Mental Accounting Process, Judgment and Decision-Making - Annotated Bibliography Example

Abstract Assignment Judgment and Decision Making By… Name Table of Contents Table of Contents 1 2 Choices, frames and values 3 Reading 2.2 by Kahneman and Tversky (2000) 3 Theories of risk perception 5 Reading 4.3, by Wildavsky & Dake (1990) 5 Neutral, Omnipartial rule-making 6 Reading 6.3, by Green (1994) 6 Groupthink 8 Reading 7.3, by Janis (1982) 8 Our Proposed perspectives 10 Reading 8.1, …by Linstone (1999) 10 References 12 Choices, frames and values Reading 2.2 by Kahneman and Tversky (2000) The article discusses the cognitive and psychophysical determinants that are related to risk and riskless choices through considering the relationship between decision and experiences of values. It suggests that the psychophysical of values induce a risk aversion concept into the domain of profits as well as risk-seeking into the domain of losses. Chance psychophysics induces overweighting things that are considered a must as well as those that are improbable in relation to moderate probabilities. It has described the decision-making process using many frames that result into various preferences that do not match to the criteria of making a rational choice. The article explains that mental accounting process of which people organize the transaction outcomes shows some anomalies of the consumer behaviours. For example, the option of acceptability depends on whether a negative impact of the result has been evaluated as a cost or an uncompensated loss. The article suggests that making decisions is similar to prose speaking where people often are engaged in it either knowingly or unknowingly. It answers the nature of rationality (normative) and the logic of people’s preferences and beliefs (descriptive) questions (Kahneman and Tversky, 2000). A typical risk decision is acceptability of a gamble that yields monetary values under certain probabilities. The riskless choice example is the acceptability of goods and services transactions for money or labor. These choices between simple gambles and specified probabilities for monetary outcomes reveal the primary risk and value attitudes. The risky prospects are defined by their consequences and the likelihood of those outcomes. The possible gamble outcome can be framed as a gain or a loss relative to status quo as well as a wealth incorporating asset position. The article helps follow behavioral economics consequences. It proposes that people remember the pleasure or pain from any experience; they remember the ‘peak’ of the experience which was most painful or most pleasurable at the end of the experience than the rest. Example The real example of the above application can be seen when answering the question of why cab drivers are often few on rainy nights. When analyzing the responses, many may argue that during rainy nights, there is a high demand for cabs that results in quick running out of the cabs. The above is a direct behavioural - economic explanation. However, the choices, values, and frames concept have a different answer. The theory has it that every person has each day’s outcome into a separate box known as mental accounts. Mental accounts will reveal that the cab drivers works until a certain daily income is reached before going home. The example given by Thaler shows those taxi drivers run night jobs as over time. However, experienced cabbies do not use mental accounts that much. Similar applies to the choices of deciding whether or not to carry an umbrella. With mental accounts, many people evaluate their choices based on gains and losses in relative rather than absolute terms. Theories of risk perception Reading 4.3, by Wildavsky & Dake (1990) The article notes that rival theories rarely confront each other and that many perspectives have been used on public perception of risk. However, alternative methods have not been tested, and especially comparison of a rival hypothesis. The theories seek to answer a number of questions: why practices that were considered safe are no longer safe? Who views technology as benign and dangerous? To what extent are various people worried about same dangers? How do some perceive the risks as great or small? Knowledge is acquired by comparing across types of threats that people have a general tendency of taking risks (Wildavsky and Dake, 1990). The article described knowledge theory as the widely held risk perception theory. The theory suggests that it is often implicit that individuals perceive new technology as dangerous because they know them so. The experts believe that perceivers merely register actual extent of the danger to themselves, and they worry most about risks that threaten their well-being directly. Another common risk perception theory if personality theory. Individuals often seem to be without discrimination in their conversations on risk aversions. Some people take more risks than others who have risk averse and avoids risks to their ability. The third theory discussed is economic theory. The first version suggests that the rich are often willing to take risks that stem from technology. The reason for the above action is the more benefits they get and are often shielded from adverse consequences. The poor are opposite to the rich’s perception and actions. The rationale is reversed in the post-materialist theory. Political theory accounts the view of controversies over risk just as struggles over interests. They see politics as clashing interests connecting conflicts to various positions in societies. The article concludes that technology perceptions are predictable given the worldview perceiver. Danger perception is selective and varies regarding the object of attention. The struggle of perceived dangers of technologies