Spring, 1996 John S. Carroll MW 2:30-4:00 E52590, 2532617E51-335 jcarroll@mit.

This course is about understanding and improving the decision making processes of managers and other professionals. Understanding decision making involves examining how decision makers think about difficult problems and characterizing the limitations of human decision making ability. By understanding how decisions are made, we can provide guidelines and techniques for overcoming limitations and improving the quality of decision making. Some of these more structured decision aids involve mathematical models or computer software; others involve increased awareness and thoughtfulness. The goal of this course is to provide insights and tools that will enable you to support and improve your own decision making as well as to understand the decision making of others. Individuallevel analyses of organizational behavior have historically been based on concepts such as ability, motivation, and attitudes. More recently, a new approach has surfaced that is generating considerable interest and many new insights. This new approach views the manager as a decision maker who identifies problems, assembles information, chooses courses of action, and implements these choices. It is this aspect of managerial and organizational behavior that comprises the core of the course: the manager as decision maker in an organization where others can also be characterized in this manner. Thus, managers must make decisions and implement them, and must understand and respond to the decisions and actions of others inside and outside their organization. The course content is primarily conceptual: we will read and talk about ideas and research as well as practical situations and applications. Lectures and readings will review substantive material. Experiential exercises and case discussions will help generate involvement and appreciation for the complexities of application. This course is most typically taken as a Master's elective after 15.311 Managerial Behavior in Organizations. Although it is desirable to have taken 15.311, there are no required prerequisites for the course and students at all levels are welcome. It is also desirable, but not essential, to have completed an introductory statistics course. Grading will be based on two quizzes and written case analyses and exercises. The quizzes will count 25% each. Case analyses, smallerscale exercises, and class participation will make up the rest. Students may write a 5-8 page essay on a relevant in-depth topic (or a small-scale empirical research project) as a substitute for one quiz. With permission of instructor, students may write a 10-15 page essay as a substitute for both quizzes. This is ideal for students interested in research, a thesis topic, or a more intensive exploration of a particular interest or problem. All readings are available as xerox packets. For those interested in further reading, good places to start are: Hogarth, R. Judgment and Choice, 2nd ed. New York: Wiley, 1987. March, J. G. A Primer on Decision Making: How Decisions Happen. New York: Free Press, 1994. COURSE SCHEDULE2/7 I AM OUT OF TOWN! GET READINGS AND PREPARE FOR NEXT CLASS. Note that there is a brief Exercise (in readings packet) to carry out and write up for 2/14!2/12 INTRODUCTIONSimon, H. A. Alternative Visions of Rationality. In H. Arkes & K. Hammond (eds.) Judgment and Decision Making: An Interdisciplinary Reader. New York: Cambridge, 1986, pp. 103-113.Isenberg, D. J. How Senior Managers Think. In D. Bell, H. Raiffa, & A. Tversky (eds.) Decision Making: Descriptive, Normative, and Prescriptive Interactions. New York: Cambridge, 1988, pp. 525-539.The Economist. Rational Economic Man. Dec. 24, 1994-Jan. 6, 1995, pp. 90-92.2/14 LINEAR MODELS OF JUDGMENT AND OUTCOMESDawes, R. The Robust Beauty of Improper Linear Models in Decision Making. American Psychologist, 1979, 34, 571-582.Passell, P. "Wine Equation Puts Some Noses Out of Joint." NYTimes, March 4, 1990, p. 1, 27.Ebert, R. & Kruse, T. Bootstrapping the Security Analyst. Journal of Applied Psychology, 1978, 63, 110119.2/19 PRESIDENT'S DAY, NO CLASS!2/20 INTUITION AND EXPERT DECISIONS (Monday classes meet Tuesday)Klein, G. Sources of Power. Unpub. ms., 1995. Ch. 3: Recognition-primed decision model, Ch. 4: The power of intuition.ALL READINGS AFTER THIS POINT ARE TENTATIVE. A SECOND