...ASSESSMENT 2B: Identifying Decision Traps Decision Making Exercise 2 Introduction We all remember the hot summer(winter in Australia) when we heard the news that Lehman Brothers filed for bankruptcy during the terrible ‘sub-prime meltdown’(Investopedia 2009). As a giant among investment banks with a history over 150 years,Lehman Brothers suddenly collapsed in few months. How did Lehman Brothers go bankrupt? Why did it happen? Are there any methods that could have been used to avoid the doomsday? These questions will be discussed below. Case study overview In early 2007, with the stock reached $86.18(Investopedia 2009), Lehman Brothers seemed to have done a great job. Therefore ,the company underestimated the risks posed by rising ‘home delinquencies’(Terry 2008) and overestimated the risk-enduring capacity of the US housing market. One real estate investment broker described Lehman as ‘the real estate A.T.M(Terry 2008).Then Lehman’s share price went into a tailspin when the dark days came in August 2007. Dramatically, at the end of 2007, Lehman’s share price rebounded, as ‘global equity markets reached new highs and prices for fixed-income assets staged a temporary rebound’(Terry 2008).However, Lehman failed to seize the chance to ‘trim its massive mortgage portfolio’(Investopedia 2009). According to the Investpedia (2009), the news was a deathblow to Lehman, leading to a 45% plunge in the stock and a 66% spike incredit-default swaps on the company's debt. With...
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...WOXSEN SCHOOL OF BUSINESS WOXSEN SCHOOL OF BUSINESS REFLECTION ARTICLE-PVR LTD Vikas Muley REFLECTION ARTICLE-PVR LTD Vikas Muley MARKETING MANAGEMENT MARKETING MANAGEMENT Table of Contents Assignment on Principles of Marketing Management-Reflection Article on PVR Group 3 Assignment on Principles of Marketing Management-Reflection Article on PVR Group 1) What business is PVR in? What are the main products? Ans: PVR is majorly in entertainment business. Main products offered are: 1) It has large chain of multiplex. 2) Main product, which fascinates the customer, is the top line technology, plush interiors, great ambiance, comfortable chairs and good services. 3) Interiors resemble a five star hotel as well as cutting edge formats such as ECX and IMAX. 4) PVR is the major and famous source for watching 3D and 4DX movies. 5) Apart from multiplex, it also provides F&B services, which in turn adds flavors to entertainment. 2) How is the company trying not to fall in the ‘myopic trap’? How are they trying to redefine the entertainment market? Ans: a) Company was actually once involved in the ‘myopic trap’ of producing movies. Production of movies is good thing for any investor but not at the expense that it will affect your domain business. In case of PVR hit movies were contributing less to the profits and flop movies were affecting much for the profits...
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...www.hbr.org THINKING ABOUT … In making decisions, your own mind may be your worst enemy. Here’s how to catch thinking traps before they become judgment disasters. The Hidden Traps in Decision Making by John S. Hammond, Ralph L. Keeney, and Howard Raiffa copying or posting is an infringement of copyright. permissions@hbsp.harvard.edu or 617.783.7860 Reprint 98505 In making decisions, your own mind may be your worst enemy. Here’s how to catch thinking traps before they become judgment disasters. THINKING ABOUT… The Hidden Traps in Decision Making by John S. Hammond, Ralph L. Keeney, and Howard Raiffa Making decisions is the most important job of any executive. It’s also the toughest and the riskiest. Bad decisions can damage a business and a career, sometimes irreparably. So where do bad decisions come from? In many cases, they can be traced back to the way the decisions were made—the alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighed. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage our decisions. Researchers have been studying the way our minds function in making decisions for half a century. This research, in the laboratory and in the field, has revealed that we use unconscious routines to cope with the complexity inherent in most decisions. These routines, known as heuristics...
