TEST BANK Judgment in Managerial Decision Making 8th Edition by Max H. Bazerman and Don A. Moore.

Multiple choice

1)

An optimal search for alternatives should last: a. As long as needed to find the best solution. b. As long as needed to find the first good enough solution. c. As long as the cost of the search does not outweigh the value of the added information. d. As long as the cost of the search is within the appropriate limits set by the decision maker.

Ans: c Response: p. 2-3

2) Rating alternatives on each of the decision criteria is considered the most difficult stage of the decision-making process, because: a. It assumes we have precisely defined our priorities. b. It requires us to forecast how each alternative solution will achieve each of our decision criteria. c. It requires us to compare all of the alternatives simultaneously. d. It is likely to fail if our problem is not defined correctly, and this failure will not be detected.

Ans: b Response: p. 3

3) In the interplay between system 1 and system 2 thinking, the key goal for managers is: a. To improve their use of system 1 thinking. b. To attempt to use system 2 thinking as much as possible. c. To apply both systems in making decisions in order to perform a more thorough and complex search for alternatives. d. To identify when they should move from system 1 to system 2 thinking.

Ans: d Response: p. 4

4) Which of the following is a typical characteristic of heuristics? a) They provide us with a simple way of dealing with complex problems. b) They have the best likelihood of reaching an optimal solution to a problem. c) They are time and resource consuming. d) They are used mainly by irrational decision makers.

Ans: a Response: p. 6

Questions 5-8 describe examples of heuristics outlined in the chapter. For each question, indicate which heuristic it describes: a. b. c. d.

The representativeness heuristic.

The availability heuristic.

The confirmation heuristic.

The affect heuristic.

5) Inner city crime in the U.S. gets considerable media coverage, such that every homicide is reported in the news. In contrast, a story of a person who died from a heart attack rarely makes the news. This leads people to overestimate the frequency of deaths due to homicides relative to those due to heart failure.

Ans: b Response: p. 7-8

6) John is over seven feet tall. When asked whether John is a professional basketball player or a software programmer, many people predict the former, even though there are many more software programmers, even very tall ones, than professional basketball players.

Ans: a Response: p. 8-9

7) After reading about the positive effect chocolate has on student performance, a teacher gives each student in a class a chocolate bar before taking an exam. 15 out of 22 students in that class get an A on the exam. The teacher therefore concludes that chocolate enhances performance.

Ans: c Response: p. 9-10

8) A common wisdom in politics is that the more an argument is repeated, the more it will be considered by the public as reliable and true.

Ans: b Response: p. 7-8

9) The affect heuristic can explain why a. People who live in California are assumed to be happier than people who live in the Midwest. b. Students predict they will be sadder after getting a bad grade on a test than they actually are in these situations. c. People do not remember sad events from their early childhood. d. Stock prices go up on sunny days.

Ans: d Response: p. 10

True/False

10) Succumbing to heuristics is inevitable, and there is no way to make judgment less prone them.

Rather, one can only be aware of the biasing effect heuristics have on one’s judgment.

Ans: False Response: p. 11

11) A search for alternatives may be too short to find the best possible alternative, but still be considered rational and optimal.

Ans: True Response: p. 2-3

12) The main disadvantage of system 2 thinking is its high resource consumption.

Ans: true Response: p. 3

13) This book takes a descriptive, rather than a prescriptive approach, to studying decision making, meaning that it provides ways to understand actual human decision making, but does not provide tools for improving one’s decision processes.

Ans: false Response: p. 5

Short answer 14) Which of the two cognitive systems (System 1 and System 2) is most often used, and in what kinds of decision is it typically used?

Ans: System 1 thinking is used more often. It is used typically in routine, everyday choices.

Response: p. 3-4

13-15. Identify three constraints on rational thought that may lead to suboptimal outcomes: 15) Time and cost constraints that limit information search.

16) Memory constraints on the amount of information stored.

17) Intelligence limitations and perceptual errors that constrain the ability to choose the optimal alternative.

Response: p. 5-6

18) Describe the term “to satisfice” Ans: to satisfice is to end the search for alternatives when we find a satisfactory solution that achieves a satisfactory level of performance, rather than examine all possible alternatives or look for the best solution.

Response: p. 5-6

Essay

19) In what ways is our rationality bounded? Discuss the aspects that are bounded in our judgment and how they are bounded.

Our willpower is bounded, such that we tend to give greater weight to present concerns than to future concerns. Our self-interest is bounded, such that we care not only about our own outcomes, but also about the outcomes of others. Our awareness is bounded in a way that makes us overlook obvious, important, and readily available information that lies beyond our immediate attention. Our ethicality is also bounded, or is limited in ways of which we are unaware.

Response: p. 6

20) What affects whether system 1 thinking or system 2 thinking will occur? What are the conditions which make the use of one system more likely than the use of the other?

Ans: the chosen system depends in part on the level of constraint on people’s resources – mainly cognitive load, time, and money. When these resources are not limited, i.e. when people have enough time, money and peace of mind to conduct a thorough decision-making process, they will use system 2 thinking. In contrast, the busier and more rushed people are, the more they have on their minds, therefore they are more likely to rely on system 1 thinking. System 2 is also more likely to take over when people realize that system 1 is failing to produce satisfactory results.

Response: p. 3-4

Multiple choice

1) What is the name given to the tendency to be too sure that our judgments and decisions are accurate? a. Overprecision b. Overestimation c. Overplacement d. Overjustification Ans: a Response: p. 15

2) What is the name given to the tendency to think we are better than we actually are? a. Overprecision b. Overestimation c. Overplacement d. Overjustification Ans: b Response: p. 15

3) What is the name given to the tendency to falsely think we rank higher than others on certain dimensions? a. Overprecision b. Overestimation c. Overplacement d. Overjustification Ans: c Response: p. 15

4) In what ways is it beneficial to outwardly express confidence? a. People feel better about themselves. b. People perform better because they face a lot of pressure to justify their confident predictions. c. People are more persuasive and capable of attaining status when they portray confidence. d. The outward expression of confidence is not beneficial.

Ans: c Response: p. 19-20

5) Which of the following is a common mistake made by investors? a. They don’t invest enough money. b. They trade too often. c. They take on too much risk in their portfolios. d. They don’t correctly time the market.

Ans: c Response: p. 21-22

6) When are we the most likely to overplace our performance relative to others? a. When we are in a good mood. b. When we are trying to impress others. c. When we are working on an easy task. d. None of the above.

Ans: c Response: p. 26-27

True / False

7) Overconfidence is so robust that research has failed to identify situations in which we are likely to be underconfident.

Ans: False Response: p. 26 8) People tend to overestimate their control in situations where they have objectively little control.

Ans: True Response: p. 23

9) There are advantages to having positive illusions.

Ans: True Response: p. 28

Short answer

10) Why do we tend to overplace our ability relative to others on easy tasks?

Ans: While we tend to underestimate our performance, we tend to underestimate the performance of others to an even larger extent because we fail to adequately consider the skill of the competition.

Response: p. 27

11) What is the potential downside to portraying confidence to others?

Ans: If you are exposed as wrong despite being confident, you lose credibility and your reputation suffers.

Response: p. 20

12) What is the planning fallacy and when is it the most likely to occur?

Ans: The tendency to overestimate the speed at which we will complete projects and tasks. It is particularly likely to occur in the context of large, complex projects that are prone to complications.

