Notes for BUAD 304 (Entire Semester)
Notes for BUAD 304 (Entire Semester) BUAD 3040
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This 92 page Class Notes was uploaded by Chandler Grade on Friday August 5, 2016. The Class Notes belongs to BUAD 3040 at University of Southern California taught by Kelly Lee Patterson, Chris Bresnahan in Fall 2015. Since its upload, it has received 17 views. For similar materials see Organizational Behavior and Leadership in Business at University of Southern California.
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Date Created: 08/05/16
BUAD 304 Notes 09/27/2015 ▯ Module 1: Motivation ▯ ▯ Positive Reinforcement ▯ desired behavior emitted present attractive consequence desired behavior increases ▯ ▯ Negative Reinforcement ▯ Undesired behavior expected threaten aversive consequence undesired behavior decreases ▯ ▯ Punishment Reinforcement ▯ Undesired behavior emitted present aversive consequence undesired behavior decreases ▯ ▯ Using Reinforcement Emphasize Positive, Not Negative reinforcement Be consistent Tell employee’s explicitly what’s rewarded ▯ Punishment Catch behavior early Punishment should follow negative behavior immediately Focus on negative behavior, not on the individual Explain right way of doing things and how the behavior will be rewarded Praise in public, punish in private ▯ ▯ Assumptions about motivation The classic (Skinnerian) approach to motivation o If you do _____ I’ll give you ______ ▯ ▯ Expectancy Theory The E P O Model Effort Performance (SMART goals) Outcome o E to P: “if I put for the effort, will I attain the performance level asked of me?” o P to O: “will meeting the performance standard result in a reward?” o O: “do I want this reward?” ▯ Using Expectancy Theory to Motivate Employees Clearly define the performance standards (P) Be sure performance standards are achievable (E__>P) Offer the right reward (O) Guarantee that meeting the performance standards will result in the promised reward (P O) To motivate employees: Tighten E P O Links ▯ ▯ Equity Theory Motivation results from o A person’s rewards-to-efforts ratio o Rewards, include pay, promotions, security, o Recognition, autonomy, etc o Effort includes time, reliability, cooperation, sharing resources, etc o Reward-to-effort ratios are not absolute but relative to peers Applications o When persons perceive they are relatively under-rewarded, they lose motivation o When persons perceive they are relatively over-rewarded, hey can become motivated o When persons perceive they are fairly rewarded, they are motivated to work to standards ▯ Monkey example Monkeys happy receiving piece of cucumber but if they saw another monkey getting a grape (more coveted food item) they took offense Some still took the cucumber but others even disdained to eat it – animal’s umbrage was even greater if the other monkey was rewarded for doing nothing ▯ ▯ Managerial Implications of equity theory Fairness is as important as absolute pay Identify and correct misperceptions of inequality Vary outputs (pay, compensation) to match differences in inputs (effort, skills, performance) Manage fundamental attribution error and egocentric bias ▯ ▯ Choosing Motivating Comparisons Motivation decreases when we compare ourselves to superstars o When their success is unattainable because it’s too late for us to get there o When their success is unattainable because they seem exceptionally skilled, connected, etc Do you have the right goal? Goals can be “too motivating” o People don’t deviate from the goal o Not exceeding the goal o No sense of the bigger picture o No creativity Goal setting can lead to dangerous shortcuts Guard against undesirable shortcuts o Monitor people who are close to the goal o Consider undesirable means that people could use o Helpful to assume the undesired state has already occurred and ask “why did this happen?” o Involve multiple functional areas in decision-making Assign customer service people to monitor satisfaction Assign people to “devil’s advocate” role ▯ ▯ Types of Rewards Carrot and the stick – external motivation Intrinsic motivation – genuinely liking what you do ▯ Extrinsic rewards/punishments can: Extinguish intrinsic motivation Diminish performance Crush creativity Crowd out good behavior Encourage shortcuts and unethical behavior They can become addictive They can foster short-term thinking Discourage teamwork Ineffective after satiation of rewards ▯ ▯ Undermining Intrinsic Motivation Classic study on intrinsic motivation Random assignment to 3 reward conditions: o Reward promised vs. no reward vs. unexpected reward Dependent variables o Percentage of time playing with the markers in free time o Quality of drawing Kids drew better with no reward or unexpected reward ▯ ▯ Duncker candle problem Two conditions: o Cash reward o No cash reward Three minutes “ to figure out, using only the objects on the table (candle, box of tacks, box of matches), how to attach the candle to the wall so that the candle burns properly and does not drip wax on the table of the floor No cash reward, participants were much more likely to figure out solution People weren’t as creative when reward was expected ▯ ▯ Should you use extrinsic rewards When task requires rudimentary cognitive skills? Be wary of these tasks because you don’t have people acting as creative When task primarily requires mechanical skills? May want to use extrinsic rewards When you have to assign a boring task Offer a rationale for why the task is necessary Once people understand, it may be easier for them to get engaged Acknowledge that the task is boring (only creating animosity if you’re trying to convince them that a boring job is not boring) Allow people to complete the task their own way Drivers of intrinsic motivation Autonomy Mastery Purpose Job design can influence motivation (Job Characteristics Model) Task significance, task identity, task variety Meaningfulness Autonomy Responsibility Feedback Knowledge of results ▯ Understanding the Job Characteristics model Task significance: workers understand how tasks they perform impact others (relevance made clear) Task identity: workers see how the tasks they perform fit in with the “whole” product Workers can engage in different activities that use many of their skills and talents Autonomy: