1 / 10

Business System Analysis & Decision Making - Lecture 13

Business System Analysis & Decision Making - Lecture 13. Zhangxi Lin ISQS 5340 July 2006. Chapter 11: Bounded Awareness. Outline of the chapter Inattentional Blindness Change Blindness Focalism and the Focusing Illusion Bounded Awareness in Groups Bounded Awareness in Negotiations

arty
Download Presentation

Business System Analysis & Decision Making - Lecture 13

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Business System Analysis & Decision Making- Lecture 13 Zhangxi Lin ISQS 5340 July 2006

  2. Chapter 11: Bounded Awareness • Outline of the chapter • Inattentional Blindness • Change Blindness • Focalism and the Focusing Illusion • Bounded Awareness in Groups • Bounded Awareness in Negotiations • Bounded Awareness in Auctions • Discussion

  3. Six Problems • Problem 1. Allocating $60 among 6 people by one of them. (Condition: $ offered by A >= Max $ specified by others) • Problem 2. Choosing a nonempty box between two boxes of the three while the third one is known empty. • Problem 3. Offering the price for acquiring a company with uncertain performance. • Problem 4. A revision of Problem 1. (Condition: $ offered by A >= Min $ specified by others) • Problem 5. A revision of Problem 2. • Problem 6. Drawing 4 straight lines to connect 9 dots.

  4. Inattentional Blindness and Change Blindness • Inattentional Blindness • People tend not to see some subtle objects that they are looking at • Change Blindness • Gradually moving toward unethicality - “Slippery slope”, “boiling frog syndrome” • Poor change detection – people fail to notice changes in the information that is visually available

  5. Focalism and the Focusing Illusion • Focalism: The common tendency to focus too much on a particular event and too little on other events that are likely to occur concurrently. • Focusing Illusion: The tendency of people to make judgments based on their attention to only a subset of available information, to overweight that information, and to underweight unattended information. • The experiment conducted by Fox and Tversky (1998) • The more the number of divisions, the more the summation of the probabilities exceeds 100% • The Challenger space shuttle disaster • Oversight the connection between the low temperature and O-ring – 99% chance of malfunction.

  6. Bounded Awareness in Groups • Groups collectively possess more information than individual members. Sharing unique information is a critical source of group potential. • A consistent tendency that groups focus more on shared information than on unique or unshared information.

  7. Bounded Awareness in Negotiations • Multiparty Ultimatum Games • Problem 1 & 4 • The Monty Hall Game • Problem 2 & 5 • Acquiring a company • Problem 3 • The expected value is $x * 150% / 2 = $x * 75%. When you pay $x, you lose 25% • The target will accept the acquirer’s offer when the firm is least valuable to the acquirer – It’s a lemon. • However, the experiment with 123 MBA students showed that dominant response fell between $50-$75: “On average, the firm will be worth $50 to the target and $75 to the acquirer; … be profitable to both parties” – Wrong answer.

  8. Discussion: Job Offering • A company has a job opening for MBA students. There are two types of MBA students: qualified (50%) and less qualified (50%). The market salary for the qualified candidates is $60,000/year and for the less qualified candidates is $40,000/year. Students know if they are qualified or not but the company doesn’t. What should the salary level be listed with the job? • A. $40,000 (low), B. $50,000 (average), C. $60,000 (high) • If you were interviewed, what is your decision with regard to the above salary levels if you are qualified or less qualified only known by yourself? • This is referred to as information asymmetry (Aklorf 1970)

  9. Bounded Awareness in Negotiations • Affect our assessment of competitors - insensitive to the quality of their competition. Easy problems are easy to all parties, and hard problems are hard to them as well. • “System neglect” – human tendency to undervalue the importance of the general context in which they are making their decision. • Neglect of the impact of decisions on others outside the negotiation. • Prisoner’s dilemma game

  10. Bounded Awareness in Auctions • “Winner’s curse” • In a two-party negotiation, the winner’s curse usually occurs when the buyer fails to consider the perspective of the seller. • In auctions, the winner’s curse typically results from the winning bidder’s failure to consider the implications of bidding higher that his or her competitors – all of them are at the same information disadvantage relative to the seller. • The winning bidder may have significantly overestimated the actual value of the commodity.

More Related