Response: p. 23-24

13) Why do many argue that overplacement is more problematic than underplacement?

Ans: People tend to select careers and hobbies on the basis of the extent to which they think they are better than others. Because they so often fail to adequately account for the skills of

those who they are competing against, many people place themselves in situations where they have a low probability of success.

Response: p. 27

Essay 14) Why, according to research, do people tend to be overconfident in estimating outcomes?

Suggest a mechanism for tackling overconfidence.

Ans: overconfidence occurs because we are more able to recall confirming than disconfirming evidence for the believed outcome. Our initial beliefs produce selective mental accessibility of information that is consistent with these beliefs.

One possible debiasing mechanism is forcing oneself to consider scenarios that include different outcomes than the believed one. Such forced consideration increases the salience and vividness of other possibilities in one’s memory. Another one is simply artificially decrease one’s estimations of the outcome’s likelihood.

Response: p. 19-20.

Multiple choice

1) The fact that heavy advertising of a company’s or a product’s name on billboards and in the media makes that name stick in people’s memory as bearing high quality is an example of what bias? a. Insensitivity to base rates. b. Retrievability. c. The conjunction fallacy. d. Ease of recall.

Ans: d Response: p. 34-37

2) A survey among tenants of shared apartments asked each tenant what percentage of the cleaning around the apartment he or she does. The survey found that aggregating the percentages for each apartment produces an average of much more than 100%. This result may be due to what bias? a. Ease of recall. b. Insensitivity to sample size. c. Insensitivity to base rates. d. The conjunction fallacy.

Ans: a Response: p. 34-37

3) When do people use base-rate data correctly? a. When they are instructed to do so. b. When there is no other information available. c. When this information confirms their initial hypotheses. d. All of the above Ans: b Response: p. 39

4) Which of the following can serve as a cognitive explanation for misconceptions of chance? a. People expect probabilities to even out. b. People remember unusual sequences better than ones that appear more random.

c. People judge probabilities of future events as contingent on past events. d. All of the above.

Ans: d Response: p. 34-37

5) Drake is a department manager in a company which has recently decided to hire a new analyst.

After interviewing all candidates, Drake recommended the company hire Anne, but senior management preferred to hire Beth. Drake argued that Beth is an inferior choice, but agreed to accept her for a trial period of six months. At the end of the trial period, Drake evaluated Beth’s performance as poor. Although this evaluation may have been fair, it is also possible that it was biased by: a. The curse of knowledge. b. The confirmation trap. c. Overconfidence. d. Misconceptions of chance.

Ans: b Response: p. 46-49

6) Which bias occurs only after the true outcome of an event is known? a. Retrievability. b. Ease of recall. c. The hindsight bias. d. None of the above.

Ans: c Response: p. 54-57

7) The human mind is better at remembering information that is a. Interesting. b. Emotionally arousing. c. Recently acquired. d. All of the above.

Ans: d Response: p. 59

True / False

8) In order to avoid falling prey to ease of recall bias, a manager must discount the number of successful and unsuccessful actions taken by employees situated closer to the manager, relative to those of employees who are farther away.

Ans: True Response: p. 36

9) The anchoring bias affects our value estimates, but not our ability to retrieve information from memory.

Ans: False Response: p. 50

10) Experience helps countervail the anchoring bias, such that anchoring effects are rarely observable in expert judgments.

Ans: False Response: p. 52-53

Fill in the blank

11) When negotiating for salary with a future employer, it is wise to make an initial offer that is ______, because of the anchoring bias Ans: High Response: p. 51

12) The saying that “There is no such thing as bad publicity” is consistent with the notion that even unflattering publicity increases others’ familiarity with the subject of the story. The _______ heuristic could account for such a phenomenon.

Ans: availability Response: p. 34-37

Short answer 13) Which bias accounts for the “sophomore jinx” phenomenon, in which athletes who did exceptionally well in their rookie season usually follow with a disappointing second season?

Explain the reason for this phenomenon.

Ans: This slump reflects regression to the mean. A player who was lucky one year will probably not be as lucky the following year. Therefore, future performance is expected to be lower.

Response: p. 42-45

14) An entrepreneur wishes to enter the amusement park business. She has to choose between two strategies: a. Open a water park, a theme park and a roller coaster park. Each park has a 75% chance of being profitable after three years. However, the parks require separate marketing efforts, so in order for the whole venture to be successful, all three restaurants must be profitable in the first two years. b. Open a chain of three roller coaster parks in nearby counties. Each park has a 25% chance of making profit in the first two years. This project does not require heavy marketing spending, so in order for it to be successful, at least one park must be profitable after three years.

Which option is more likely to be successful? Why do people sometimes choose the less promising option?

Ans: option b is more likely to be successful than option a (57.8% and 42.2%, respectively).

Choosing option a reflects biased estimations of conjunctive and disjunctive events.

Response: p. 45-46

15) Two groups of people are given score sheets of yesterday’s games in a professional league. One group is given the scores of yesterday’s games in the National Basketball Association, and the other group is given the scores of yesterday’s games in the National Hockey League. The groups are then asked to estimate the average ticket price for a game in the sport of which they read the scores.

How will the two groups differ in their estimates? What bias is responsible for this difference?

Ans: the “NBA” group will estimate higher ticket prices than the “NHL” group. Due to the anchoring bias, the scores that they see, which are higher for basketball games than for hockey games affect their estimates.

Response: p. 49-53

Essay 16) In many organizations, the most competent employees are usually poor in tutoring subordinates and new employees. Indicate the bias that is responsible for this phenomenon and explain how this phenomenon occurs.

Ans: the curse of knowledge is responsible for this phenomenon. People are unable to ignore knowledge they have when assessing others’ knowledge. A highly knowledgeable employee takes for granted knowledge that is available to him or her, and therefore may not put enough emphasis on such things as transferring basic knowledge, or explaining jargon, when instructing subordinates and new employees.

Response: p. 54-57

Multiple Choice

1. An example of bounded awareness in negotiations is when negotiators: a. Assume that what worked in one context will not work in another, even when the contexts are similar. b. Fail to consider the impact of their decisions on others outside the negotiation c. Fail to realize that a publicly known deadline affects them just as much as the other party, and think they are put at an asymmetric advantage. d. All of the above.

Ans: b Response: p. 75-76 2. A publisher wants to bid for the rights to publish a celebrity’s memoir. The publisher would be better off to: a. Bid higher than what they think the book is worth, to avoid the winner’s curse. b. Bid lower than what they think the book is worth, to avoid the winner’s curse. c. Enter the bid early, in order to reduce uncertainty. d. Enter the bid late, in order to reduce uncertainty.

Answer: b.

Response: p. 77 3. Face-to-face interaction in negotiations has been found to: a. Help overcome the inefficient outcomes predicted by game theory. b. Enhance the rationality of players as predicted by game theory. c. Increase the attentional focus on shared information between the negotiating parties. d. Make negotiators more eager to reach agreement in simple negotiations and less eager to reach agreement in complex negotiations.

Ans: a Response: p. 76

4. The most critical barrier to a creative decision is: a. System 2 thinking. b. The failure to recognize subtle changes in the situation. c. The failure to assign appropriate weight to information that is not readily available. d. A narrow definition of the problem space.