workers have the freedom to plan, schedule, and perform their jobs as they wish Feedback: workers are provided with information about how well they are performing ▯ Motivation through task significance Study by Adam Grant Workers at university call center 3 groups o personal benefit “this job helped me develop skills and knowledge for a successful real estate career, improved my teaching organizational skills for grad school” o task significance “my scholarship has enabled me to major in engineering and neuroscience and to participate in extracurricular activities” o control measured o # of pledges o $$ of donations received task significance condition doubled performance study was replicated with lifeguards; found more commitment, helping ▯ ▯ Maslow’s Hierarchy of Needs First level: physiological (air, food, water, sex, sleep, homeostasis) Second: Safety (security of the body, resources, health) Third: Love/Belonging (family, friendship, intimacy) Fourth: Esteem (self-esteem, confidence, achievement, respect) Fifth: Self-actualization (morality, creativity, spontaneity, problem solving) 5 Basic needs from low to high Physiological Safety Affiliation Esteem Self-actualization ▯ Satisfaction-Progression Rule Don’t start thinking about the higher levels until you have basic levels satisfied ▯ Maslow and Managers Good empirical support for theory, but… o Importance of needs is culture-specific o Needs for affiliation, power, achievement are learned Interpretation of specific rewards varies o Salary can be construed to be about safety, appreciation, and/or advancement Recognize different needs and which ones are most immediate ▯ Hygiene Theory (AKA two-factor theory) Some things that help increase motivation; others tend to increase demotivation Motivation factors: more of these means more satisfaction Hygiene factors: more of these does NOT mean more satisfaction, but less of these means more dissatisfaction ▯ Hygiene factors on Maslow’s pyramid Safety, job security, growth, potential, acceptance inclusion ▯ Motivation Factors Acceptance, inclusion Recognition, responsibility, advancement Complete psychic fulfillment ▯ ▯ Understanding the Unmotivated Low motivation may result from: o Failure to understand new jobs or skills required Does the individual have an appropriate role model? o Failure to see relationship between effort and performance Does the individual have the necessary skill set? o Failure to see relationship between performance and outcome Are rewards and incentives provided on a performance- contingent basis? o Belief that the organizational rewards are unfair Has the individual been properly recognized for past accomplishments? Is the individual aware of possible rewards/incentives? o Organizational impediments to performance Takeaways for the organization Extrinsic motivation effective when: o Employees expect effort to lead the performance level (EP) Have necessary skills to perform Goals are attainable o Employees expect performance to lead to outcomes (PO) o Employees value outcomes (O) o Can be boosted by intrinsic motivation Intrinsic motivation o Can be increased by managing job characteristics o Can be undermined by extrinsic rewards Don’t think of extrinsic motivation as default Intrinsic motivation o Can sometimes be cheaper o Can be more sustainable o Long term perspective o Can be more difficult to implement For yourself, be careful! If you love doing something, don’t muddy the issue ▯ ▯ Lincoln Electric & Expectancy Theory Have employees do pretty basic work, repetitive, little room for creativity Effort performance o Turnover and self selection o Affects what type of people flock to company and stay there once employed o Has workforce that it attracts o Tightening links before E and P and O has lead to really good performance Performance Outcome (reward) Airtight EPO links ▯ Google Different approach to motivating people More intrinsic motivation, making sure people have everything they need to do their job Very strategic, not pay for performance but creating the right opportunities for innovation to happen People have struggled to create the Google model within their own companies hard thing to do because people don’t necessarily trust that others are as intrinsically motivated as themselves Downsides: will get some freeloaders, expense to having these perks but if they can increase motivation and Google can capitalize then it’s worth it Payoffs for Google o Low turnover o High motivation (people working extra hours) o Innovation and creativity o Attract talented applicants ▯ SAS Institute Satisfy lower order needs so that employees can self-actualize Job characteristics foster intrinsic motivation o Workers encouraged to work on new ideas (significance, identity, autonomy, variety) o Workers interact with customers directly (significance, identity) o Workers taught the history and heritage of SAS (identity) o Workers allowed to work in different divisions (variety) o Open communication (feedback) Focus on intrinsic motivation aligns with SAS’s long-term view ▯ ▯ Takeaways – for the organization Extrinsic motivation effective when o Employees expect effort to lead to performance level (EP) Have necessary skills to perform Goals are attainable o Employees expect performance to lead to outcomes (PO) o Employees value outcomes (O) o Can be boosted by intrinsic motivation Intrinsic motivation o Can be increased by managing job characteristics o Can be undermined by extrinsic rewards ▯ Takeaways – What You Can Do Don’t think of extrinsic motivation as the default Intrinsic motivation (something you can tap into) o Can sometimes be cheaper o Can be more sustainable o Long term perspective o Can be more difficult to implement For yourself, be careful if you love doing something, don’t muddy the issue ▯ ▯ Common Management Reward Follies ▯ We hope for Long-term growth; environmental responsibility Teamwork Setting challenging “stretch” objectives Downsizing; rightsizing; delayering; restructuring Commitment to total quality Candor; surfacing bad news early ▯ But we often reward Quarterly earnings Individual effort Achieving goals; “making the numbers” Adding staff; adding budget; adding Hay points Shipping on schedule, even with defects Reporting good news, whether it’s true or not; agreeing with