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...www.hbr.org BEST OF HBR 1998 In making decisions, you may be at the mercy of your mind’s strange workings. Here’s how to catch thinking traps before they become judgment disasters. The Hidden Traps in Decision Making by John S. Hammond, Ralph L. Keeney, and Howard Raiffa • Reprint R0601K In making decisions, you may be at the mercy of your mind’s strange workings. Here’s how to catch thinking traps before they become judgment disasters. BEST OF HBR 1998 The Hidden Traps in Decision Making by John S. Hammond, Ralph L. Keeney, and Howard Raiffa COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. Before deciding on a course of action, prudent managers evaluate the situation confronting them. Unfortunately, some managers are cautious to a fault—taking costly steps to defend against unlikely outcomes. Others are overconfident—underestimating the range of potential outcomes. And still others are highly impressionable—allowing memorable events in the past to dictate their view of what might be possible now. These are just three of the well-documented psychological traps that afflict most managers at some point, assert authors John S. Hammond, Ralph L. Keeney, and Howard Raiffa in their 1998 article. Still more pitfalls distort reasoning ability or cater to our own biases. Examples of the latter include the tendencies to stick with the status quo, to look for evidence confirming one’s preferences, and to throw good money after...
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...Hidden flaws in strategy Charles Roxburgh The McKinsey Quarterly, 2003 Number 2 After nearly 40 years, the theory of business strategy is well developed and widely disseminated. Pioneering work by academics such as Michael E. Porter and Henry Mintzberg has established a rich literature on good strategy. Most senior executives have been trained in its principles, and large corporations have their own skilled strategy departments. Yet the business world remains littered with examples of bad strategies. Why? What makes chief executives back them when so much know-how is available? Flawed analysis, excessive ambition, greed, and other corporate vices are possible causes, but this article doesn't attempt to explore all of them. Rather, it looks at one contributing factor that affects every strategist: the human brain. The brain is a wondrous organ. As scientists uncover more of its inner workings through brain-mapping techniques,1 our understanding of its astonishing abilities increases. But the brain isn't the rational calculating machine we sometimes imagine. Over the millennia of its evolution, it has developed shortcuts, simplifications, biases, and basic bad habits. Some of them may have helped early humans survive on the savannas of Africa ("if it looks like a wildebeest and everyone else is chasing it, it must be lunch"), but they create problems for us today. Equally, some of the brain's flaws may result from education and socialization rather than nature. But whatever...
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...E www.hbr.org THINKING ABOUT … The Hidden Traps in Decision Making by John S. Hammond, Ralph L. Keeney, and Howard Raiffa Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work The Hidden Traps in Decision Making Further Reading A list of related material, with annotations to guide further exploration of the article’s ideas and applications 2 11 Product 5408 THINKING ABOUT … The Hidden Traps in Decision Making The Idea in Brief Making business decisions is your most crucial job—and your riskiest. New product development, mergers and acquisitions, executive hirings—bad decisions about any of these can ruin your company and your career. Where do bad decisions come from? Mostly from distortions and biases—a whole series of mental flaws—that sabotage our reasoning. We all fall right into these psychological traps because they’re unconscious—hardwired into the way we all think. Though we can’t get rid of them, we can learn to be alert to them and compensate for them—monitoring our decision making so that our thinking traps don’t cause judgment disasters. The Idea in Practice The higher the stakes of your decision, the higher the risk of getting caught in a thinking trap. Worse, these traps can amplify one another—compounding flaws in our reasoning. Here are five of the nine traps: Avoiding the Trap: • Get views of people who weren’t involved in the original...
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...High-performance business Create value with technology Avoiding the austerity trap By Bob Suh In today's uncertain business climate, IT investment is often in the budgetary crosshairs. But in fact, now is the ideal time to upgrade existing infrastructure and invest in next-stage technologies that create value. Management decision making can be fairly straightforward when the economy is clearly headed in one direction or the other. When it is growing, business leaders invest to meet demand. When it is shrinking, they cut costs to meet quarterly earnings expectations. But what do executives do when the economy has bottomed out and growth is somewhere on the horizon but not yet robust? When the obvious cuts have been made and pricing power is a distant memory, how do companies continue delivering shareholder value while they wait for vigorous growth to kick in? What will it take to achieve high performance in these uncertain times? Outlook 2004, Number 1 55 And speaking of costs, what role does a capital-intensive function like information technology play in this quest for high performance? Many business leaders are understandably wary of IT investments. Although spending on information technology has increased substantially in the past 10 years, many technology projects have been characterized by sketchy metrics, long cycle times to new products and unpredictable results. No wonder many executives have come to regard IT investments as a necessary evil and information...
