COMM 151 Chapter Notes - Chapter 1-9: Sunk Costs, Availability Heuristic, Systemc
Decision Making
• Decision making exercise from last week
• Availability heuristic: what is easily accessible in their mind (common and vivid)
• Representatives Heuristics
• Framing (how many lives): framed in terms of loss and framed in terms of gain
• Framing heuristic: make different decisions on the same problem based on the way its framed
• Anchoring and discussions (initial piece of information for the decision making process), that
no matter the follow up information, the decision can not be adjusted sufficiently
• Power of default
• Contrast Effect (rome vs. paris) (introduce rome with coffee, it doesn't just make rome without
coffee seem worse but paris too)
Escalation of commitment
• Face a dilemma when initiated a failing course of action (deciding whether to continue down
the same path or strike down in a new direction)
• NBA draft: player drafted earlier in the process get longer player time and stay on the team
longer regardless of performance
• Explanations for escalation of commitment
o Don’t like to make a mistake to ourselves and even more the public
o Justify the decision that they have made a bad decision (Self justification/dissonance
reduction even if theres no evidence of it being true)
o Failure in treating sunk costs as sunk costs (need to be forward looking as costs are
irretrievable)
o Social norm of consistency in behavior (no one does it so we should do it; following what
others are normally doing so what you are doing is thought to be wrong even if its right)
o Avoiding the appearance of being wasteful (going back seems to be wasting the money)
o Framing: things are not going well so you are in the domain of loss, which makes people
risk prone (no evidence that it is going to get better)
How to prevent
-Change the frame (the way you see it, change it to a different light)
-Spend specific goals that need to be met before committing further resources
-Important but unevaluated : focus on the decision making process but not the outcome itself
(people get defensive when things don’t go well)
• People feel less defensive when more emphasis is placed on decision making process (you did
the most you could, in spite of doing all the right things it still might not turn out)
-Rational behavior
-Perfect rationality: people use analytic, thorough and systemc information processing
1. Make decisions with complete information (aware of all the alternatives)
2. Logical with the way they work with that information
3. One criterion used only: economic gain
(Not people actually make decisions)
Bounded rationaly model
• Heuristic processing of information that count on rules to simplify decision making
• Use many more than 1 criterion
• Use heuristics that enable us to simplify for us the way we make decisions
Paradox
-Most of the time people make good decisions
• If you had to systematically process every piece of information you encounter, your head
would explode (no way to cope)
• Heuristics or mental shortcuts are incredibly helpful (helps us for the most part make very
good decisions and simplifies the process)
• Cant make optimal decisions all the time and obviously mistakes can be costly (awareness is
key)
• Correct the flaws when the stakes are high
-When the stakes are high, step back and scrutinize the decision making process: know the flaws of
the decision making system and correct for the flaws when the stakes are high
15 mcq worth 30 percent
Long answer question for midterm (choose 2 out of 3 that account for 70% , 35% each)
-Make sure to complete all the readings
-Content of the class (in class exercises included)
When I will write the exam (class only, textbook only and the overlap)
-Test concepts that are in class, in the readings and overlap
• Information from class, information from class specifically and overlap2
My lab and mastering
Long answer approach
1. Define the term (Completely define each term)
2. Apply from the case as evidence (ensures that his employees have the resources to be
successful (take exact evidence from the case)
3. Based on traits asked (evaluate the relationship with job satisfaction) Emotional stability-
Conscientious- Extraversion- Agreeableness and openness has no relevance
Having optimally challenging work, family relationships,
Self justification- dissonance reduction: People don’t like to admit they've made a mistake to
themselves let alone others
Failure to treat sunk cost as sunk cost: Time money and energy you've spent on this company is
gone, have to be forward thinking. People have a hard time letting that go even though its gone.
Social norm of consistency in behavior: Pause and reconsider your course of action when you
consistently have negative comments
Avoiding appearance of being wasteful
Framing: Change the frame , domain of gain you become risk averse
Prevent escalation of commitment
-Change the frame
-Set goals that need to be met before committing further resources
-Place emphasis on the decision making process and less on the outcome of it
90% of material on the final will be material since the midterm 10% will be pre-midterm and only in
the MCQ
Review of Carter Racing Exercise: Consideration of whether or not to begin a race in less than 1 hour
Document Summary
Decision making: decision making exercise from last week, availability heuristic: what is easily accessible in their mind (common and vivid, representatives heuristics. Framing (how many lives): framed in terms of loss and framed in terms of gain. Change the frame (the way you see it, change it to a different light) Spend specific goals that need to be met before committing further resources. Bounded rationaly model: heuristic processing of information that count on rules to simplify decision making, use many more than 1 criterion, use heuristics that enable us to simplify for us the way we make decisions. Most of the time people make good decisions. When the stakes are high, step back and scrutinize the decision making process: know the flaws of the decision making system and correct for the flaws when the stakes are high. Long answer question for midterm (choose 2 out of 3 that account for 70% , 35% each)