should focus on trust and distrust of institutions of cultural conflicts. Example There are numerous examples of risk perception applications. They are observed in safety systems that are designed to reduce risks in various areas. However, evaluating and expressing these risks to a tolerable level is not an easy task. It should be noted that the perception varies among different individuals. The most commonly used approach is estimating objective risks of given values that are often based on data generalization. For example, the majority of tax drivers do not compare their traffic risks to those of the average citizens because they think they have more skills than the ordinary persons. The method of risk estimation is often viewed as not relevant as they assess personal behavior unless they are confirming their superiority. Many People are sensitized to risks than they are to safety. People’s moods are often influenced by negative expectations than positive ones as individuals tries to avoid risks than pursue possible chances. Neutral, Omnipartial rule-making Reading 6.3, by Green (1994) The article describes the ethical manager and the moral leadership at large. Green points out that emerging industry is characterized by the viewpoint of a no rule strategy. A significant problem arises that the rules must be established and be followed. The absence and presence of the said rules are opportunities and risks for every manager. The paper examines specific practices of Neutral, Omnipartial, and rule-making systems by Green (1994). Green point out that the method is critical as it allows considerations of the involved parties’ interests and clearly identifying the problems as well as developing pragmatic and value orientations. Morality involves general and publicly shared judgments about the conducts that can be tolerated and those that cannot be tolerated amidst the society or an organization. Green says that moral reasoning should be a source that appeals to us when interests conflict. In Green’s system, conflicts are only resolved using reasonable personal standards by assessing issues with impartial and informed manner. Green suggests that moral decisions need to be acceptable to other rational individuals and that those affected by the moral decision are taken into consideration. The managers with good ethical values should be honest, have respect, be reliable, fair and do the right thing as honest citizens. The non-ethical ones seek money, status, happiness, fame among other freedom achievements. Green advises that to be ethical leaders; managers should put ethical values before non-ethical ones. The article describes three types of moral reasoning namely; self-centered level where emphasize is on consequences, conformity level with most of the people’s views and actions, and principal level that follows law and conscience. Green provided guidelines for ethical decisions. Managers have a belief that an activity is within moral and legal limits. They should have a conviction that something is done to the individual and organization’s best interests. They should have the view that the activity is safe and helps the company. Finally, the manager should be mass irresponsible. Example The ethical application is widely useful in the current world and the day to day activities. The application applies to both small and large organizations regardless that they are or not profit-seeking organizations. In profit-seeking organizations, ethics helps bring loyalty and increase the number of customers and therefore profits. Ethical leaders are often sought as they can foster teamwork and healthy working environments. Ethical practices improve corporate quality of both products and services. A manager who does not practice good ethical measures eventually ruins the organization’s image and credibility. It is, therefore, important that fairness and responsibility be maintained at all costs. Many efforts are under way in relation to social responsibility for environmental sustainability globalization effects, public relations corruption fighting as well as maintaining people’s well-being. Many campaigns are toward the struggle of tobacco, nuclear power, armaments animal experimentations and oppression of national regimes as they are considered unethical activities. Groupthink Reading 7.3, by Janis (1982) The term refers to a term used in psychology to describe a particular thinking mode that individuals engage in when concurrence-seeking becomes dominant in a cohesive in-group, especially, when it overrides real appraisals of alternative action. It is a mental efficiency, reality testing and moral judgments deterioration that results from group pressures. The article shows that groupthink symptoms arise when the participants in the decision-making process are motivated to avoid harshness in their judgments of colleagues’ or leaders’ ideas. Individuals here adopt a soft line criticism, and that avoids internal and external conflict (Janis, 1982). Members are often seeking complete concurrence at meetings that are a wrong interpretation for consensus on the critical issues. The conformity increases group cohesion as it involves non-deliberate suppression of thoughts due to internationalization of group’s norms. Inner compulsion of each member’s resistance to disunity creation increases with this cohesiveness. The individuals are the inclined to believe in the soundness of proposals made by the leaders or the majority of group members. However, it is not all groups that suffer from groupthink but a number of groups have mild tendencies of it (Web.stanford.edu, 2015). The article describes a number of groupthink symptoms: The victims often apply pressure to members who doubts or questions the group’s shared ideas. They