Ans: d

Response: p. 64 5. Which of the following biases is most related to the Slippery Slope theory? a. System neglect b. Reference group neglect c. Change blindness d. Inattentional blindness Ans: c Response: p. 67

True/False 6. In creative problem solving, composing a group of people, each with unique knowledge and perspective, is usually enough to avoid the problems of bounded awareness.

Ans: False Response: p. 70 7. The Slippery Slope theory explains why a single instance of unethical behavior can be justified.

Ans: False Response: p. 67

Fill in the blank

8. Entrepreneurs often fall prey to self-focus, which makes them too eager to enter _________ contests and too reluctant to enter ___________ competitions.

Ans: simple; difficult Response: p. 79 9. Groups have a tendency to focus on _________ information, at the expense of _____________ information.

Ans: shared; unique Response: p. 70

10. When people are asked to predict their emotional responses to a negative event, such as a job termination, they expect that their emotional reaction will last _________ than it turns out to.

Ans: longer Response: p. 68

Matching a. Change blindness b. The winner’s curse c. Inattentional blindness d. Reference group neglect e. System neglect f. focalism 11. A team was in pursuit to sign a highly sought-after free agent. It gave the player the highest offer of all the teams, and ultimately signed him to a high-paying contract. The player did not live up to expectations during the subsequent season.

Ans: b Response: p. 74 12. A firm replaces the receptionist who sits at the front desk and 80% of employees do not even notice that it is a different person who greets them each morning.

Ans: c Response: p. 65-67 13. The tendency to focus too much on a particular event and too little on other events that are likely to occur concurrently.

Ans: f Response: p. 67-69 14. Japanese automakers started producing innovative new models in the 1980’s and introducing them in the United States. General Motors did not see its market share is in danger, since it viewed itself as superior to the foreign manufacturers. Since then, until today, Japanese cars are regarded as the most reliable cars on the market.

Ans: d Response: p. 79 15. Why it is easier to pass budget cuts in several incremental steps than in the form of one deep cut.

Ans: a Response: p. 66-67

Short answer 16. When trying to generate an accurate probability assessment, why is it better to consider all possible outcomes to a problem than to consider each possible outcome separately?

Ans: because when we focus our attention to a subset of the available information, we tend to give it too much weight, and too little weight to all other information.

Response: p. 68-69 17. What explanation does the book offer for the fact that two thirds of all corporate acquisitions fail to live up to the acquiring company’s expectations?

Ans: competitive bidding causes companies to pay too much for the companies they acquire.

Response: p. 77-78 18. Describe the main difference between the bounded awareness of individuals and the bounded awareness of groups.

Ans: individuals’ awareness is bounded by the information they mentally consider, whereas the awareness of groups is bounded by the information that becomes part of the discussion.

Response: p. 70

Essay

19. Discuss a strategy of overcoming bounded awareness of groups.

Ans: strategies to counter bounded awareness of groups focus on raising awareness of the group to this potential problem and on creating structures to overcome it. These structures encourage members to share information, particularly unique information. Suggested ways are forewarning the group in advance of the unique knowledge of different members and identifying expertise in the group before the discussion begins.

Response: p. 70-71 20. Discuss the difference between bounded awareness and the availability heuristic.

Ans: the two concepts have different foci. Availability is a general cognitive heuristic, which explains the tendency to view information that is readily available as more common, or more

accurate than information that is not. Bounded awareness, on the other hand, is more specific in examining the types of information that are more likely to be in or out of focus in different contexts.

Response: p. 81

Multiple choice

1. How can a sure loss be presented in a less unattractive way? a. Framing the loss in pseudocertain terms. b. Framing the sure loss in probability terms, having a 100% probability. c. Emphasizing the low degree of risk. d. None of the above.

Ans: d.

2. Daniel and Jeremy are brothers. They have found out in advance about what their parents are giving them for Christmas, and have agreed to exchange each other’s gifts. When should the exchange be made, in order for the two brothers to be the most satisfied with it? a. Before opening the presents. b. Right after opening the presents. c. A few weeks after receiving the presents, after getting tired of what they received. d. Answers a and b have equal likelihoods of creating satisfaction.

Ans: a.

Response: p. 93

3. What explanation does the book provide for the fact that people are loss-averse, but still accept the sure loss of paying insurance? a. The vividness of the possibility of losing a big amount of money if they are uninsured leads people to overestimate their risk. b. The special value pseudocertainty has. c. Social norms that favor having insurance. d. All of the above.

Ans: d Response: p. 90-91

4. A product’s transactional utility is contingent upon: a. The product’s acquisition utility. b. A reference price. c. The level of risk associated with the product. d. All of the above.

Ans: b.

Response: p. 92

5. A rational valuation of an asset is based on: a. What the asset is currently worth on the market. b. The time that had passed since purchasing the asset, including depreciation. c. What the asset cost at the time it was purchased. d. The transaction utility of the purchase.

Ans: a Response: p. 95

6. A software company is looking to recruit a new programmer. There are two candidates for the position. The candidates’ Grade Point Averages are given, along with the number of programs each of them has written.

I. Candidate X has a GPA of 4.0. His experience consists of writing 10 programs.

II. Candidate Y has a GPA of 3.2. His experience consists of writing 70 programs.

According to the evaluability hypothesis, which of the candidates will be preferred in case they are evaluated separately, and why? a. b. c. d.

Candidate X, because GPA is harder to evaluate than experience.

Candidate Y, because GPA is easier to evaluate than experience.

Candidate X, because experience is harder to evaluate than GPA. Candidate Y, because experience is easier to evaluate than GPA.

Ans: c Response: p. 99-100

7. A drug company has developed a vaccine that protects against Hepatitis C and Hepatitis B, but not against Hepatitis A. Which of the following is the recommended way to present this new pill? a. 67% protection from all types of Hepatitis. b. Protects you from 2 out of 3 types of Hepatitis. c. Full protection against Hepatitis B and Hepatitis C. d. Leaves you at only 33% risk of Hepatitis.

Answer: c

Response: p. 88-89

8. A firm has exceeded its revenue forecast for the year, and wishes to share some of the surplus with its employees. Which of the following schemes is likely to generate higher levels of satisfaction from the employees? a. Giving bi-monthly bonuses, with the each bonus slightly smaller than the previous one. b. Giving bi-monthly bonuses, with each bonus slightly larger than the previous one. c. Giving bi-monthly bonuses of equal amounts. d. Giving one big bonus at the beginning of the year.

Ans: b Response: p. 98

True / False

9. Since losses loom larger than gains, a big loss upsets us more than two smaller losses of the same total amount.

Ans: False Response: p. 96

10. In choices that involve uncertainty, our judgments are affected not only by the framing of the choice in terms of the level risk, but also by the framing of the choice in terms of gains or losses.

Ans: True Response: p. 90-91

11. In negotiations, the endowment effect creates a bias primarily in seller’s evaluations.

Ans: True Response: p. 93-94

12. The acquisition utility derived from buying a good is a function of the price paid for the good and its objective value.

Ans: False Response: p. 92

Fill-in-the-blank

13. The certainty effect posits that a reduction of the probability of an outcome will be more meaningful when the outcome was initially _______ than when it was __________ .

Ans: certain; probable Response: p. 89

Short answer

14. The chapter identifies three steps of making a risky choice free of the biasing effect of reference points. What are these three steps?

