Midterm Notes - Summary.docx

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Management (MGM)
Sam J Maglio

Lecture 1Introduction Rational Choice Theoryan economic principle that assumes that individuals always make prudent and logical rational decisions that provide them with the greatest benefit or satisfaction and that are in their highest selfinterest oRationalperfect processorsoWillfulact based on intentions highly capableoSelfinterestedincentive driven selfish maximize happinessBehavioral Economicsfield of economics based on the idea that individuals often make irrational decisions and explores why they do sooEvidencePeople are boundedly rationalimperfect processor inconsistent emotional poorly calibrated people often need help to make good decisions People are boundedly willfulerror prone focuses on the present context drivenPeople are boundedly selfinterestedmultimotivated moralistic does not max happiness influence behaviour by understanding the motivation for it ie construct the environment to satisfy that motivationHeuristicsjudgmental shortcuts that generally gets us where we need to go and quickly at the cost of occasionally going off course oSimple quick and easy intuitive rules of thumb used to approximate the correct answeroCan lead to the correct answer but often leads to systematic erroroAvailability Heuristicpeople assess the frequency of a class or the probability of an event by the eases with which instances or occurrences can be brought to mind Factorsfrequencyrecency easy to imagine vividness saliencenoticableWe overestimate the likelihood or frequency or causal impact of things that are easy to bring to mind ietoo many murderers are using the insanity plea to keep from going into prison 50 say yes actual figure 1iejudgment in contributionseasier to call to mind how much work you put in vs the amount someone else put in oRepresentativeness Heuristica reflexive tendency to assess the similarity of objects and events along salient dimensions and to organize them according to the overarching rule that like goes with likeBelief that a member of a given category ought to resemble the category prototype and that the effect ought to resemble the cause that produced it Likely to judge wrongly because the fact that something is more representative does not make it more likelyie New Guinea tribethose who eat turtles are better swimmersthose who ate wild boars are aggressive you are what you eatoAnchoringcommon human tendency to rely heavily on the first piece of information offered when making decisions results in a narrow focusBelieved to be informative signaling that the true answer is close byEven when uninformativelast 4 SINstill creates bias and affects judgmentDifficult to spot and therefore hard to correct
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