the boss, whether or not he’s right ▯ ▯ Causes ▯ 1. Fascination with an “objective” criterion managers establish quantifiable standards against which to measure/reward performance ▯ 2. overemphasis on highly visible behaviors team0building and creativity may not be rewarded simply because they are hard to observe ▯ 3. Hypocrisy rewarder may have been getting the desired behavior, notwithstanding claims that the behavior was not desired ▯ 4. Emphasis on morality or equity rather than efficiency consideration of other factors prevents the establishment of a system which rewards behavior desired by the rewarder ▯ ▯ Altering the Reward System First step might be for managers to explore what types of behaviors are currently being rewarded For an organization to act upon its members, the formal reward system should positively reinforce desired behavior, not constitute an obstacle to be overcome ▯ ▯ ▯ ▯ The Self-Perception of Motivation Action = f(personal force + environmental force) Individuals attempt to determine whether another person is intrinsically motivated to perform an activity (action due to personal force), or extrinsically motivated (action due to environmental force), or both Bem studied this theory o If a person acts under strong external rewards or punishments, he is likely to assume that his behavior is under external control o If extrinsic contingencies are not strong or salient, the individual is likely to assume that his behavior is due to his own interest in the activity or that his behavior is intrinsically motivated ▯ ▯ The Case for a Negative Relationship Between Intrinsic and Extrinsic Motivation The fact that a person, in performing an activity, may seek out the probable cause of his own actions Two particular situations provide tests of the self-perception prediction o Situation in which there is insufficient justification for a person’s actions, a situation in which the intrinsic rewards for an activity are very low and there are no compensating extrinsic rewards (monetary payment, verbal praise, etc) o In situations of insufficient justification, the individual may cognitively reevaluate the intrinsic characteristics of an activity in order to justify/explain his own behavior o Sometimes a person may also be fortunate enough to be in situation where behavior is oversufficiently justified From this analysis, there are only two fully stable attributions of behavior o The perception of extrinsically motivated behavior in which the internal rewards associated with performing an activity are low while external rewards are high o Perception of intrinsically motivated behavior in which the task in inherently rewarding but external rewards are low Schematic analysis of Self-perception of intrinsic and extrinsic motivation o Within many settings, extrinsic rewards are generally quite salient and specific, where an individual must judge the intrinsic nature of a task for himself o Any shifts in perception may therefore be more likely to occur in the intrinsic factor ▯ ▯ Empirical Evidence: Insufficient Justification Cognitive dissonance o Since performing an unpleasant act for little or no reward would be an inconsistent/irrational thing to do, an individual may subsequently change his attitude toward the action in order to reduce the inconsistency or to appear rational o Tested by giving some people $1 and some people $20 to tell others that the task they are about to do is enjoyable as predicted, the smaller the reward used, the greater the positive change in their attitudes toward the task ▯ Empirical Evidence: Overly Sufficient Justification Predicted that an increase in external justification will cause individuals to lose confidence in their intrinsic interest in the experimental task If people are getting paid to do something, it may alter their self- perception about why they are working on a project Instead of being intrinsically motivated to solve the problem, they might find themselves working primarily to get the money provided Results suggestive of the fact that an overly sufficient extrinsic reward may decrease one’s intrinsic motivation to perform the task ▯ ▯ Reassessing the Self-Perception Effect Growing empirical support for notion that intrinsic and extrinsic motivation can be negatively interrelated When the task was interesting, the introduction of money caused reduction of task satisfaction When task was neutral/boring, introduction of money increased satisfaction and subjects’ intentions to volunteer for additional work At present, it appears that only in situations of insufficient or overly sufficient reward will there be attributional instability of such magnitude that shifts will occur in the perception of intrinsic rewards Both self-perception and reinforcement mechanisms hold true but that their relative influence over an individual’s task attitudes and behavior varies according to the situational context ▯ ▯ Implications of Intrinsic and Extrinsic Motivation Both can motivate task-related behavior and bring gratification to individual Intrinsic and extrinsic factors may not be additive in their overall effect but interaction may under some conditions be positive and other conditions be negative Extrinsic rewards are relied upon heavily to induce desired behaviors and most allocators of rewards operate on the theory that extrinsic rewards will positively affect an individual’s intrinsic interest ▯ Motivation in Educational Organizations Extrinsic and intrinsic motivation may be negatively interrelated in schools When grades are added to an activity, ew may be converting an interesting activity into work External rewards can no doubt alter the direction and vigor of specific behaviors Extrinsic rewards may also weaken a student’s general interest in learning tasks and decrease voluntary learning behavior Only when a task is so uninteresting is when extrinsic rewards be applied ▯ Motivation in work organizations Voluntary work organizations have members that are often intrinsically motivated to perform certain tasks and extrinsic rewards are generally not necessary If extrinsic rewards were to be offered to voluntary workers for performing services, it would decrease intrinsic motivation Within industrial organizations large numbers of jobs are not inherently interesting enough to