Ans: 1. Identifying one’s reference point. 2. Considering whether other reference points exist and whether they are as reasonable as the first one. 3. Thinking about the decision from multiple perspectives and examining any contradictions that emerge.

Response: p. 101

15. Richard Thaler distinguished between a product’s acquisition utility and transactional utility. On which of these two types does the product’s seller has control, and how?

Ans: a seller has control over the product’s transactional utility, by attaching a high reference price to the product, and selling it at a lower price, thus increasing the transactional utility the buyer gets from buying the product.

Response: p. 92

16. A credit card company wants to market a new scheme for its clients, offering them 5% of their yearly spending as a cash gift at the end of the year. How should the company refer to this rebate, and why?

Ans: the company should refer to the rebate as bonus. The word bonus is associated with spending, as opposed to words like “rebate”, which are associated with saving.

Response: p. 96-97

17. What accounts for the high rate of auctions on eBay that fail to reach a sale?

Ans: the endowment effect causes sellers’ reservation prices to be higher than the highest bids.

Response: p. 93

Essay

18. A firm has exceeded its revenue forecast for the year, and wishes to share some of the surplus with its employees. Outline the bonus scheme that is likely to generate higher levels of satisfaction from the employees, and explain why.

Ans: giving out multiple bonuses of small amounts will be better than giving one big bonus of the same amount as all small ones combined. This is because people have mental accounts that are sensitive to changes in their current situation. Therefore, multiple increases in the regular income are more enjoyable than one big increase.

Response: p. 96

19. A city councilman wants to allocate funds for a program to highlight the city’s historical heritage.

The mayor is opposing this plan, but has agreed to bring it for vote at the next city council meeting. How should the mayor present this issue at the meeting, in order to reduce the likelihood of its approval by the city council?

Ans: the mayor should introduce the issue as a choice between various issues for which funds should be allocated. When assessing options together, people tend to prefer causes directly

relevant to them. However, when assessing options separately, people perceive affectively arousing causes as more important.

Response: p. 98-100

20. What is a possible explanation for the observed preference reversal of voters between choices that are evaluated separately and choices that are evaluated simultaneously?

Ans: 1) The want/should explanation: the “want” option is the option that people want and appeals to the affective system. It is valued more highly in separate evaluations. The “should” option, the more logical and reasoned one, which is what people think they should choose, is valuated more highly in joint evaluation.

2) The evaluability hypothesis states that preference reversals between separate vs. joint evaluations are driven by differences in our ability to evaluate different attributes of the options. When two options require a tradeoff between a hard-to-evaluate attribute and an easy-to-evaluate attribute, the hard-to-evaluate attribute will have less impact in separate evaluations, but will have a significant weight as a comparison measure in joint evaluations.

Response: p. 99-100

Multiple choice

1. According to the “multiple-selves” theory, if an online DVD rental service could offer same-day deliveries, so that people who order a movie receive it the same day, what change is likely to happen to the rental profile? a. More documentaries and art films will be rented and less comedies and action movies. b. More comedies and action movies will be rented and less documentaries and art films. c. More documentaries and art films will be rented, but less will actually be watched. d. More comedies and action movies will be rented, but less will actually be watched.

Ans: b Response: p. 108

2. Self-serving reasoning causes people to pay less critical attention when assessing: a. Favorable information. b. Ambiguous information. c. Probabilities. d. Threatening information to their sense of self.

Ans: a Response: p. 113

3. Which emotion may decrease the endowment effect, causing an owner of a good to lower his or her selling price? a. Anger. b. Disgust. c. Happiness. d. Fear.

Ans: b.

Response: p. 115

4. A senator wants to pass a bill to implement a substantial increase in the tax on gasoline. Which feature is most likely to help the bill’s chances of being passed? a. To frame the bill in terms of potential gains, instead of potential losses.

b. To emphasize that people today do not do enough to reduce gas consumption, so as to tap other senator’s self-worth. c. To propose that the bill would come into effect in the future, not immediately. d. To emphasize the fairness of the bill, so as to tap other’s senators fairness perceptions.

Ans: c Response: p. 108

5. Which of the following helps promote more rational decision making? a. Standards of comparison b. Focus on salient attributes c. The “multiple-selves” approach d. Positive, rather than negative affect Ans: a Response: p. 107

True/False

6. Cognitive neuroscience research has refuted the “multiple-selves” theory, finding that both short-term and long-term gratifications activate the same regions in the brain.

Ans: False.

Response: p. 106

7. Relative to the present time period, people tend to view all gains and losses in the future to be worth less than they would be in the present.

Ans: True.

Response: p. 108

8. People’s assessments of fair allocation of resources are influenced primarily by the importance of attributes affecting what is fair.

Ans: False.

Response: p. 112

Fill-in-the-Blank

9. A rational decision maker would discount the future using ___________ discounting.

Ans: exponential.

Response: p. 107

10. __________ is a negative emotion that shares many features with happiness, such as increased confidence and decreased sensitivity to risk.

Ans: anger.

Response: p. 114

11. Sadness has been found to focus one’s attention to _______________.

Ans: the self.

Response: p. 114

Short Answer

12. According to the Multiple-Selves theory, what is the subject of disagreement between the two “selves”?

Ans: one of the “selves” is in favor of a decision that provides immediate gratification, while the other one favors an alternative that would provide greater future rewards.

Response: p. 106

13. What explanation was given to the fact that silver-medal winners often appear less happy with their achievement than bronze-medal winners?

Ans: people display counterfactual thinking. Silver medal winners can’t help imagining that they almost won a gold medal, while bronze medalists are happy with getting any medal at all.

Response: p. 116

Essay

14. How do the two selves in the “multiple-selves” theory interact in evaluations of an option that bears short-term gratification and long-term costs?

Ans: if the option of a short-term reward that has long-term costs is evaluated by itself, the “want” self makes an immediate assessment that the option seems appealing. when that shortterm desire is compared against the choice to resist the indulgence’ the “should” self is empowered by the ability to evaluate and compare the relative value of each.

Response: p. 107

15. Describe one proposed approach to dealing with the conflict between the “want” self and the “should” self.

Ans: Schelling and Thaler propose that the “should” self develop advance schemes to corral, coopt, or control the “want” self. For example, make inflexible pre-commitments.

Thaler and Shefrin propose that the “should” self search for ways to bring the interests of the two selves into alignment.

Raiffa proposed to acknowledge this conflict as an error in judgment made by one of the selves, and to question each self to find out which of them is making the error.

The authors recommend to develop a rational negotiation strategy for dealing with the “want” self, and to give the “want” self more voice in the negotiation, in order to increase the likelihood of compliance with what will be decided.

Response: p. 110-111

16. What are the three criteria on negotiating between the “want” self and the “should” self?

Ans: first, the two sides must reach an agreement in order for the “want” self to comply with the decision that was made. Second, the agreement should be Pareto efficient, meaning that there is no other agreement that both the “want” self and the “should” self prefer over it. Third, the “should” self must not push for an agreement that is outside the bargaining zone, meaning that the terms must be acceptable to the “want” self.

Response: p. 111

Multiple Choice

1. Which of the following is not likely to produce escalation of commitment? a. A present state that is below expectations. b. A present decision that is likely to generate further losses. c. A present decision that is a result of a previous decision. d. Past investment of a great deal of resources in a selected course of action.