READINGS PACKET WILL BE AVAILABLE AT GRAPHIC ARTS BY 2/16.2/21 UTILITY THEORY Plous, S. The Psychology of Judgment and Decision Making. New York: McGraw Hill, 1993. Ch. 7: Expected Utility Theory.Coombs, C. et al. Mathematical Psychology: An Elementary Introduction. New York: PrenticeHall, 1970. Ch. 5, pp. 113129.Hogarth, R. Judgment and Choice, 2nd ed. New York: Wiley, 1987. Appendix C.2/26 PROBLEMS WITH UTILITY THEORY Plous, S. The Psychology of Judgment and Decision Making, 1993. Ch. 8: Paradoxes in Rationality.Slovic, P. & Tversky, A. Who Accepts Savage's Axiom? Behavioral Science, 1974, 6, 368373.Thaler, R. The Winner's Curse: Paradoxes and Anomalies of Economic Life. New York: Free Press, 1992. Ch. 7: Preference Reversals.2/28 FRAMING Tversky, A. & Kahneman, D. The Framing of Decisions and the Psychology of Choice. Science, 1981, 211, 453458.Thaler, R. Mental Accounting and Consumer Choice. Marketing Science, 1985, 4, 199-214.Thaler, R. The Winner's Curse, 1992. Ch. 6: The Endowment Effect, Loss Aversion, and Status Quo Bias.3/4 VALUES AND PREFERENCESSchein, E. Individuals and Careers. In J. Lorsch (ed.) Handbook of Organizational Behavior. Englewood Cliffs, NJ: PrenticeHall, 1987, pp. 155-162.Keeney, R. L. & Raiffa, H. Decisions with Multiple Objectives: Preferences and Value Tradeoffs. New York: Wiley, 1976, pp. 34-45.March, J. G. Bounded rationality, ambiguity, and the engineering of choice. Bell Journal of Economics, 1978, 9, 595-599.3/6 HEURISTICS FOR JUDGMENTBazerman, M. H. Judgment in Managerial Decision Making, 3rd ed. New York, Wiley, 1994. pp. 6-9, 12-47.3/11 RISK Kunreuther, H. Limited knowledge and insurance protection. Public Policy, 24, 227-261.Slovic, P. Perception of risk. Science, 1987, 236, 280-285.Cooper, A., Woo, C., & Dunkelberg, W. Entrepreneurs' perceived chances for success. Journal of Business Venturing, 1988, 3, 97-108.3/13 HEURISTICS FOR CHOICEHogarth, Ch. 4Russo, J. The Decision to Use Product Information at the Point of Purchase. In R. Stampfl & E. Hirschman (eds.) Theory in Retailing: Traditional and Nontraditional Sources. Chicago: American Marketing Association, 1981.3/18 SENSEMAKING Pennington, N. & Hastie, R. Explanation-based decision making: Effects of memory structure on judgment. Journal of Experimental Psychology: Learning, Memory, and Cognition, 1988, 14, 521-533.Langer, E. The Illusion of Control. Journal of Personality and Social Psychology, 1975, 32, 311328.3/20 QUIZ #13/25 and 3/27 Spring Break !!4/1 LEARNING FROM EXPERIENCE (Guest Lecturer: John Sterman runs game)Hogarth, Ch. 6 (handed out 3/18)4/3 DYNAMIC DECISION MAKING (Guest Lecturer: John Sterman)Sterman, J. Learning in and about complex systems. System Dynamics Review, in press. (will be handed out 4/1)4/8 DECISION ANALYSISHogarth, Ch. 9Behn, R. & Vaupel, J. Quick Analysis for Busy Decision Makers. New York: Basic Books, 1982. Ch. 2.Dalkey, N. A Case Study of a Decision Analysis: Hamlet's Soliloquy. Interfaces, 1981, 11, 4549.4/10 DECISION AIDSWack, P. Scenarios: Uncharted waters ahead. Harvard Business Review, September-October, 1985, 73-89.Hamalainen, R. P. Facts or values -- how do parliamentarians and experts see nuclear power? Energy Policy, June 1991, 464-472. 4/15 PATRIOTS' DAY HOLIDAY!4/17 CREATIVITY (Film: Synectics)Hogarth, Ch. 8Von Oech, R. A Whack on the Side of the Head. New York: Warner Books, 1983. pp. 2026, 104110, 122.4/22 GROUP DECISION MAKING: CONFORMITY AND INFLUENCEHuseman, R. & Driver, R. Groupthink: Implications for SmallGroup Decision Making in Business. In Houseman & Carroll (eds.) Readings in Organizational Psychology. Boston: Allyn and Bacon, 1979.Nemeth, C. J. Differential contributions of majority and minority influence. Psychological Review, 1986, 93, 23-32.4/24 NEGOTIATION (GUEST SPEAKER: Brenda Lautsch runs El-Tek exercise)Bazerman, M. Fairness in Decision Making, Making Rational Decisions in Two-Party Negotiations, and Negotiator Cognition. In Judgment in Managerial Decision Making, 3rd ed. New York: John Wiley, 1994.4/29 INTERTEMPORAL CHOICE (Guest Speaker: Drazen Prelec)Loewenstein, G. & Thaler, R. Intertemporal choice. Journal of Economic Perspectives, 1989, 3, 181-193.5/1 NEGOTIATION AND MARKETS IIDeBondt, W. & Thaler, R. Financial decision-making in markets and firms: A behavioral perspective. NBER Working Paper #4777. Cambridge, MA: National Bureau of Economic Research, 