Module 03: Discussion Forum - MGT 672

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Business Finance

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Reflecting on the decision support tools we have covered this week, think of a scenario in your local business in Saudi Arabia, organization, or place of employment where one of these tools could be effective. Describe the situation in which it would be used and how it could be used.

Be sure to support your statements with logic and argument, citing any sources referenced. One reference is required.

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Judgment in Managerial Decision Making 8e Chapter 4 Bounded Awareness Copyright 2013 John Wiley & Sons Problem 1: Role-Playing Exercise Six people are randomly assigned to the roles A, B, C, D, E, and F. A is randomly selected and given $60 to allot among A, B, C, D, E, and F. The amounts given to B, C, D, E, and F must be equal, but this amount may be different from the amount that A allocates to A (herself/himself). B, C, D, E, and F will be asked to specify the minimum amount that they would accept. If the amount offered by A to each of B, C, D, E, and F is equal to or greater than the largest amount specified by B, C, D, E, or F, the $60 will be divided as specified by A. If, however, any of the amounts specified by B, C, D, E, and F are larger than the amount offered by A, all six parties will receive $0. Problem 2: Pick a Winner You are given a choice of boxes X, Y, or Z. One of these three boxes has a valuable prize in it. The other two boxes are empty. After you pick one of the boxes, the computer will open one of the other two boxes, show you that this unchosen box does not have the prize, and offer you to trade your chosen box for the unopened, unchosen box. For example, if you were to choose box X, the computer would open one of the two other boxes (e.g., Y) and show you that it is empty. The computer would then offer you the opportunity to switch your choice from X to Z. A student who participated in the study picked box Y. The computer then opened box Z, showed the student it was empty, and offered the student to trade box Y (which the student originally chose) for box X (the remaining unopened, unchosen box). Problem 3: Acquiring a Company • You are Company A • You want to acquire Company T – Company T is undertaking a project – Project outcome range: $0 to $100 – All outcomes equally likely – Company T worth 50% more if acquired • Offer must be made early • Company T will decide after outcome is known Problem 4: Role Playing Exercise Six people are randomly assigned to the roles A, B, C, D, E, and F. A will be randomly selected and given $60 to allot among A, B, C, D, E, and F. The amounts given to B, C, D, E, and F must be equal, but this amount may be different from the amount that A allocates to A (herself/himself). B, C, D, E, and F will be asked to specify the minimum amount that they would accept. If the amount offered by A to each of B, C, D, E, and F is equal to or greater than the smallest amount specified by B, C, D, E, or F, the $60 will be divided as specified by A. If, however, all of the amounts specified by B, C, D, E, and F are larger than the amount offered by A, all six parties will receive $0. Problem 5: Pick a Winner You are given a choice of boxes X, Y, or Z. One of these three boxes has a valuable prize in it. The other two boxes are empty. After you pick one of the boxes, the computer may open one of the other two boxes, show you that this unchosen box does not have the prize, and offer you to trade your chosen box for the unopened unchosen box. The computer will make its decision whether to open a box and offer you a switch with the goal of minimizing the likelihood that you get the prize. For example, if you were to choose box X, the computer might decide to open one of the two other boxes (e.g. Y), show you it’s empty, and offer you the opportunity to switch your choice from X to Z. A student who participated in the study picked box Y. The computer then opened box Z, showed the student it was empty, and offered the student to trade box Y (which the student originally chose) for box X (the remaining unopened, unchosen box). Problem 6: Connect the Dots • Without lifting your pencil (or pen) from a piece of paper, draw four (and only four) straight lines that connect all nine dots shown here: • Ponzi scheme cracks in 2008—Bernie Madoff • Why did nobody notice earlier? • Bounded awareness Problem 4: Connect the Dots What Most People Do The Correct Solution Forms of Bounded Awareness • Inattentional blindness to obvious information. • The failure to notice obvious changes in one’s environment. • The tendency to focus on only a part of the problem at hand. • Bounded awareness in groups. • Bounded awareness in strategic decisions. • Bounded awareness in auctions. Inattentional Blindness http://www.youtube.com/watch?v=Ahg6qcgoay 4 • Did you notice anything unusual in the video? • Other examples of inattentional blindness. Change Blindness http://www.youtube.com/watch?v=vBPG_OBgT Wg • Change blindness • Other examples of change blindness: – Auditors of companies – Unethical behavior Focalism and the Focusing Illusion • Focalism • Overestimation of our emotional reactions – Affective forecasting errors – Overweighting salient information • Focusing on specific events Bounded Awareness in Groups • • • • Much decision-making occurs in groups. Mentioned information is considered. Groups focus on shared information. Groups should emphasize unique information. Bounded Awareness in Strategic Settings • Bounded awareness of rules • Bounded awareness of others’ decisions Multiparty Ultimatum Games • Consider Problems 1 and 4 – Problem 1: Largest acceptance price – Problem 4: Smallest acceptance price • Problem 1 – Will all players ask for less than $10? – Maximizing strategy: 10-10-10-10-10-10 • Problem 2 – Will at least one player ask for $1? – Maximizing strategy: 55-1-1-1-1-1 What Do People Actually Do? Multiparty Ultimatum Game Mean Offers to Each Player (in Dollars) 9 8 7 6 5 4 3 2 1 0 Largest Minimum Offer (Problem 1) Smallest Minimum Offer (Problem 4) The Monty Hall Game • Consider Problems 2 and 5 – Problem 2: Box without prize opens – Problem 5: Box without prize opens if it minizes chance of winning • Problem 2 – Unopened box: 2/3 chance of winning – People should always switch • Problem 5 – Opened box: 100% chance of winning – People should never switch What Do People Actually Do? Percent of Participants Making Correct Decision Monty Hall Game 90 80 70 60 50 40 30 20 10 0 Problem 2 (Door Opens with Certainty) Problem 5 (Door Opens if it Maximizes Chances of Losing) Problem 3: Acquiring a Company • If Company A offers $50: – Offer not accepted if T > $50 – In accepted offers, average T value: $25 – Value to Company A: $37.50 – Company A loss: $12.50 • A loses on any offer > $0 • Company A shouldn’t offer anything What Do People Actually Do? More Bounded Awareness • • • • • Auctions Logic versus actual decisions Reference group neglect Focus on outcomes Choice overload in others
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Running Head: DISCUSSION FORUM

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Discussion Forum - MGT 672
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DISCUSSION FORUM

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In the decision-making process, decision support tools play a critical role in forecasting
the future of the business. The decision support tools allow the company to have a clear picture
of the projected income and profits that might be realized by the organization in the future. At
Al-Muhaidib Corporation, a multinational company o...


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