foster high intrinsic motivation Even when an industrial job is interesting, there exists a powerful norm for extrinsic payment Within industrial organizations, extrinsic reinforcement is the norm – task may often be perceived to be even more interesting when they lead to greater extrinsic rewards Without extrinsic rewards, nonvoluntary organizations would be largely without participants ▯ ▯ Myth 1: Labor rates and labor costs are the same thing Reality: the two are actually very different. It’s productivity that really matters, not pay rate Labor rates are straight wages divided by time Labor costs are a calculation of how much a company pays its people and how much they produce ▯ Myth 2: you can cut labor costs by cutting labor rates Reality: labor costs are a function of both labor rates and productivity To lower labor costs, you need to address both – sometimes lowering labor rates increases labor costs ▯ Myth 3: Labor costs are a big part of total costs Reality: ratio of labor and total costs varies widely across industries and companies True sometimes, labor costs are only the most immediately malleable expense ▯ Myth 4: low labor costs are a potent competitive strategy Reality: low labor costs are perhaps the least sustainable competitive advantage Better to achieve competitive advantage through quality, customer service, product, process, service innovation, technology ▯ Myth 5: the best way to motivate is through individual merit pay Reality: group-based compensation reinforces collaboration and team spirit far more than individual merit pay does Undermines performance – of individual and the organization Encourages short-term focus and leads people to believe pay is not related to performance but rather hanging the right relationships ▯ Myth 6: people work primarily for money Reality: people work primarily to be in an environment that’s enjoyable, challenging, respectful, and lets the use all their skills People do work for money 0 but they work even more for meaning in their lives ▯ ▯ ▯ ▯ ▯ Lecture 2: Perception and Decision-Making ▯ ▯ Perception: How do we see the world? My employee really bombed the presentation Internal reasons: o He is so incompetent o He doesn’t value the company at all o He is such a procrastinator External Reasons o He must be overworked o I wonder if everything is okay at home? o He’s had a really bad flue for the last week Attribution Theory We consider three critical pieces of information Distinctiveness: does the person behave differently in different situations? Consensus: do others behave the same way in similar situations? Consistency: does the person behave the same over time? ▯ Observation Interpretation Attribution Distinctiveness: high external (has to do with this particular situation) Distinctiveness: low internal (performs poorly in other aspects of job) Consensus: high external (other employees also perform poorly on this project, must be an external cause) Consensus: low internal Consistency: high internal (performs poorly on other projects as well) Consistency: low external (not consistent low performance, must be an external reason) ▯ ▯ Gestalt Psychology People tend to experience things holistically and this “whole” is not contained in the sum of its parts As we perceive the world, we eliminate complexity and unfamiliarity and see reality in its most simplistic form Many principles including o Proximity o Continuity o Closure o Similarity ▯ ▯ Proximity Objects near each other tend to be grouped together ▯ Continuity When items are grouped together we tend to integrate them into perceptual wholes When there is an intersection between objects, we see two single uninterrupted things ▯ Closure We perceive objects (letters, shapes, etc) as whole, even when they are not complete ▯ Similarity When items are similar, we tend to group them together ▯ ▯ Fundamental Attribution Error Underestimate the influence of external factors and overestimate the influence of internal factors when making judgments about the behavior of others ▯ Actor/Observer Differences Observers tend to make internal attributions for the actor’s behavior Actors tend to make external attributions for their behavior Actors and observers differ in the amount of information they have about each other Differ in assumptions in what needs explaining What is most salient? o For observers the actor o For actor, everything but the actor (the situation) ▯ Other perceptual shortcuts Selective perception Halo effect Contrast effect Stereotyping ▯ ▯ Selective Perception Selectively interpret what one sees on the basis of one’s interest, background, experience, and attitudes Same event can prompt construals that are so different but it’s like people experienced totally different events They Saw a Game o Dartmouth and Princeton students interviewed after 1951 game Princeton quarterback left the game with broken nose and a concussion Dartmouth quarterback tackled in the third quarter, broke leg o Students asked to detect rule violations o Princeton students detected twice as many violations by Dartmouth than did Dartmouth They Saw the News o Pro-arab and Pro-israel partisans watched identical samples of network television coverage of the Beirut massacre o Differed on simple, objective criteria such as # references to given subject o “Hostile Media Effect” people who have strong opinions towards an issue are biased to see news coverage as being biased against their side Selective Perception at Work o Once you’ve made up your opinion about someone, you will see their behavior in that light o Difficulty in teams – other people on your team may not just disagree with you; they may see things as they happen in a totally different way o Difficulty of mergers and acquisitions; employees socialized to see things differently ▯ ▯ Halo Effect Global evaluation of a target influences how people evaluate target’s attributes, behaviors, etc New information is interpreted as consistent with general evaluation Ex. we generally have a more positive impression for tall people Attractiveness – people favor attractive people Example – Ipod and Apple o Many people did not own apple products o New customers began purchasing ipods, which they loved and led to a positive impression of apple o This impression spread to evaluations of other apple