1994, pp. 10-33.5/6 GROUP DECISION MAKING: DECISION RULESAllison, S. & Messick, D. From Individual Inputs to Group Outputs, and Back Again: Group Processes and Inferences About Members. In C. Hendrick (ed.) Group Processes. Newbury Park, CA: Sage, 1987. pp. 116-132 only.Sniezek, J. An examination of group process in judgmental forecasting. International Journal of Forecasting, 1989, 5, 171-8.5/8 ORGANIZATIONAL POLITICSPfeffer, J. Power and Resource Allocation in Organizations. In B. Staw & G. Salancik (eds.), New Directions in Organizational Behavior. St. Clair Press, 1977.Thomas, R. J. What Machines Can't Do. Berkeley, University of California Press, 1994. pp. 47-65, 82-7.5/13 ORGANIZATIONAL DECISION MAKING (Guest: Ned Bowman, Wharton & Sloan)Mintzberg, H., Raisinhani, D. & Theoret, A. The structure of "unstructured" decision processes. Administrative Science Quarterly, 1976, 21, 246-275. (especially 248-252, 266-274)Starbuck, W. & Milliken, F. Challenger: Fine-Tuning the odds until something breaks. Journal of Management Studies, 1988, 25, 319-340. Cohen, M. & March, J. Leadership and Ambiguity, 2nd ed. Boston, HBS Press, 1986. Chapter 5: The Processes of Choice.5/15 COURSE SUMMARY: QUIZ #2 HANDED OUT, DUE BACK 5/22Fischhoff, B. Hindsight vs. Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty. Journal of Experimental Psychology: Human Perception and Performance, 1975, 1, 288299.Tversky, A. & Kahneman, D. Judgment Under Uncertainty: Heuristics and Biases. Science, 1974, 185, 11241131.McKenney, J. & Keen, P. How Managers Minds Work. Harvard Business Review, 1974 (MayJune), 7990.Kilmann, R. & Mitroff, I. Qualitative versus Quantitative Analysis for Management Science: Different Forms for Different Psychological Types. Interfaces, 1976, 6, 1725.Mitroff, I. Stakeholders of the Organizational Mind. San Francisco, Jossey-Bass, 1983, pp. 13-31.Johnson, E. Expertise and Decisions under Uncertainty: Performance and Process. In M. Chi et al (eds.) The Nature of Expertise. forthcoming.Lindblom, C. The Science of "Muddling Through." Public Administration Review, 1959, 19, 7888.Kahneman, D. & Lovello, D. Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science, 1993, 39, 17-31.Kahneman, D. & Tversky, A. The Simulation Heuristic. In D. Kahneman et al., 1982.Carlsson, B., Keane, P. & Martin, J.B. R&D organizations as learning systems. Sloan Management Review, Spring 1976, 1-15.Thomas, R. J. Organizational politics and tecnological change. Journal of Contemporary Ethnography, in press.Davis, J. Group Performance. Reading, MA: Addison Wesley, 1969, pp. 41-45, 57-59.Schon, D. A. From Technical Rationality to Reflection-in-Action. In J. Dowie & A. Elstein (eds.) Professional Judgement: A Reader in Clinical Decision Making. New York: Cambridge, 1988, pp. 60-77.Hammond, K. et al. Social Judgment Theory: Applications in Policy Formation. In M. Kaplan & S. Schwartz (eds.) Human Judgment and Decision Processes: Applications in Problem Settings. New York: Academic Press, 1977, pp. 1-15, 20-27.Slovic, P. Analyzing the expert judge: A descriptive study of a stockbroker's decision processes. Journal of Applied Psychology, 1969, 53, 255-263.Lord, C., Ross, L., & Lepper, M. Biased assimilation and attitude polarization: The effects of prior theories on subsequently considered evidence. Journal of Personality and Social Psychology, 1979, 37, 2098-2109.Argote, L., Devadas, R. & Melone, N. The base-rate fallacy: Contrasting processes and outcomes of group and individual judgment. Organizational Behavior and Human Performance, 1990, 46, 296-310.Laughlin, P. & Ellis, A. Demonstrability and social combination processes on mathematical intellective tasks. Journal of Experimental Social Psychology, 1986, 22, 177-189.Tetlock, P. E. An alternative metaphor in the study of judgment and choice: People as politicians. Theory and Psychology, 1991, 1, 451-475. March, J. G. A Primer on Decision making, Ch. 2: Rule Following (pp. 57-76 only)Possible guest speakers: Ned Bowman, Drazen, John Sterman, Jim Rebitzer, Maureen, Mary Rowe, Maurice SegallSensemaking: add Weick? Scottish knitwear? Reger & Huff Strat Mgmt J 93? Decision Aids - add decision techniques from Beach little book?Porac, J. F., Thomas, H., & Baden-Fuller, C. (1989). Competitive groups as cognitive communities: The case of Scottish knitwear manufacturers. Journal of Management Studies, 26, 397-416.