Ans: b Response: p. 127-130

2. When deciding whether or not to escalate commitment to a chosen course of action, our choice should depend on: a. The expected value of further investment. b. Our sunk costs. c. Our initial reasons for choosing that course of action. d. None of the above.

Ans: a Response: p. 120-121

3. The tendency to escalate commitment is more pronounced when: a. The commitment is to a failed decision made by oneself. b. The failure of the initial commitment can be explained with a causal, unrelated account. c. The escalation is made by an individual, compared with escalation made by a group. d. All of the above.

Ans: d Response: p. 127-130

4. Which is not a good mechanism for protecting oneself from irrational escalation of commitment? a. Separating initial decisions from future decisions. b. Rotating decision makers between various stages of the process, so that the person who chose the initial course of action will not be the one choosing whether or not to continue pursuing it.

c. Identify reasons for justifying the initial course of action, in order to avoid the creation of cognitive dissonance, which ultimately leads to irrational escalation of commitment. d. Consider the decision from the perspective of one’s competitors.

Ans: c Response: p. 127-131

5. Which of the following is a useful advice for a competing party that wishes to avoid competitive escalation of commitment? a. Pursue mutual disclosure of intentions between you and your competitor. b. Make an initial high bid that will discourage the competitor from entering the auction. c. Do not focus too much on the competitor’s needs and interests, but on your own. d. Know the expected bidding patterns of your competitor in advance.

Ans: a Response: p. 125

6. Specific actions of parties engaged in competitive irrationality are: a. More likely to occur as their commitment escalates. b. Irrational to the extent that the initial commitment is irrational. c. Not easily identified as irrational. d. Rational by definition.

Ans: c Response: p. 125

7. Which of the following best describes nonrational escalation of commitment? a. Strong commitment to an idea that was previously chosen. b. Commitment to a previous course of action beyond the point prescribed by rational models of decision making. c. Continuing with a previously chosen course of action when the potential future benefits outweigh the potential future costs. d. Commitment to a previously chosen course of action when the expected value of continuing the project is positive.

Ans: b Response: p. 121

8. Which of the following is an underlying mechanism of escalation of commitment? a. The confirmation trap. b. Competitive irrationality. c. Evaluating potential consequences from different reference points. d. Self-justification.

Ans: d Response: p. 129

9. A department manager has personally decided to hire a new employee. This employee’s performance, however, proves to be below expectations. Nevertheless, the manager decides to keep the employee, explaining away his current performance as merely part of the learning process. This escalation of commitment may be due to: a. Perceptual biases. b. Judgmental biases. c. Impression management. d. All of the above Ans: d Response: p. 127-130

Fill-in-the-Blank

10. When choosing whether or not to continue pursuing a selected course of action, previous commitments and spent resources should be regarded as ____________ .

Ans: sunk costs.

Response: p. 120-121

11. Any loss from an initial investment will systematically encourage an individual to continue the previously selected course of action, due to the human tendency to be risk-_________ in negatively framed problems.

Ans: seeking Response: p. 128

12. Groups are _________ likely than individuals to escalate commitment; group escalation of commitment is likely to be ____________ extreme than individual escalation of commitment.

Ans: less; more.

Response: p. 122

True/False

13. In a competitive auction, continuing to bid after both one and one’s competitors have started bidding is considered irrational escalation of commitment.

Ans: False.

Response: p. 124-125

14. The confirmation trap is a primary underlying bias of escalation of commitment.

Ans: True.

Response: p. 127-128

15. Escalation of commitment is more pronounced in simultaneous decisions than in serial decisions.

Ans: False.

Response: p. 128

Short Answer

16. How can an organization change its reward scheme to discourage the preference of impression management over high-quality decision making?

Ans: rewards should be determined by the quality of process of decisions made, and not by the results of these decisions.

Response: p. 130

17. Why is it so hard for managers to internalize the sunk-cost concept when making decisions?

Ans: it is hard to recognize the reasons for including sunk costs in our calculations in the first place.

Response: p. 121

Essay 18. What are the reasons for the difference between groups and individuals in the likelihood of escalating commitment and in the degree to which commitment is escalated?

Ans: groups tend to be less prone to escalation of commitment because of the presence of multiple opinions and the higher likelihood of someone recognizing the irrationality of escalating. However, groups display agreement-reinforcing dynamics that unite them behind choices that they made. Therefore, if recognition of the irrationality of escalation does not occur, these group dynamics may lead groups to escalate commitment to a higher degree than individuals.

Response: p. 122

19. Explain how George Bush’s presidential campaign in 2004 benefited from his escalation of commitment to unpopular stances on various issues, including the war in Iraq.

Ans: Bush positioned himself as a steady leader, in contrast to Kerry’s apparent indecisiveness.

Bush’s unwillingness to revise his position on key issues was regarded as evidence of strength of character and consistency. His ads heralded him as a symbol of “steady leadership in times of change.” Kerry was described as an inconsistent politician, who often changes his views and thus cannot be trusted. His “flip-flops” were a sign of unworthiness of a leader.

Response: p. 129

20. Explain the paradox that a manager faces, when choosing between changing course of action and escalating commitment to it.

Ans: Making the best decision for the organization means that the manager should focus on future costs and benefits. However, organizations value consistency. Thus, while the good of the organization demands ignoring previous commitments and choosing the course of action that best meets the organization’s present and future needs, the manager will more likely be rewarded for escalating commitment than for changing course. The manager faces a conflict between what the organization wants and what the organization needs.

Response: p. 130

Multiple Choice

1. Businesses that adjust their prices upward in response to high demand, consistent with economic laws of supply and demand, can experience which of the following outcomes: a. Underperform other businesses that consider the norms of fairness. b. Are punished by customers who are more sensitive to fairness than to economic rationality. c. Make larger profit than businesses that comply with norms of fairness. d. All of the above Ans: d Response: p. 133-135

2. Which of the following condition can increase one’s willingness to engage in altruistic punishment? a. When the person who is behaving unfairly belongs to an in-group. b. When the person who is behaving unfairly belongs to an out-group. c. When the person who is treated unfairly belongs to an out-group. d. When the person who is treated unfairly belongs to an in-group.

Ans: d Response: p. 142

3. People display inconsistency by: a. Preferring a nominal wage increase that does not cover inflation over a wage cut. b. Punishing retailers that raise prices in response to demand. c. Giving some money to the other party in ultimatum and dictator games. d. Willingness to pay for punishment of unfair players.

Ans: a Response: p. 134

4. Which bias underlies the tendency of people to overclaim credit for their contribution to an outcome? a. The affect heuristic b. Time discounting

c. Self-serving attributions d. None of the above Ans: c Response: p. 145-146

5. Which of the following helps to eliminate the influence of fairness considerations? a. Repeating games b. Raising the stakes in games c. Reducing the amount of available resources after an initial offer is rejected d. None of the above Ans: d

6. Research has shown that suppressing stereotypes against out-group members causes: a. A gradual reduction in the strength of stereotypes. b. A temporary reduction in cognitive capacity and a feeling of discomfort. c. A transition in the nature of the suppressed stereotypes, such that they become implicit. d. An increase in people’s sensitivity to aggressive and violent behavior.

Ans: b Response: p. 148

7. Researchers of bounded ethicality claim that the primary flaw of most ethical training is that: a. It ignores the failure of disclosure to reduce conflicts of interest. b. It fails to convince managers that they can benefit from lessons of ethical behavior. c. It over-claims credit for its contribution to reduce unethical behavior. d. It focuses too narrowly on explicitly unethical behavior.