products ▯ ▯ Contrast Effect Perceptions of a given thing are influenced by other things we’ve seen in the recent past When things are similar but different on one dimension because we compare them in our minds Example: William Sonoma o Would you buy this bread maker? $275 o First time people had seen something like this, sales were really stalled o Paid marketing firm to come up with new idea – made a larger bread maker for $410, people then began to buy the $275 machine o By itself, that seemed pricey for something you don’t think you need, but once a more expensive model is introduced the $275 model looks more attractive Restaurants have really expensive items on menu to make other items seem more reasonable ▯ ▯ Stereotypes Judging someone on the basis of one’s perception of the group to which that person belongs (ex race, gender, sexual orientation, social class) Why are these Biases Important? We are often wrong (false beliefs) o Ex fundamental attribution error, stereotypes These beliefs persist; resist contrary evidence o Ex selective perception Our incorrect beliefs create new realities o Ex self-fulfilling prophecy ▯ ▯ Self-fulfilling prophecy A prediction, having been made, leads to it occurring o Behave based on initial belief o Create a new reality Ex 1979 CA gas crisis (12 million buy ¾ tank of gas after news of shortage) Rosenthal’s smart/dumb rate experiment o Placed rats from the same litter into “fast learners” and “slow learners” o Grad students observed fast learners as smarter, more likeable, and more attractive Rosenthal’s Oak School experiment o Had students take iq test o Students randomly picked to be academic spurters (students were expected to show increase in iq) o Checked in with teachers at end of year and this expectation was true because teachers were more favorable towards these students ▯ ▯ Perceptual Biases: hiring Example Gina is the CFO of a fortune 500 company – interviewing candidates to fill role Right after a very poorly prepared candidate, Gina interviews a mediocre candidate. Implicitly comparing this new person to the previous one, Gina thinks that she is truly outstanding (CONTRAST EFFECT – when former person’s performance influences another’s performance) Gina went to the same college as one of the job candidates. She expects that this candidate will perform well in the interview and then sees his performance in line with her expectation (SELECTIVE PERCEPTION – if you’re motivated to like someone, you might see their performance as fitting in this with this perception) Gina notices that one job candidate has a tattoo on his arm. This does not fit with her implicit conception of future corporate leaders and the tattoo colors her assumptions about his ability to do the job (STEREOTYPING) One job candidate is very attractive. This sheds a positive light on the candidate’s experience, qualifications, and interview performance. Gina gives him a pass on any weaknesses (HALO EFFECT) One job candidate does not bring an extra copy of her resume. Gina assumes this is because she is not very conscientious However, the real reason is that her roommate took her briefcase with the copies inside (FUNDAMENTAL ATTRIBUTION ERROR – making an internal attribution when in fact it was an external cause) ▯ ▯ Perception Takeaways Attribution theory describes when people will attribute behavior to internal and external factors Biases in perception complicate how we make attributions o Fundamental attribution error and actor/observer effect o Selective perception o Halo effect o Contrast effect o Stereotyping We can behave in subtle ways that lead to our perceptions coming true (self-fulfilling prophecies) ▯ ▯ Decision-making: How do we decide Normative concerns: how should we optimally make a decision? Descriptive concerns: how do we actually make decisions? Prescriptive concerns: how can we improve decision-making, given the normative concerns and descriptive realities? ▯ Homo-economicus Humans as optimal decision-asking machines with the ability to make judgments towards their subjectively defined ends Rational and narrowly self-interested ▯ Bounded Rationality Rationality of people is limited by o The information they have o The time they have to make a decision o The cognitive limitations of the mind People simplify the choices available to them and then apply rationality Deviate from optimality in predictable ways ▯ Decision-making biases: a few examples Availability heuristic Planning fallacy Sunk cost error Overconfidence Acting impulsively Hindsight bias ▯ Heuristics Mental shortcuts in decision-making These work pretty well to simplify the world But also can backfire, biasing decision-making ▯ Availability Heuristic Ease of mental retrieval used as a proxy for likelihood/frequency Ex: trying to determine whether likely to be fired o If you can easily come up with examples of lots of people being fired (ex because it’s a recession), you might think you are likely to be fired The problem: other things beside for actual frequency make things easier to recall o Vividness (notable, vivid events are easy to recall) o Recency (recent events are easy to recall) o Repetition (oft-discussed events are easy to recall) ▯ ▯ Planning Fallacy Tendency to underestimate how long it will take to complete a task Affects personal and organizational decisions o How long will it take you to study for your final/write your case/search for an internship, etc? o How many months till ready to launch/building goes up/bill gets passed, etc? ▯ Sunk Cost Error Throwing good money after bad Continue to put resources into a project that you’ve already put resources into, even though you would not invest the marginal amount if making the decision without any prior investment Examples o organizational a planned project no longer makes sense to undertake. Does the company keep investing in it instead of funding other endeavors? After training all employees on new software, the organization finds it is not working as planned. Does the company continue to invest effort in this software or try another solution? o Personal Choose a topic for a class paper, doesn’t go well. Do you stick wit hit instead of replacing it with a new topic? Pay to rent a movie on demand, bored in the first 10 minutes. Do you keep watching instead of