...can be ranked and weighted. Constant preferences: constant decision criteria and weights assigned to them are stable over time No time/cost constraints: full information is available Maximum payoff: the choice alternative will yield the highest economic value (a rational decision making process: define the problem—identify the criteria—allocate weights to the criteria—develop alternatives—evaluate the alternatives—select the best alternative Types of judgments and decisions: Normative: how X should be chosen/ judged in optimal/ rational conditions Descriptive: how X actually gets chosen/ judged The reasons why descriptive decisions are different from normative decisions: Bounded rationality: time cost constraints; incomplete information; perceptiual errors in obtaining information; cognitive load in information retention and performing caluculations Bounded decision making: We seek solutions that are the best given the information that is available; that are satisfactory (good enough) We satisfice rather than optimize Assumptions of bounded rationality: Limited search for criteria: rely on familiar criteria already in effect Limited review of alternatives: fous on easily found alternatives Satisficing: select the first alternative that is good enough Decision making—Biases and Fallacies in daily life: Biases: systematic distortions or patterns of error in judgment Fallacies: use of...
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...located by using the Kaplan Online Library article search feature. Click here to access the Kaplan Library. You may also access the Kaplan Library by following these instructions: 1. Click the Academic Tools tab 2. Click Online Library. 3. Log in to your account 2. Read the narrative for Exercise 11-38 – found on page 459 in your textbook. Assume that you are a business consultant hired to advise Earth Baby, Inc. (EBI) on the proposed venture from Great Deal, Inc. (GDI). Your task is to analyze the proposal and make a recommendation to either accept or reject it. Your analysis must include critical thinking and analysis supported by evidence using independent references. Your analysis must also include any biases that might be relevant to the proposal. The analysis must be Word document, 2 to 2 and ½ pages long, not including the Title Page and Reference List. The analysis must be presented in proper APA, 6th Edition formatting, including a Title Page with properly formatted Running head. A “Conclusion” section is also 11-38 Special Order Earth Baby Inc. (EBI) recently celebrated its tenth anniversary. The company produces organic baby products for health-conscious parents. These products include food, clothing, and toys. Earth Baby has recently introduced a new line of premium organic baby foods. Extensive research and scientific testing indicate that babies raised on the new line of foods will have substantial health benefits. EBI is...
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... b. Incremental cash flow; sunk cost; opportunity cost; externality; cannibalization; expansion project; replacement project c. Net operating working capital changes; salvage value d. Stand-alone risk; corporate (within-firm) risk; market (beta) risk e. Sensitivity analysis; scenario analysis; Monte Carlo simulation analysis. f. Risk-adjusted discount rate; project cost of capital g. Decision tree; staged decision-tree analysis; decision node; branch h. Real options; managerial options; strategic options; embedded options i. Investment timing option; growth option; abandonment option; flexibility option a. Project cash flow: The process of inflow or outflow of cash in any project is called cash flow. In project cash flow the increase in income results cash inflow on the other hand, expenditure results cash outflow. Accounting income: Accounting income is the result after deducting the total sales revenue from its expenses. The result of accounting income and cash flow differs in the financial statement because accounting income makes records of both cash and non cash transaction. While in cash flow only pure cash transaction are recorded. b) Incremental cash flow: Incremental cash flow is the additional cash that company may receive by taking a new project. If a company sees positive incremental of cash flow then it means the company can get additional cash flow in future, if new project is accepted. Sunk cost: The cost that has already been recorded...
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...Everi THE INTERACTION OE COGNITIVE BIAS, PSYCHOLOGICAL SAEETY, AND SYSTEM COMPLEXITY Michael A. Roberto B usiness leaders and scholars have learned important lessons from tragedies such as the Challenger disaster, the Bay of Pigs fiasco, and the Three Mile Island accident.' Similarly, we can leam important lessons about leadership and decision making from the unfortunate events that took place on Mount Everest several years ago. Survivors have offered many competing explanations for this tragedy. While they have focused on the tactical blunders, this research examines the underlying cognitive, interpersonal, and systemic forces that played a role in the incident. This conceptual analysis suggests that cognitive biases, team beliefs about interpersonal risk taking, and system complexity interacted to create a fatal disaster. Incredible achievement and great tragedy unfolded on the treacherous slopes of Everest on May 10, 1996. TVventy-three people reached the summit along the South Col route in Nepal on that day, including Rob Hall and Scott Fischer, two of the world's most skilled and experienced high-altitude climbers. Unfortunately, Hall, Fischer, and three members of their expeditions died as a storm enveloped the mountain during their descent. Others barely escaped with their lives after many hours wandering in the dark while braving subzero temperatures. Hall, the leader of the Adventure Consultants expedition, had established an impressive track...