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... altered their conventional dealings. Immigrants were given opportunities for a new life in America, though they had to endured great hardships. The city dwellers benefitted greatly from this transformation, becoming only richer, and broadening the gap between the classes. All classes, lower, middle and upper, felt the innovative shift, as the age of the inventions rose from the minds of the geniuses. Though the “progress” of the Machine Age might have brought a world of pain and sickness, it birthed new discoveries and transformation, bringing electricity, powerful...
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...Industrial Revolution 1. The industrial revolution in the UK changed the nature of British interest in India. Comment. 2. How was the Indian economy affected by the change? 3. What role did opium play in that regard? 4. Would you attribute the origins of the industrial revolution to the inventive genius of the English people? Provide reasons for your answer. 5. Analyze the cause and conditions of the emergence of the factory system of production in Western Europe. What are the chief characteristics? Indian Business 1. Explain the difference in the process of industrialization of jute and cotton textile industries in India? 2. How do you explain the Indian Business Community’s increasing interest in the Indian national movement beginning with the post First World War period? 3. How do you explain the duality in the attitude of the Indian business community towards Indian nationalism? 4. How did colonial rule affect Indian business? How did businessmen respond to the new...
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...on economic policy matters and its core funding comes from its Institutional Members and sales of publications. Because it draws on such a large network of researchers, its output reflects a broad spectrum of individual viewpoints as well as perspectives drawn from civil society. CEPR research may include views on policy, but the Executive Committee of the Centre does not give prior review to its publications. The opinions expressed in this report are those of the authors and not those of CEPR. Chair of the Board President Director Research Director Guillermo de la Dehesa Richard Portes Richard Baldwin Kevin Hjortshøj O’Rourke Contents Introduction Richard Baldwin and Coen Teulings 1 Opening the debate 1 Reflections on the ‘New Secular Stagnation...
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...Harvard Business School 9-800-288 Rev. June 8, 2001 Seven Rules for New Leaders This note provides an overview of some of the concepts developed in Dan Ciampa and Michael Watkins’, Right From the Start: Taking Charge in a New Leadership Role (HBS Press, 1999) Every year thousands of managers—more than 600,000 annually in the Fortune 500 alone— transition into new jobs.1 By the time he or she reaches the top, the typical CEO of a Fortune 100 company has made seven major transitions—moves between functions, business units, or companies.2 But for every successful CEO, there are many talented managers who stumble along the way, damaging their careers and the organizations they were charged to lead. The actions new leaders take during their first few months can have a major impact on their success or failure, yet there is little good advice available on how to take charge in a new leadership role. Transitions are pivotal times, in part because everyone is expecting change to occur. But they are also periods of great vulnerability for new leaders who lack established working relationships and detailed knowledge of their new role. New leaders who fail to build momentum during their transition face an uphill battle from that point forward. Common Traps An analysis of new leaders who under-perform reveals six common traps into which they fall. Trap #1. Being Isolated New leaders can become isolated as a consequence of over-reliance on financial and operating reports and quantitative...