doing something else? Overconfidence Are you an above average: o Driver o Student o Listener If you are like most people you said YES o Even though not everyone can be above average Confidence itself can be good o People see confidence as a cue for competence o General issue of self-fulfilling prophecy But overconfidence can also have serious negative consequences o Most small businesses fail (even though their founders were confident) o Most college-drop outs don’t become Steve Jobs ▯ Dunning-Kruger Effect Had people from bottom, second, third, and top ability quartiles take a test and showed performance as expected Those in the bottom and second and third quartiles predicted that they did better than they actually did ▯ Overconfidence: why? We are motivated to think well of ourselves Tend to focus on our own capabilities rather than on the capabilities of others o People are more overconfident that they will do better than other when they are doing something easy than something hard (even though easy vs. hard will have same impact on everyone) o Consider a curved test Business example If you only think about your own business, you think, “I’ve got a good story department, I’ve got a good marketing department, we’re going to go out and do this” and you don’t think that everyone is thinking the same way ▯ ▯ Impulsivity In the heat of the moment, people often give into temptation instead of doing what is in their long-term best interest Many examples: smoking, binge eating, procrastinating, not saving for retirement, focusing on short term profits over long-term game plan ▯ Hindsight Bias seems obvious in hindsight that an unpredictable event would happen (“hindsight is 20/20”) why? o Consciousness wants to tell a compelling story o Creates a neat story where all the pieces fit together- seems more obvious than it actually was Effects o Promotes overconfidence in your ability to predict future outcomes o Beware of holding people accountable for not foreseeing things that only seem obvious because of hindsight bias ▯ Hiring Example – Gina Hired candidate who didn’t have copies of her resume Corporate development team has been in talks with small start-up, which they are considering acquiring Emily’s decision: should they pursue the acquisition? o Emily considers the number of hours the corporate development team has already spent on this acquisition and leans towards pursuing the deal (SUNK COST ERROR) o Emily knows that, in order to be profitable, the acquisition needs to take place within 3 months. She estimates this is plenty of time and leans towards moving forward with it. However, she does not consider the fact that similar deals took 6 months (PLANNING FALLACY) o Emily reasons they should make the acquisition because she remembers many successful former acquisitions and as trouble recalling failures. However, this is because the successes are simply more vivid, not more numerous (AVAILABILITY HEURISTIC) o Emily believes in her own capabilities and those of her team. She leans towards making the acquisition because she thinks that they are good enough that they will be able to ensure a profit regardless of the start-up’s current performance (OVERCONFIDENCE) o It will take several weeks for her team to complete their due diligence and suggest a price. After two weeks, Emily pursues the acquisition with incomplete information, because she thinks it is good enough and is eager to get the deal started (ACTING IMPULSIVELY) o Emily decided to acquire the startup. Unfortunately most of the acquired employees are unhappy in the new company and leave. Emily knew this would happen. Her team should have been able to foresee this (HINDSIGHT BIAS) ▯ ▯ Decision-Making takeaways In contrast to traditional economic theories, bounded rationality suggests people simplify decisions and only then act rationally Psychology and behavioral economics documents systematic biases in decision making o Availability heuristic o Planning fallacy o Sunk cost effect o Overconfidence o Impulsivity o Hindsight bias ▯ ▯ Chapter 1 ▯ An effective decision-making process fulfills these six criteria It focuses on what’s important It is logical and consistent It acknowledges both subjective and objective factors and blends analytical with intuitive thinking It requires only as much information and analysis as is necessary to resolve a particular dilemma It encourages and guides the gathering of relevant information and informed opinion It is straightforward, reliable, easy to use, and flexible ▯ PrOACT Approach Problem o Work on the right decision problem: state decision problems carefully, acknowledging their complexity and avoiding unwarranted assumptions and opinion-limiting prejudices Objective o Specify your objectives: as yourself what you most want to accomplish and which of your interest, values, concerns, fears, and aspirations are most relevant to achieving your goal Alternatives o Create imaginative alternatives: consider all the alternatives or at least a wide range of creative and desirable ones Consequences o Understand the consequences: assessing frankly the consequences of each alternative will help you to identify those that best meet your objectives Tradeoffs o Grapple with your tradeoffs: set priorities by openly addressing the need for tradeoffs among competing objectives Uncertainty o Clarify uncertainties Risk Tolerance o Think hard about your risk tolerance: awareness of willingness to accept risk will make your decision-making process smoother and more effective Linked Decisions o Consider linked decisions: by sequencing your actions to fully exploit what you learn along the way, you will be doing your best, despite an uncertain world, to make smarter choices ▯ ▯ Chapter 2: Problem ▯ Start from the right place You can make a well-considered, well-thought-out decision, but if you’ve started from the wrong place- with the wrong decision problem you won’t have made the smart choice How you pose the problem profoundly influences the course you choose A good solution to a well-posed decision problem is almost always a smarter choice than an excellent solution to a poorly posed one ▯ Define the Decision Problem Ask what triggered this decision – why am I even considering it? o Include: Your assumption of what the decision problem is The