BU288 Lecture Notes - Lecture 12: Pocono Mountains, Carting, Confirmation Bias
BU288 Lesson 12: Decision Making
Decision Making
-Decision Making: The process of developing a commitment to some course of action
• Course of action based on a choice among alternatives
• Process
• Commitment/Resource investment
-Carting Racing: Race or not
Carter Racing
-Race: More rewards than risk
• Get a sponsorship from Goodman and the oil company, as well as incentives
• Able to get a new car
• Only 29% chance of the engine blowing
• 80% chance they’ll place top 5
Team
1
2
3
4
5
6
7
8
Race?
Y/N
Y
Y
N
Y
Y
Y
Y
Y
Ration
ale
-Reward >
Risk
-Engine
blows
29%
-Finish
80%
-56%
chance of
finishing
and not
blowing
up
-$1.5 mill
if we win
-Money
will
reduce
failure
-Tom says
need to
take risk
-Reward >
Risk
-71%
engine
won’t
blow
-Sponsors
would
support
-100% of
no
Goodyear
if don’t
race
-Time to
take risk
-Tom says
weather
doesn’t
affect
-They got
new
engine
-If engine
blows, lose
$500 000
(biggest
sponsor)
(1/3 chance)
-56%
chance of
losing
everything
-Big race =
Prob. of
losing
increases
-%
finishing
and
finishing
top 5 is
50%
-8.3% not
finishing
-12.5%
out of
money
-50% top
5
-29.17%
blown
engine
-You miss
100% of
shots you
don’t take
-Reward >
Risk
-Finish
62% of the
races
-EVR:
800k
-EVNR:
485k
-Temp. is
just a gut
feeling – it
doesn’t
mean
anything
-71% it
doesn’t
fail
-We keep
$500k
-56.8%
top 5
-Looked
down
upon
already $
invested in
race
-Go for it
b/c risk
worth it
-71%
chance
don’t fail
-50%
chance
placing
top 5
-$1 mill
+ car
-Reward
> Risk
-Only
29% of
blowing
engine
-
Reputati
on at
stake
-Already
losing $
-Go for
sponsors
-EVR =
$247.5k
-EVNR =
$32 500
-Temp.
doesn’t
matter
Indiv
Y/N
Y 8
N 0
-Looked at
notes
Y 5
N 3
-Jacob got
into his
Y 2
N 4
Y 4
N 4
-Numbers
don’t lie
Y 4
N 2
-
Overconfi
Y 7
N 0
Y 7
N 0
-Look at
informati
Y 4
N 3
-Look at
practical
find more resources at oneclass.com
find more resources at oneclass.com
supporting
thesis
head
dent
on
supportin
g thesis
side to
play it safe
Carter Racing Exercise
-Pat Carter is under pressure to decide whether or not to be involved in an important race in the
Poconos
• Race offers prize money and chance for national TV exposure
-Finishing well will help the company get more sponsors and make a profit
-But… the racing engines have failed 7 times in 24 outings for mysterious reasons
-Failing to finish the race would really hurt the company
• Bad PR
• Losing
Decision Choices
-Certainty of outcomes
-Race:
• Top 5: 12/24 = 50%
• Out of $: 3/25 = 12.5%
• Blow engine: 7/24 = 29.17%
• Not finish: 2/24 = 8.33%
-Don’t race: No risk = 100%
-Decision = Racing → Ignore all temperature data!
Carter Racing: The Fallout
-Managers face problems when making decisions under uncertainty
-Decisions that occur in a behavioural context are often ambiguous
-Importance of gathering all relevant data
-Perceptions bias the use of information
-Quantitative calculations are only as solid as the data that are used in making them (Garbage In,
Garbage Out)
Decision Biases/Problems
-Overconfidence:
• Not looking at the other side of the agreement
• Phenomenon of confirmation bias (when we seek out information that supports a
predetermined biases, filtering out all other hints that oppose the idea)
• Look for information actively that’s consistent with our beliefs, or a bias in interpretation
of the information that is in front of us
• Memory manipulation – how the prompt is worded
-Escalation of Commitment:
• Finding evidence that supports your thesis and ignoring everything else
• Can involve insanity – doing something over and over again expecting different results
• Interpretation of data is easy to manipulate
• E.g. Lawyer – you can manipulate what the witness says
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Decision making: the process of developing a commitment to some course of action: course of action based on a choice among alternatives, process, commitment/resource investment. Race: more rewards than risk: get a sponsorship from goodman and the oil company, as well as incentives, able to get a new car, only 29% chance of the engine blowing, 80% chance they"ll place top 5. 56% chance of finishing and not blowing up. Temp. is just a gut feeling it doesn"t mean anything. Looked down upon already $ invested in race. Prob. of losing increases finishing and finishing top 5 is. Look at practical supporting thesis head dent on supportin g thesis side to play it safe. Pat carter is under pressure to decide whether or not to be involved in an important race in the. Poconos: race offers prize money and chance for national tv exposure. Finishing well will help the company get more sponsors and make a profit.