Ans: d Response: p. 158-159

8. Which false assumption is often made by professionals such as lawyers, financial advisers and real-estate agents regarding potential conflicts of interest? a. That situations in which they are involved do not pose conflicts of interest. b. That they themselves are immune from the effects of conflicts of interest.

c. That they are honest and objective people. d. That conflicts of interest lead only to unconscious corruption.

Ans: b Response: p. 154

9. Research on the psychology of conflicts of interest suggests that an auditor is psychologically incapable of maintaining a truly unbiased judgment as long as: a. The auditor depends on its clients for future contracts. b. The auditor is forced to disclose conflicts of interest. c. The auditor is believed to personally be immune to conflicts of interest. d. All of the above.

Ans: a Response: p. 154

True/False

10. Bounded ethicality has replaced the assumption of conscious choice as the best explanation for unethical behavior.

Ans: False Response: p. 143

11. Spontaneous behaviors are better predicted by implicit attitudes, while thoughtful behaviors are better predicted by explicit attitudes.

Ans: True Response: p. 149

12. Disclosure of conflicts of interest can increase biases stemming from these conflicts.

Ans: True

Response: p. 155

Fill-in-the-Blank

13. Fairness appears to be a universal concept, but its implementation depends on _______ norms.

Ans: cultural or social Response: p. 138

14. Research has found that reducing the gap between the salaries of a team’s highest-paid and lowest-paid members can have a _________ effect on the team’s performance.

Ans: positive Response: p. 139

15. The basic psychological process underlying in-group favoritism is that we tend to identify with people who are ___________ to us.

Ans: similar.

Response: p. 146

16. Moral issues produce ______________ reactions that, in turn, often drive our cognitive assessments.

Ans: emotional.

Response: p. 153

Short answer

17. How was the effect of fairness considerations demonstrated in the dictator game?

Ans: In the dictator game, an offer made is automatically accepted. Nevertheless, most players still choose to give the other party some portion of the resources.

Response: p. 137-138

18. What is altruistic about altruistic punishment?

Ans: that people are willing to pay money in order to punish others whom they observe behaving unfairly, even when there is no direct benefit from punishment.

Response: p. 142

19. What is important to remember when formulating a fair offer in an interpersonal context?

Ans: that other people have different standards about what is fair.

Response: p. 142

20. How do the want and should selves interact in the decision whether to punish someone who is behaving unfairly?

Ans: the want self is driven by the feeling of anger and motivates the individual to punish. The should self makes the calculation of whether or not punishment is in the person’s best interest.

Response: p. 142

21. When people are doing favors for their friends, what aspect of their unfair behavior do they often overlook?

Ans: that these favors cause harm for out-group members.

Response: p. 146-147

Essay

22. What is the money illusion, and how does it affect people’s judgment?

Ans: the money illusion is people’s tendency to rely on nominal quantities, rather than on real buying power, despite the fact that the nominal value of money is arbitrary, and changes in value as a result of inflation. The money illusion causes people to make fairness assessments of their salaries that are built around whether the nominal dollar amount of the salary is increasing or decreasing instead of adjusting for inflation. Thus, a wage cut is considered unfair, but a nominal increase in wage, that, when taking inflation into account, amounts to the same change as the wage cut, as more acceptable.

Response: p. 134

Multiple Choice

1. Over time, the performance of mutual funds tends to: a. Improve. b. Decline. c. Regress to the mean. d. Outperform the market.

Ans: c Response: p. 160

2. In order to come out to themselves as “winners” and to avoid becoming “losers”, investors tend to: a. Hold on to stocks that are trading below purchase price. b. Buy recent market winners. c. Engage in frequent trade. d. Implement the same investment strategies that they have used in the past.

Ans: a Response: p. 169

3. From a strictly rational standpoint, the price at which a stock was purchased should be regarded as: a. A reference point for judging gains and losses. b. An indication of the stock’s past performance c. A helpful guide to avoid impatient trading of the stock. d. Arbitrary and meaningless.

Ans: d Response: p. 170

4. Roughly what is the percentage of mutual funds will outperform the market both this year and the next year? a. Around 50% b. Around 25% c. Around 6%

d. Around 0.1% Ans: c Response: p. 160

5. People probably do not invest enough in: a. Stocks in the long-term. b. Bonds in the short-term. c. Recent market losers. d. Recent market winners.

Ans: a Response: p. 167

6. When Samuelson and Zeckhauser (1988) offered their participants to allocate their inheritance money between different options, participants displayed a consistent preference to invest in: a. Risky stock. b. Municipal bonds. c. The same manner the money was previously invested. d. None of the above Ans: c Response: p. 168

7. The basic advantage of index funds over actively managed mutual funds is that: a. They have a higher likelihood of outperforming the market. b. They will always yield a profit, however small. c. Their operating fees are lower. d. All of the above.

Ans: c Response: p. 160

True/False

8. An investor should avoid buying a diversified portfolio of stocks, since it may lead to excessive spending.

Ans: False.

Response: p. 163

9. When Moore and his colleagues examined investor behavior in the lab, the participants behaved similar to investors in real markets – they chose too many actively managed funds that made too many trades and charged high fees.

Ans: True.

Response: p. 165

10. While investors accurately estimate the past performance of the stocks in which they invest, they hold overly optimistic beliefs about these stocks’ future performance.

Ans: False.

Response: p. 165

11. Investors’ expectations of future performance of mutual funds are negatively correlated with actual returns. ans: True.

Response: p. 165

12. On average, actual returns of stocks picked by women are higher than returns of stocks picked by men.

Ans: False.

Response: p. 64

Fill-in-the-Blank

13. After making an investment, people’s estimations of its past performance become overly ___________.

Ans: optimistic.

Response: p. 165

14. When a fund outperforms the market two years in a row, investors often neglect to consider the likelihood that this result may be due to _____________.

Ans: randomness or chance.

Response: p. 166

15. The _____________ bias makes people resistant to change and drives them to prefer investment strategies that they have used in the past over searching for better strategies.

Ans: status-quo Response: p. 167

16. The fact that the benefits of saving for retirement occur only in the distant future makes it easy for the _______ _______ to dominate people’s decisions and to cause them to save less.

Ans: want self Response: p. 172

Short Answer

17. In what way does overconfidence lead people to engage in active investing?

Ans: people are excessively sure that they know which direction the market is headed and that they can pick the right fund in which to invest.

Response: p. 163

18. Why do women achieve better investment results than men?

Women display greater patience than men and a lower turnover rate. Women don’t hurry as much as men to sell their stocks and buy new ones.

Response: p. 164

19. Why, according to the chapter, do investors fail to compare their investment decisions to the overall market performance?

Ans: this is because investors want to justify their past behaviors and protect their overly optimistic views of their investments.

Response: p. 164

20. When firms offer their employees a choice of investment options for retirement accounts, the percentage of dollars employees choose to invest in stocks in highly correlated with what?

Ans: the percentage of stock funds offered.

Response: p. 167-168

21. What change does the chapter offer to make in 401(k) savings plans in order to raise their enrollment rates?

Ans: to implement an automatic enrollment scheme with an opt-out option, instead of an opt-in option.