triggering occasion The connection between the trigger and the problem Question the constraints in your problem statement o Problem definitions usually include constraints that narrow the range of alternatives you consider Identify the essential elements of the problem o By breaking a problem down into its component pieces, you can be sure that your problem statement is focused on the right goal Understand what other decisions impinge on or hinge on this decision o Rarely does a decision exist in isolation Establish a sufficient but workable scope for your problem definition o Weight a comprehensive, broad definition against a more easily tackled, narrower one Gain fresh insights by asking others how they see the situation o Get other perspectives once you’ve asked, answered and reviewed all the above ▯ Reexamine your problem definition as you go Chances to redefine your problem are opportunities that often lead to better decisions ▯ Maintain your perspective Effort involved in creating a good comprehensive definition must be balanced against such considerations as time, importance, saliency, and emotional energy Spending extra time increases the odds that you’ll make the smart choice ▯ ▯ Chapter 3: Objectives ▯ What do you really want? What do you need? What are your hopes? Your goals? Answering these questions honestly, clearly, and fully puts you on track to making the smart choice ▯ What are objectives so important? They form the basis for evaluating the alternatives open to you They are your decision criteria Objectives are personal but don’t need to be self-centered ▯ Let your Objectives Be Your Guide Objectives help you determine what information to seek Objectives can help you explain your choice to others Objectives determine a decision’s importance and consequently, how much time and effort it deserves ▯ Watch out for these Pitfalls Too often, decision makers don’t take the time to specify their objectives clearly and fully Often, decision makers take too narrow a focus – they concentrate on tangible and quantitative over intangible and subjective Most people spend too little time and effort on the task of specifying objectives Getting it right isn’t easy – while you might think you know what you want, your real desires may actually be submerged – buried beneath desires others have for you ▯ ▯ Master the Art of Identifying Objectives ▯ Step 1: write down all the concerns you hope to address through your decision Early in process Use as many ways you can think of to job your mind about present, future, and even hidden concerns Compose a wish list – everything you could ever want from the decision Think about worst possible outcome Consider the possible impact on others Ask others who have faced similar situations Consider a great alternative Consider a terrible alternative Think about how you could explain your decision to someone else When facing a joint or group decision, one involving family or colleagues, have each person follow above suggestions individually ▯ Step 2: convert your concerns into succinct objectives Clearest/most easily communicated form for objectives a short phrase consisting of a verb and an object such as “minimize costs”, “mitigate environmental damage”, etc ▯ Step 3: Separate ends from means to establish your fundamental objectives Now organize your list Distinguish between objectives that are means to an end and those that are ends in themselves Simply ask why and keep asking it until you can’t go any further Why is this important? Your fundamental objectives depend on your decision problem – a means objective in one decision problem may be a fundamental objective in another Means objectives represent way stations in the progress toward a fundamental objective, the point at which you can say “I want this for its own sake” Each means objective can serve as a stimulus for generating alternatives and can deepen your understanding of your decision problem Only fundamental objectives should be used to evaluate and compare alternatives o If you use a fundamental objective and its supporting eans objectives to evaluate decision alternatives, you will give too much weight to that particular fundamental objective in your final choice ▯ Step 4: Clarify what you mean by each objective You should at this point have a solid list of fundamental objectives Now for each fundamental objective ask “what do I really mean by this” – asking what enables you to clearly see the components of your objectives ▯ Step 5: Test your objectives to see if they capture your interests Having clarified each of your objectives, it’s time to test them Use list to evaluate several potential alternatives, asking yourself f you would be comfortable living with the resulting choices ▯ ▯ Practical Advice for Nailing Down your Objectives Objectives are personal o Different people facing identical situations may have very different objectives Different objectives will suit different decision problems Objectives should not be limited by the availability of or ease of access to data o Most people mistakenly focus on immediate, tangible, measurable qualities when listing objectives, but these may not reflect the essence of the problem Unless circumstances change markedly, well thought out fundamental objectives for similar problems should remain relatively stable over time if a prospective decision sits uncomfortable in your mind, you may have overlooked an important objective o sometimes you must stare a decision in the face before a previously unrecognized objective leaps out ▯ ▯ Chapter 4: Alternatives ▯ Raw Material Alternatives are the raw material of decision making Represent range of potential choices you’ll have for pursuing your objectives ▯ Two important points should be kept in mind: First, you can never choose an alternative you haven’t considered Second, no matter how many alternatives you have, your chosen alternative can be no better than the best of the lot ▯ Don’t Box Yourself In with Limited Alternatives One of the most common pitfalls is business as usual – because many decision problems are similar to others that have come before, choosing the same alternative beckons as the easy course Sometimes so-called new alternatives represent nothing more than incrementalizing – making small and usually meaningless