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...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 bad because it’s hard to admit making a mistake. Techniques exist to overcome each one of these problems. For instance, since the way a problem is posed can influence how you think about it, try to reframe the question in various ways and ask yourself how your thinking might change for each version. Even if we can’t eradicate the distortions ingrained in the way our minds work, we can build...
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...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, serve us well in most situations. In judging distance, for example, our minds frequently rely on a heuristic that equates clarity with proximity. The clearer an object appears, the closer we judge it to be. The fuzzier it appears, the farther away we assume...
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...amount of initial investment itself in influenced by the choice of location. For instant, the central government of India in consultation with the respective state government has declared certain areas, districts and taluses backward and has given a subsidy of 15 per cent on the cost of land buildings, to encourage balanced growth of industries, Another significant factor is the service rendered by state governmental agencies in providing infrastructural facilities, managerial expertise, loans, technical assistance, etc. Third, the cost of capital is a very important factor in the investment decision. While considering the cost of capital. Due card should be given to factors such as the opportunity cost. The entrepreneur, who is investing capital, is obviously interested in setting a return within a planned time horizon. For this purpose he has to consider the gestation period of the project, projected cash flow, taking into account factors such a inflation, governmental taxes, risk involved in investment, raw material prices, competitions, growth rate, trend, of wages, market demand, operating costs, fixed costs, development rebate estimated life or physical facilities, availability of build raw materials, cost of skilled labor, etc. Two other crucial factors which are estimated on the basis of particular state, and industrial relations climate. The investor will thus have to make economic analysis, technical analysis, market analysis, commercial analysis and financial analysis for...
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...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 decisions. • Remind yourself that even the best managers make mistakes. • Don’t encourage...
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...Flows • Recommendations Case Summary • General Foods is a large corporation organized by Product Lines. • Super is a proposed new instant desert, based on a “flavored, water-soluble, agglomerated powder.” • General Foods has numerous projects with strict criteria to judge worthiness. • There are basically three types of Capital Investment proposals at General Foods: Safety, Quality, Increased Profit • Increased Profit: Cost Reduction, Capacity, New Product • Max 10 years payback: as low as 20% PBT • … if expected to be permanent product addition • … if facilities highly reconfigurable • Three analysis types: Incremental, Facilities-based and Fully Allocated. Problem Statement • Above all, Super’s worthiness as a capital investment must be evaluated according to General Foods’ accepted criteria. • Memos indicate that General Foods’ finance personnel are questioning the same criteria’s ability to accurately reflect the value of the Super project. • This is not an accounting exercise. In accounting, one tries to track and attribute all sources of costs. Also, one alters transaction timings to match expenses with income. • This is a capital budgeting exercise. We’re interested in cash flows to judge the value of a project, and when those cash flows occur. • Therefore, our team must 1) evaluate the pertinence of each of the analysis types to Super; and 2) evaluate the worthiness of the Super project. General Foods – ROFE •GF uses Return On Funds Employed (ROFE) to evaluate...
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...the economic environment in which business decisions are made. Developing innovative solutions to business problems will be encouraged throughout the course. Learning Objectives Ø Apply the tools and theories from microeconomics to perform demand and supply analyses. Ø Identify different market structures. Formulate different pricing strategies under different market structures or consumer characteristics. Ø Apply basic game theoretic models to formulate business strategies such as pricing. Ø Understand the main issues faced by companies and what are the possible solutions suggested by economic theory. For example, the principal-agent problem and how incentive contracts can be used to address the issue. Ø Understand the key behavioral biases that can affect decision-making in business setting. Brief Course Outline The following table lists the approximate schedule and topics of the classes....