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...Global Perspectives on Investment Management LEARNING FROM THE LEADERS Conversation with a Money Master BILL MILLER, CFA with FRED H. SPEECE, JR., CFA Bill Miller, CFA, is chairman and chief investment officer at Legg Mason Capital Management, Inc., and was named ‘‘The Greatest Money Manager of the 1990s’’ by Money magazine. In this question and answer session, Fred H. Speece, Jr., CFA, interviews Bill Miller about his insights into portfolio management in general and value investing in particular. Continuing a tradition of lifelong learning a cfa institute publication Conversation with a Money Master BILL MILLER, CFA Bill Miller, CFA, is chairman and chief investment officer at Legg Mason Capital Management, Inc., and was named ‘‘The Greatest Money Manager of the 1990s’’ by Money magazine. In this question and answer session, Fred H. Speece, Jr., CFA, interviews Bill Miller about his insights into portfolio management in general and value investing in particular. Speece: You have an impressive long-term track record as a portfolio manager. Given today’s very efficient and sophisticated market, do we still have room for stock picking? Miller: When we discuss market efficiency, we run into a semantic issue about what exactly is meant by the term ‘‘market efficiency.’’ At Legg Mason, we believe that the markets are pragmatically efficient, which means that they are extremely competitive and usually beat most active managers. For example, fewer than 35 percent of...
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...CHAPTER 11 MONETARY AND FISCAL POLICY Chapter Outline: • The effects of fiscal and monetary policy on output • Monetary policy and the transmission mechanism • The liquidity trap • The classical case • The quantity theory of money • Fiscal policy and crowding out • Monetary accommodation • The effects of alternative policies on the composition of output • The U.S. economy in the 1980s and 1990s • Anticipatory monetary policy • The policy mix during the German re-unification Changes from the Previous Edition: The material in this chapter has been updated, but its format is essentially the same. More emphasis is given to the economic expansion in the U.S. in the 1990s. Introduction to the Material: Chapter 11 uses the IS-LM model derived in Chapter 10 to show how monetary and fiscal policies can be used to dampen economic disturbances. The economic effects of various policy mixes are highlighted in discussions of actual events: the recession and recovery in the United States in the 1980s, the U.S. recession in 1990-91, the long economic expansion thereafter, and the policies enacted by Germany during the re-unification process in 1990-92. First, the Fed's conduct of monetary policy is discussed, with an explanation of how open market operations can be used to change nominal money supply. The effectiveness of monetary policy in changing the amount of output demanded depends on the steepness of the LM-curve. The transmission mechanism, that...
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...comply, bribe the regulator to get around the rule, or lobby the government to relax it. We analyze this choice, and its consequences, in a simple dynamic model. In equilibrium, when the level of development is low, firms are more inclined to bend the rule through bribery but they tend to switch to lobbying when the level of development is sufficiently high. Bribery, however, is associated with holdup problems, which discourage firms from investing. If the holdup problems are severe, firms will never invest enough to make lobbying worthwhile. The country may then be stuck in a poverty trap with bribery forever. The model can account for the common perception that bribery is relatively more common in poor countries, whereas lobbying is relatively more common in rich ones. In India, as elsewhere in the developing world, the old business of corruption is meeting a new rival: the Washington-style business of persuasion — –International Herald Tribune, May 31, 2006 ◦ W L obbying and corruption have been the subject of tremendous public interest and research. Surprisingly, these two means of influencing regulation have either been studied separately or viewed as basically being one and the same. The question of why firms choose to lobby or bribe, and of the consequences of this choice, remains largely unanswered. The common perception is that firms in developing countries are more likely to pay bribes to get around regulatory constraints, whereas firms in developed countries are...
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...unproductively at the wall for a while as I try to piece together how exactly we got here. What I Was Saying Two Years Ago Last week I went back and looked at all of my talks from the fall and winter of 2008. Back then I was ringing changes on three themes: 1. We are in substantial trouble: the collapse of the housing bubble triggered a mortgagefinance crisis that snowballed into a general financial crisis and a flight to safety that would, if unchecked, produce the worst economic downturn since the Great Depression itself. 2. Normal stabilizing monetary policy tools cannot help us any more. The standard policy moves we use to stabilize demand and production 2 J. Bradford DeLong and prevent or cushion downturns have already been used to the full and cannot help us any more. 3. Nevertheless, we are going to get out of this with only minor damage to the economy, for we do have (a) the technocratic knowledge, (b) the policy tools, and (c) the political will to escape from the trap. And I was very...
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