made
· Relates to availability heuristics, confirmation bias, and regret
avoidance
· Encouraged by financial media – why?
· Denying randomness (or regression to the mean)
· The past usually predicts the future, but not the way most
people believe
· Anchoring, status quo, and procrastination
· Tendency toward status quo, consistency, omission, or
inaction
· Poor framing and misuse of reference points
· Complexicating gains/losses; not treating sunk costs as
irrelevant
· Prospect theory: risk aversion with gains, risk seeking with
losses
Active trading
· Traders, like everyone, are likely to regress to the mean
· The mean is losing money, since the bank/casino always get
its cut
· Many jumped into the role based on vivid data
· Skewed by availability and affect heuristics
· Most neglected the other side of each transaction
· Other party is likely better equipped than you
· Every transaction has at least two sides, winners and losers
Steps to better decision-making in investing
· Recognize impossibility of outsmarting the market
· Keynes’ analogy of higher-order thinking
· Relates to the “pick a number between 0 and 100” game
· No perfect solution because human nature determines the
outcome
· Determine goals and plans, then act on and stick with them
· Balance “shoulds” and “wants” (listen to the angel, mostly)
· Deploy your heuristics in useful ways
· Make long-term plans without near-term emotions
· Develop formulas (plans and policies) objectively
· Then stick to them!
· Extensions to non-monetary investments
· Most of these concepts apply to investments of other resources
· Time, energy, reputation, careers, emotion, hopes, what else?
· Analogies, examples?
Apply the concepts of irrational investment decisions (Above in
Blue) to decisions in your life...
Questions:
· In your non-monetary investments (time, energy, attention,
careers, hopes, dreams, etc.) what limits your rationality? To
what effect?
· Insightfully apply chapter 8’s suggestions for overcoming
irrationality to various non-monetary investment decisions
you’re facing. Conclude “Therefore,…”
· Include Q# in the subject header and then answer,
Introspection and insightfulness are more important than
spelling or grammar.
DISCUSSION QUESTIONSGive a concise but thorough answer
to the following chapter discussion questions.
Chapter 10:
1.
Define technology and describe three characteristics that can be
used to assess it.
2.
What effect has technology had on the U.S. and global
economies? Have these effects been positive or negative?
3.
Many people believe that the government should regulate
business with respect to privacy online, but companies say self-
regulation is more appropriate. Which approach would most
benefit consumers most? Business?
Chapter 11:
1.
Define sustainability in the context of social responsibility.
How does adopting this concept affect the way businesses
operate?
2. SEQ NL_a r 0 h Discuss renewable energy initiatives such
as wind, solar, and geothermal. Which do you think are most
feasible and most important for business to focus on?
3. SEQ NL_a r 0 h What role do stakeholders play in a
strategic approach to environmental issues? How can businesses
satisfy the interests of diverse stakeholders?
Chapter 12:
1. How are stakeholder relationships in a global context
different from those in a domestic context? In what ways are
they alike?
2. SEQ NL_a r 0 h What is national competitiveness?
Describe the ways in which the three drivers of the Responsible
Competitiveness Index (RCI) affect business and vice versa.
3. SEQ NL_a r 0 h Review the Global Reporting Initiative
(GRI) performance indicators in Table 12.10. How would a
company measure its progress in these areas? Propose both
quantitative and qualitative measures.
Chapter 13:
Choose two multinational companies, each based in a different
home country, and visit their respective websites. Peruse these
sites for information that is directed at three company
stakeholders: employees, customers, and the community.
Make a list of the types of information that are on the site and
indicate how the information might be used and perceived by
these three stakeholder groups.
What differences and similarities did you find between the two
companies?
How are the differences attributable to cultural nuances?
Chapter 14:
1. How has the Internet and other technology affected
productivity and trust in the workplace?
2. Compare and contrast financial auditing with social auditing.
3. What is urban sprawl, and what negative environmental
impacts have resulted because of it?
4. What is TRUSTe and how does it work?
5. What is the relationship between social auditing and crisis
management? What can organizations do to become better
prepared for preventing and responding to ethical misconduct?
6. How can the traditional approach to corporate philanthropy
be described?
7. Give an example of cause-related marketing and an example
of strategic philanthropy.
8. What is cloning and what are its possible applications?
9. How should a company address stakeholder concerns about
environmental issues?
10. Choose three stakeholders and provide an example of each
stakeholder’s specific concerns at the four levels of social
responsibility.