Response: p. 167-168

Essay

22. Why are annuities regarded as no-risk saving schemes?

Ans: According to this type of plan, the person receives periodical payments even if they outlive the money they themselves allocated. On the other hand, if they die before they have exhausted the money they put in the plan, they do not need that money, because they are already dead.

Response: p. 173

Multiple Choice

1. Game theory provides the most precise prescriptive advice to negotiators, on the condition that: a. They do not lie. b. All players are perfectly rational. c. They focus on interests, and not on arguments. d. They aware of their BATNAs. Ans: b Response: p. 176

2. Which of the following is not a key set of information in Raiffa’s framework for approaching negotiations? a. Each party’s BATNA. b. The relative importance of each party’s interests. c. Each party’s known information about the other party’s position. d. Each party’s set of interests.

Ans: c Response: p. 177

3. Trust enables value creation through: a. Creating contingent contracts. b. Identifying the parties’ interests. c. Facilitating tradeoffs between issues of different relative importance. d. Sharing information between the parties.

Ans: d Response: p. 186

4. Contingent contracts can create value in the presence of what feature: a. uncertain future outcomes. b. a negative bargaining zone. c. differences in the parties’ time preferences. d. differences in the parties’ risk preferences.

Ans: a Response: p. 184

5. Negotiators often are reluctant to give away information because they assume that: a. Their information is too important. b. It will anchor their final outcome. c. Giving away information is giving away power. d. If the other side does not ask questions, then their willingness to share information is equally low.

Ans: c Response: 187

True/False

6. Knowing one’s own reservation price is sufficient for making the decision of whether to accept or reject the final offer from the other party.

Ans: True Response: p. 177

7. The best strategy in negotiation is to get the most important issue resolved in the beginning and then move on to less important issues.

Ans: False Response: p. 188

8. Once a settlement has been achieved, it is wise not to re-open it, because going back to reconsider an issue can harm the mutual trust between the parties.

Ans: False Response: 189-190

Fill-in-the-Blank

9. A negotiated agreement whose terms depend on some future (uncertain) event is known as a ______________ .

Ans: contingent contract.

Response: p. 184

10. A player’s ___________ ____________ is the minimum outcome that this player will require of a negotiated agreement.

Ans: reservation price Response: p. 177

11. Negotiators often give too much attention to the other party’s ___________ and not to finding out their underlying interests.

Ans: positions.

Response: p. 178

12. Negotiations that do not involve more than one issue involve are likely to focus on ____________ of value but not _____________ of value.

Ans: claiming; creation.

Response: p. 180

Short Answer

13. What is the difference between a negotiating party’s position and that party’s interests?

Ans: positions are what parties demand from the other side, while interests are the motives behind these positions – what the parties really want.

Response: p. 178

18-22. A customer and a dealer are negotiating for the price of a new car. The dealer’s initial price for the car is $20,000, but he will accept any price over $12,000. The customer offers $8,000, but will pay up to $14,000 for the car. Identify the following:

$10K

$12K

$14K

$20K

C A

B

D

E

14. A 15. B 16. C 17. D 18. E Ans:

18. A: Customer’s initial offer.

19. B: Dealer’s reservation price.

20. C: Positive bargaining zone.

21. D: Customer’s reservation price.

22. E: Dealer’s initial offer.

Response: p. 179

19. In negotiations with multiple issues, what can the negotiators do to make both parties better off that they cannot do in a negotiation over a single issue?

Ans: tradeoffs across issues that differ in importance between the parties.

Response: p. 182-183

Essay

20. Discuss the advantages and disadvantages of game theory as an aid to negotiators.

Ans: the primary advantage of game theory is that it provides the most precise prescriptive advice to negotiators, given absolute rationality. Its main disadvantages are the unrealistic conditions for it to work: 1) the ability to describe all possible outcomes for all possible negotiator moves in every situation, and 2) fully rational behavior of all players.

Response: p. 176

21. Describe three ways, outlined in the chapter, in which contingent contracts can improve the outcomes of negotiations for both sides: possible answers: 1) bets build on differences to create joint value. They can be useful in turning disagreement about predicted future outcomes into an issue in the agreement. 2) Bets allow agreements to be formed despite biases that make it difficult to reach an agreement, such as overconfidence and egocentric biases. Contingent contracts allow parties to bet on their own beliefs. 3) Bets help uncover disingenuous parties and false claims. They make parties provide guarantees for their claims and predictions. If a player does not really believe his or her statements, they will not be willing to make a bet on them, and their bluff will be exposed. 4) Bets establish incentives for performance, since the payoffs are not certain, but rather contingent on the outcome that will occur.

Response: p. 184-185

Multiple Choice

1. When different parties to a social dilemma openly discuss the issues, this causes: a. A decrease in the magnitude of self-serving biases. b. Escalation of conflict. c. A decrease in the effect of the affect heuristic. d. A decrease in the width of the positive bargaining zone.

Ans: a Response: p. 202

2. How do anchors affect judgments of experts in negotiations? a. The effect of anchors is eliminated by expertise. b. The effect of anchors is significantly reduced, but not eliminated. c. The effect of anchors remains strong even for experts. d. The effect of anchors is even stronger for experts than it is for non-experts.

Ans: c Response: p. 202-203

3. An extreme offer made by one side: a. Increases the likelihood of a better deal for the side that makes the offer. b. Increases the likelihood of reaching an impasse. c. Will have less influence if the other side has a good sense of the bargaining zone. d. All of the above.

Ans: d Response: p. 204

4. Assuming that one’s interests conflict directly with those of the other side without attempting to find points of initial agreement constitutes which error? a. Reactive devaluation b. The mythical fixed pie c. Escalation of conflict d. Self-serving bias

Ans: b Response: p. 193

5. Creating anchors that lead negotiators toward a positive frame may cause these negotiators to: a. Reactively devalue given offers. b. Put more emphasis on value creation. c. Make more concessions. d. Reach an avoidable impasse.

Ans: c Response: p. 195

6. The fixed-pie assumption leads negotiators to interpret most situations as: a. Overly risky b. Win-lose c. Integrative d. Unfair Ans: b Response: p. 194

True/False

7. Adding multiple parties and more perspectives to a negotiation situation helps to reduce selfserving biases of the negotiating parties.

Ans: False Response: p. 201

8. The fixed-pie assumption makes the value claiming component of negotiation too salient.

Ans: True

Response: p. 193-194

9. Because they are risk-averse, negotiators in final-offer arbitrations tend to believe that the chance of their final offers to be accepted is lower than it actually is.

Ans: False Response: p. 199

10. The fixed-pie assumption can lead two sides who want the same outcome to settle on a different outcome.

Ans: True Response: p. 193-194

Fill-in-the-Blank

11. When one’s counterpart has a negative frame in a negotiation, it is better to advise that counterpart that he or she is adopting a ___________ strategy.

Ans: risky Response: p. 196

12. Focusing on one’s own alternatives and objectives makes one resilient to the effect of the opponent’s _________ _________.

Ans: first offer Response: p. 205

13. __________ of conflict in negotiation can occur because the each party is focused too much on winning and less on reaching an agreement.

Ans: escalation

Response: p. 197

Short Answer

14. When a negotiator is “reactively devaluing” an offer, he or she likes this offer less because: Ans: it is proposed by the other side.

Response: p. 194

15. The high number of cars travelling the roads and polluting the air constitutes a social dilemma.

What are the conflicting interests an individual has in this situation?