have the self-censorship to avoid deviating from the majority’s consensus. They have unanimity illusion concerning all expressed judgments of those who are in favor of majority views. They share invulnerability illusion with a degree of reassurance that makes them over-optimistic and willing to undertake extraordinary risks. They ignore warnings and often construct rationalizations to encounter the warnings. They hold stereotypical views especially of their enemy’s leaders. They believe in inherent group’s morals without question. The belief may incline the members to ignoring ethical and moral consequences of their choices. The article concludes by advising that competitive groups need to be aware of the above symptoms for smooth co-existence. Example There are a number of groupthink occurrences that occur without being realized. It regularly happens during study groups and national policy-making environments. An example was seen during the Japanese occupation of Nanking that led to a number of atrocities. The Japanese army that occupied Nanking was an example of a cohesive group. They shared horrors of war experiences, and the group was isolated. The isolation prevented different perspectives within the group. If any member verbally dissented with the group action, they were likely to be ostracized. The cohesiveness resulted in the continuation of the inhumane acts. The command of executing prisoners prevailed as leaders pressured the soldiers to conform and prevented them from dissenting. The soldiers’ stress on decision-making including executing prisoners was overwhelming. The soldiers become rational by focusing their attention on the outcome of the war than humanity measures. Reducing decision-making stress contributed to groupthink presence. Our Proposed perspectives Reading 8.1, …by Linstone (1999) The article shows that any system involves man, society, technology and nature, either singly or in combination. Its primary concern is socio-technical systems where there issues deal with technological aspects of social facets that interact. It begins with definitions of a number of organizational issues and settings. Technology is sought to be achieved by every expert regardless of the field. The technical aspects of technology environment include land, sea and space. It is in socio-technical setting where technical and organizational elements mingle. There exist techno-personal settings where technology affects and is affected by individuals. Organizational actors may be described primary and secondary actors. The organization is compared to fundamental societal units like family. Individual actors in organizations are seen to have different characters than their individual entity (Linstone, 1999). The paper adapts that the concept of multiple perspectives to socio-technical systems. The paper proposes and technical, organizational and personal forms of perspectives. The term perspective is used to differentiate different points of views in the above settings, especially, by answering the question of how and what. The technical point of view sees the world in quantitative terms with management consultants. An organizational perspective sees the world from a different point of view of affected and affecting any organization. Personal perspective sweeps in any aspect that relates to socio-technical individuals and cannot be brought out by other perspectives. The perspectives can be considered in an ethical context. The technical one avoids moral concern involvements. On the other hand, organizational and personal perspectives sweep in humans’ emotions and ethics. Using technical perspectives, people can see the organizations’ structure, and model it with system dynamic. The organizational perspective helps people to assess an organization’s strengths or weaknesses. Personal perspective views organizations as job security and opportunity t exert power. Each sees the world with a different filter. Most people appear to constitute a dynamic and mixture of all the above perspectives. There exists no pure technical, organizational or personal perspective viewer. Example A good example of the perspectives application if the required communications that all organizations need for prosperity. The organizations will need a two-way communication strategy that is provided by technical perspectives. The organization needs to create a clear perspective its structure. The organization also should try to point out its strengths and weaknesses for the participants to learn from an organizational perspective. Finally, opportunities that will benefit self-interests among managers and other employees need to be prevented. Good relation and teamwork will come from a good personal perspective creation. A good example where these different perspectives have been used is in investigation firms where consultants and other contacts analyze a number of contexts. Before the conclusions are made, especially of matters that are considered of great weight like of national security, many perspectives are considered. All angles are taken into considerations before drawing conclusions. Same is done in organization’s decision-making processes. References Green, R. 1994. The ethical manager. New York: Macmillan College Publishing. Janis, I. 1982. Groupthink. Boston: Houghton Mifflin. Kahneman, D. and Tversky, A. 2000. Choices, values, and frames. New York: Russell sage Foundation. Linstone, H. 1999. Decision making for technology executives. Boston: Artech House. Web.stanford.edu, 2015. The Theory of Groupthink Applied to Nanking. [online] Available at: http://web.stanford.edu/~kcook/groupthink.html [Accessed 30 Mar. 2015]. Wildavsky, A. and Dake, K. 1990. Theories of risk perception: who fears what and why?, Daedalus, 119 (4). Read More