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...Expected Value and Consumer Choices Argosy University Abstract Consumers’ choices are prey to subtle discrepancies that arise in cognitive accounting and identifying how and when you are susceptible is an important step in improving the decision making process (Tvorik, 2014). This paper will consider why people value gains and losses differently in different circumstances by addressing what mental accounting is and how it impacts consumer decision making; and how a company can take advantage of their consumers’ mental accounting (Tvorik, 2014). This writer will also consider different scenarios from differing points of view; as a marketer and as a consumer. As a marketer, this writer will analyze how I would frame certain decisions to benefit from the disparities in my own cognitive accounting. As a consumer, I will address how to avoid the pitfalls posed by the inequalities of again, my own cognitive accounting (Tvorik, 2014). Mental accounting is a term that describes how people categorize and quantify economic outcomes (Thaler, 1980). This is similar to financial accounting in the way of using a system of debits and credits and affects how people spend and save their money, thus consumer decision-making. Mental accounting determines “when an individual chooses to act or postpone a purchase, how he or she perceives gains and losses, and how timing bears on the individual’s choices” in relation to the three mental buckets: current income, current wealth and future...
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...Maya is a hardworking and enthusiast intern in a psychiatry clinic. She is planning to be a psychiatrist in future so she joined this clinic especially to pursue her interest and fascination with human brain and its functioning. As part of her rotation she assisted the psychiatrist and took the notes. One time her supervisor introduced her to a patient and asked to take history and do the assessment. The patient was referred from his primary care physician for possible bipolar with depression. Maya was really thrilled to have an independent case and worked thoroughly with the guidelines. After the interview she had three differential diagnoses and after ruling out two, she made her final diagnoses. There was no doubt of errors and she was pretty confident about it. When she presented the case, the psychiatrist as well as psychologist smiled. The patients was having a medical illness with some physical signs similar to depression and going through situational stress, anxiety and depression. The patient clearly did not qualify for mental illness; Maya could have diagnosed this correctly if it was not psychiatry clinic and had she not seen the referral order from PCP with presumptive diagnoses. These things had affected her decision about the diagnoses. Since then she has learned a lot from this rotation, including a newer non-invasive treatment modality for depression. This has shown promising results in past clinical trials and got recently approved by FDA for depression. This...
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...Thesis Proposal Observing the Relation between Corporate Culture and Project Performance Background Projects are increasingly becoming vital means for corporate progress, however, research indicate that projects rarely fully succeed According to the 2004 PriceWaterhouseCoopers Survey of 10,640 projects valued at $7.2 billion, across a broad range of industries, large and small, only 2.5% of global businesses achieve 100% project success and over 50% of global business projects fail. Expects view supports the fact that most projects still overspend, fall off schedule and seldom meet stakeholder expectation. Improved tools, templates and methodologies fail to yield significant concurrent improvement in outcome. (Business Improvement architect 2008). In the face of shorter product life cycle there is limited time to implement project even in the light of higher stake holder expectation (Ivanenko 2009) Prior Research Perhaps in search of remedial prescriptions, literary works have been devoted to leadership in project management (Hersey and Blanchard 1993, Druker 1996, Maxwell 2005). Many of which propose situational leadership as paramount success ingredient for projects (Hersey and Blanchard 1969 (Kerzner 2003). After testing 153 across 28 countries, (Prabhakar 2008) concluded that the project manager is the key success factor in multicultural projects. However, the significance of organizational culture for project performance did not escape scientific attention. For...
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...on a journal article of your selection. Here are some key words to help you find an article for this assignment: * Decision making * Risk taking * Persuasion * Social heuristics Write a 5–6 page paper in Word format that addresses the following: * Describe a decision-making scenario using your business experience, personal decision making or cited journal article; include an example of the decision-making process, why it was a risk, how persuasion was used, and what the social heuristics were. * Explain the incentives that caused others to support the decision and identify why these incentives were selected. * Identify the risks and the potential decision biases in your scenario. Propose the corrective steps that should have been taken to overcome these biases. If a risk assessment was conducted how did this affect the decision-making process? * Analyze your scenario for what happened in terms of social heuristics. Explain how decisions were made and the social factors that shaped the decision-making environment. * Discuss the greatest challenges to sound decision-making in your scenario. * Critique the decision-making process used by the sponsor(s) and leader(s) of the decision. Identify the mistakes made by the sponsor(s), leader(s) and team members or others impacted...
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...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 the root cause, the brain can be a deceptive guide for rational decision making. The basic assumption of modern economics—rationality—does not stack up against the evidence These implications of the brain's inadequacies have been rigorously studied by social scientists and particularly by behavioral economists, who have found that the underlying assumption behind modern economics—human beings...
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