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Why is investing relevant to managerial decision making· As wit.docx

  • 1. Why is investing relevant to managerial decision making? · As with all Decision Making, biases and boundedness compromise outcomes · So many managerial decisions comprise investing something · Money, time, energy, resources, reputation, emotion, hopes…what else? · Perceptual and cognitive errors are unavoidable for humans · Observation insight improvement · Course objective: to develop comfort with reasoning through complex decisions, yourself and in teams/organizations · But NOT so you can better exploit others’ compromised DM! Investment decisions – studied in Behavioral Finance · Focus on “Prescriptive” or “Descriptive”? · Reveals how biases affect both individuals and markets · Individuals/teams/units will be our focus · Yours, as well as your customers, suppliers, partners, etc. · Point out analogies where “investment” is in other than $ terms Main causes of poor investment decisions · Overconfidence in own knowledge, beliefs, predictions · “Active trading is hazardous to your wealth”. Men usually worse. · How do brokerages reconcile the conflicts of interest? · Optimism about choices made · Relates to availability heuristics, confirmation bias, and regret avoidance · Encouraged by financial media – why? · Denying randomness (or regression to the mean) · The past usually predicts the future, but not the way most people believe · Anchoring, status quo, and procrastination · Tendency toward status quo, consistency, omission, or inaction · Poor framing and misuse of reference points
  • 2. · Complexicating gains/losses; not treating sunk costs as irrelevant · Prospect theory: risk aversion with gains, risk seeking with losses Active trading · Traders, like everyone, are likely to regress to the mean · The mean is losing money, since the bank/casino always get its cut · Many jumped into the role based on vivid data · Skewed by availability and affect heuristics · Most neglected the other side of each transaction · Other party is likely better equipped than you · Every transaction has at least two sides, winners and losers Steps to better decision-making in investing · Recognize impossibility of outsmarting the market · Keynes’ analogy of higher-order thinking · Relates to the “pick a number between 0 and 100” game · No perfect solution because human nature determines the outcome · Determine goals and plans, then act on and stick with them · Balance “shoulds” and “wants” (listen to the angel, mostly) · Deploy your heuristics in useful ways · Make long-term plans without near-term emotions · Develop formulas (plans and policies) objectively · Then stick to them! · Extensions to non-monetary investments · Most of these concepts apply to investments of other resources · Time, energy, reputation, careers, emotion, hopes, what else? · Analogies, examples? Apply the concepts of irrational investment decisions (Above in Blue) to decisions in your life... Questions: · In your non-monetary investments (time, energy, attention, careers, hopes, dreams, etc.) what limits your rationality? To what effect?
  • 3. · Insightfully apply chapter 8’s suggestions for overcoming irrationality to various non-monetary investment decisions you’re facing. Conclude “Therefore,…” · Include Q# in the subject header and then answer, Introspection and insightfulness are more important than spelling or grammar. DISCUSSION QUESTIONSGive a concise but thorough answer to the following chapter discussion questions. Chapter 10: 1. Define technology and describe three characteristics that can be used to assess it. 2. What effect has technology had on the U.S. and global economies? Have these effects been positive or negative? 3. Many people believe that the government should regulate business with respect to privacy online, but companies say self- regulation is more appropriate. Which approach would most benefit consumers most? Business? Chapter 11: 1. Define sustainability in the context of social responsibility. How does adopting this concept affect the way businesses operate? 2. SEQ NL_a r 0 h Discuss renewable energy initiatives such as wind, solar, and geothermal. Which do you think are most feasible and most important for business to focus on? 3. SEQ NL_a r 0 h What role do stakeholders play in a strategic approach to environmental issues? How can businesses satisfy the interests of diverse stakeholders? Chapter 12:
  • 4. 1. How are stakeholder relationships in a global context different from those in a domestic context? In what ways are they alike? 2. SEQ NL_a r 0 h What is national competitiveness? Describe the ways in which the three drivers of the Responsible Competitiveness Index (RCI) affect business and vice versa. 3. SEQ NL_a r 0 h Review the Global Reporting Initiative (GRI) performance indicators in Table 12.10. How would a company measure its progress in these areas? Propose both quantitative and qualitative measures. Chapter 13: Choose two multinational companies, each based in a different home country, and visit their respective websites. Peruse these sites for information that is directed at three company stakeholders: employees, customers, and the community. Make a list of the types of information that are on the site and indicate how the information might be used and perceived by these three stakeholder groups. What differences and similarities did you find between the two companies? How are the differences attributable to cultural nuances? Chapter 14: 1. How has the Internet and other technology affected productivity and trust in the workplace? 2. Compare and contrast financial auditing with social auditing. 3. What is urban sprawl, and what negative environmental impacts have resulted because of it? 4. What is TRUSTe and how does it work?
  • 5. 5. What is the relationship between social auditing and crisis management? What can organizations do to become better prepared for preventing and responding to ethical misconduct? 6. How can the traditional approach to corporate philanthropy be described? 7. Give an example of cause-related marketing and an example of strategic philanthropy. 8. What is cloning and what are its possible applications? 9. How should a company address stakeholder concerns about environmental issues? 10. Choose three stakeholders and provide an example of each stakeholder’s specific concerns at the four levels of social responsibility.