changes to previously devised alternatives Many poor choices result from falling back on a default alternative Choosing the first possible solution is another pitfall Choosing among alternatives presented by others can also result in a poor decision People who wait too long to make a decision risk being stuck with what’s left when they finally do choose ▯ ▯ The Keys to Generating Better Alternatives ▯ Use your objectives – ask “how?” How can I achieve the objectives I’ve set Do this separately for each individual objective Asking why took you from means to ends Asking how will take you from ends back to means, leading you toward alternatives ▯ Challenge constraints Some constraints are real, others are assumed A real constraint is something that 100% limits your decision An assumed constraint represents a mental rather than real barrier Try assuming that a constraint doesn’t exist, then create alternatives that reflect its absence – if resulting alternatives are attractive enough, maybe you can figure out how to make them feasible ▯ Set high aspirations One way to increase chance of finding good, unconventional alternatives is to set targets that seem beyond reach High aspirations force you to think in entirely new ways rather than sliding by with modest changes to the status quo ▯ Do your own thinking first Before consulting others, give your own mind free rein ▯ Learn from experience Don’t let yourself be constrained by history, but certainly try to learn from it Find out what others have done in similar situations and if you’ve faced similar decisions before ▯ Ask others for suggestions After you’ve thought carefully about your decision and your alternatives on your own, then seek input of others and get additional perspectives People at a distance from a problem may see it more clearly Keep an open mind Create alternatives first, evaluate them later Creating good alternatives requires receptivity – a mind expansive, unrestrained and open to ideas One idea leads to another and the more ideas you entertain, the more likely you are to find a good one Don’t evaluate alternatives while you’re generating them ▯ Never stop looking for alternatives As the decision process moves on to the consideration of consequences and tradeoffs, the evaluation stages, your decision problem will become increasingly clear and more precisely defined Often, the evaluation will turn up shortcomings in your existing alternatives, which may in turn suggest better ones ▯ ▯ Tailor Your Alternatives to your problem ▯ Process alternatives The best alternative is sometimes a process rather than a clear-cut choice To create process alternatives, you can begin by listing all of the basic alternatives from which to choose Then you should determine the right process mechanism for selecting the best alternative ▯ Win-win alternatives Sometimes devising great alternatives isn’t the problem – the problem is that your decision requires someone else’s approval Step back and analyze the other person’s decision problem – what are his objectives and how can you use them to create a win-win alternative that benefits both of you Information-gathering alternatives Information helps dispel the clouds of uncertainty hovering over some decisions Better information means better decisions When there are uncertainties affecting a decision, it is useful to generate alternatives for gathering the information necessary to reduce each uncertainty o List areas of uncertainty, then for each one list possible ways to collect needed information ▯ Time-buying alternatives Deferring a decision can provide you with additional time to better understand a decision problem, gather important information, and perform complex analyses You may as a result be able to dispel uncertainties and reduce risks Sometimes extra time may allow you to create a new alternative that is much better than all the current alternatives Whenever you’re uncomfortable about deciding now, question the deadline ▯ Know when to quit looking The perfect solution seldom exists Balance the effort made against the quality of the altneratives found – strike the right balance Have you thought hard about alternatives? Would you be satisfied with one of your existing alternatives as a final decision? Do you have a range of alternatives? Are some alternatives distinctly different from the others? Do other elements of this decision require your time and attention? Would time spent on other decisions or activities be more productive? ▯ if you answered yes to any of these, stop looking for alternatives and apply energy elsewhere ▯ MOTIVATION Positive Reinforcement Negative Reinforcement Punishment Reinforcement Expectancy Theory (EPO) Effort Performance outcome “If I put forth effort, will I attain performance level desired?” “Will meeting desired performance result in reward?” “Do I want this reward?” ▯ to motivate employees: tighten E P O links ▯ ▯ Equity Theory ▯ Motivation results from Person’s rewards-to-efforts ratio o Rewards: pay, promotions security o Effort: time, reliability, cooperation Relative to peers ▯ Feel under-rewarded lose motivation ▯ Over-rewarded motivated ▯ Fairly rewarded motivated to work to standards ▯ ▯ Managerial implications: Fairness is as important as absolute pay Identify and correct misperceptions of inequality Vary outputs to match differences in input Manage fundamental attribution error and egocentric bias ▯ ▯ Extrinsic vs. Intrinsic Reward/Punishment ▯ Extrinsic can Extinguish intrinsic motivation Diminish performance Crush creativity Encourage shortcuts Addictive Short-term thinking Less teamwork ▯ Use extrinsic when task primarily requires mechanical skills, not cognitive ▯ ▯ Job Characteristics Model ▯ (task significance, task identity, task variety) meaningfulness ▯ (autonomy) responsibility ▯ (feedback) knowledge of results ▯ ▯ Maslow’s Hierarchy of Needs ▯ Physiological (food, air, water, sex, sleep, homeostasis) ▯ Safety (security of body, resources health) ▯ Love/Belonging (family, friendship, intimacy) ▯ Esteem (self-esteem, confidence, achievement, respect) ▯ Self-Actualization (morality, creativity, spontaneity, problem solving) ▯ ▯ Hygiene Theory (AKA two-factor theory) Motivation factors: more = more satisfaction Hygiene fa
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