Ans: the conflict is between a group interest and a personal interest. The group interest one has is to have cleaner air and less traffic. The personal interest is to keep one’s car.

Response: p. 201

16. What is characteristic of negotiator’s definitions of fair outcomes?

Ans: these definitions are constructed in ways that favor oneself.

Response: p. 200

17. Jill and Jeff are married, with two children. Jill works at an ad agency. She works five days a week, from 9am to 5:30pm and earns $90,000 a year. Jeff works as a computer technician. His work usually entails fixing problems at clients’ houses, often during the weekend. He earns about $60,000 a year.

Debbie and Dave are also married, with two children. Both work as consultants for IT firms. They typically work five days a week, from 8am to 6pm, with occasional work during the weekends.

They earn $80,000 each.

Both couples are trying to work out a way to spend more time with their children. Which couple is likely to display more self-serving biases in arguing that the other spouse is not doing enough, and why?

Ans: Jill and Jeff are likely to display more self-serving biases, because their contribution, both in earned money and work hours, is asymmetric.

Response: p. 202

Essay

18. When meeting separately with each side to a negotiation, what two things can mediators to increase the chances of agreement? Why do they work?

Ans: 1) Use different anchors. The mediator needs both sides to have a positive frame to the situation. Therefore, each side needs to use a reference point that makes the agreement look more favorable. ; 2) Call attention to the level of risk and uncertainty in holding out on an agreement. The mediator wants both sides to be risk-averse, and thus prefer a sure settlement over an attempt to get a better deal.

Response: p. 196

19. How did research show that the different definitions of a fair outcome made by the two sides of a negotiation constitute a real bias in judgment and not merely strategic behavior (such as trying to influence a judge or the other side)?

Ans: In an experiment simulating a court case, participants were asked to estimate the outcome a judge has already made in their case, and were promised that these estimations will remain confidential and will not have an effect on any negotiated outcome. Nevertheless, the two sides often made very different estimations, with plaintiffs predicting the judge to award them much more than what the defendants predicted. Even when making accurate estimations was rewarded with money, these estimations did not get better.

Response: p. 200

Multiple Choice

1. Which of the following biases did the Oakland Athletics baseball team overcome by implementing linear models in the team’s management decisions? a. Overweighting observed player performances. b. Overgeneralizing from personal experiences. c. Overweighting recent data. d. All of the above.

Ans: d Response: p. 206-208

2. Which of the following has the lowest predictive power of a graduate student’s future performance? a. The student’s score in the Graduate Record Examination (GRE). b. The student’s undergraduate Grade Point Average. c. The student’s performance in an interview. d. The quality of the student’s undergraduate school.

Ans: c Response: p. 211-212

3. The most successful debiasing strategies tend to be: a. Counter-intuitive. b. Context-specific. c. Good only for the short term. d. Useful only for detecting bias.

Ans: b Response: p. 217

4. An affective impression of an interviewee is NOT: a. Made very quickly. b. Likely to change many times during the interview. c. Based on superficial features of the interviewee. d. Falsely claimed to be instrumental in assessing personal fit.

Ans: b Response: p. 212

5. Intuition often leads us to believe that extroverted people who can speak coherently about their goals and their jobs are more likely to perform well. Which bias is characteristic of this belief? a. Availability b. Affect heuristic c. Representativeness d. Confirmation heuristic Ans: c Response: p. 212-213

Fill-in-the-Blank

6. Research has found that complex linear models produce _____________ improvements to simple linear models.

Ans: marginal/small.

Response: p. 209

7. The statistical principle that dictates that extreme performances are subsequently likely to move closer to the group’s average performance is known as ________________.

Ans: regression to the mean Response: p. 224

8. A formula that weights and adds up the relevant predictor variables in order to make a quantitative prediction is known as a __________ __________.

Ans: linear model.

Response: p. 208

9. One of the most general debiasing strategies, which forces people to explicitly consider alternatives to what they believe is the correct answer, is known as “consider the _________.”

Ans: opposite.

Response: p. 217

10. Transferring an insight from one problem to a related problem requires ________ _________.

Ans: analogical reasoning Response: p. 219-220

True/False

11. Some judgmental biases have been found to be resistant to learning and feedback.

Ans: True.

Response: p. 214

12. Intensive, personalized feedback is moderately effective in improving long-term judgment.

Ans: False.

Response: p. 214

13. Participants who took part in two negotiation simulations were able to debias themselves more when asked about how the two simulations were related than when asked about the lesson of each simulation.

Ans: True.

Response: p. 220

Matching

a) b) c) d) e)

Analogical reasoning Decision analysis Linear models Outsider view Unfreezing

14. Systematically using weighted variables to make a quantitative prediction.

15. The first step in a debiasing process that is hindered by people’s resistance to change.

16. Learning by comparing cases that illustrate different strategies.

17. Reasoning that incorporates more relevant data from previous decisions and relies less on intuition.

18. The field of study that specializes in giving prescriptive decision advice about how decisions should be made optimally.

Ans: 14 – c (see p. 208) 15 – e (see p. 217) 16 – a (see p. 219-220) 17 – d (see p. 222) 18 – a (see p. 208)

Short Answer

19. Name one bias that can be reduced by learning to “consider the opposite”.

Ans: either one of the following: overconfidence, hindsight, and anchoring effects.

Response: p. 217

20. When “considering the opposite”, after having estimated how likely one’s conclusion is, assuming one’s hypothesis is false, and thinking of alternative hypotheses, what is the next necessary step?

Ans: choosing a test to distinguish between the different hypotheses.

Response: p. 219

Essay

21. What advantages and disadvantages does human judgment have compared to linear models when it comes to making quantitative predictions?

Ans: people are good at deciding which variables to include and what relative weight to assign to each variable. This is due to their ability to select and code information. However, people do not adequately use the data to make accurate predictions. This failure occurs because of people’s poor ability to integrate the information make consistent decisions. Linear models offer such consistency.

Response: p. 209

22. Describe each of the three debiasing stages (unfreezing, change, and refreezing) and explain the mechanisms that make each of them hard to implement.

Ans: 1) Unfreezing is letting go of one’s current deficient strategies and ways of reasoning. It is hard to implement because of factors such as status-quo preference, risk aversion and uncertainty-avoidance. 2) Change is deciding on the new approach to reasoning and behavior. It is inhibited by internal resistance which causes a repetitive reassessment of the desirability of the change. 3) Refreezing is practicing the new strategies and solidifying them in order to prevent the old habits from reappearing. It is hard to implement because of the temptation to revert to past practices and the accidental occurrence of old biases.

Response: p. 217-219

23. Discuss some of the reasons why managers continue to use unstructured employment interviews despite the abundant evidence that they are not useful for predicting future job performance.

Ans: Continued faith in the employment interview is supported by a number of biases: 1) Availability bias, in the sense that they managers think they know what skills contribute to employee performance. They do not realize how imperfect these opinions and intuitions are, because they never both to collect the relevant data. 2) The affect heuristic, because their liking

for specific candidates can color their assessment of the candidate’s potential. 3) Representativeness heuristic, because it seems to compelling to believe that if someone performs well on the interview that he or she will perform well on the job. 4) Confirmation heuristic, because managers are too often satisfied with selective information that allows them to confirm, but not disconfirm their beliefs about the effectiveness of employment interviews.

Response: p. 212-213