Decision Making and Errors in Judgement

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Hi,

Interesting activities!

RESPONSE:

1. What decision concepts (theories, principles, heuristics, etc.) were demonstrated for each of the situations within the Unit 5 Activity? Be sure to justify and explain your rationale for choosing each principle.

One way to approach this type of assignment is to analyze each person's decision and comments, which are numbered for easy referencing (Q1 and A1: Q2 and A2; Q3 and A3; and so on), with comments on each statement within the group discussion of the activity presented in activity one in terms of the theory, principal, heuristics, etc. That is the approach this response takes. The activity is downloaded below for this purpose. I am wondering if the questions and answers that follow activity #1 in the attachment are the potential theories or principles to use in the activity. That is my understanding. However, I pointed out several others to consider.

Let's answer the above question for the individual response in activity#1 below, which you can then draw on for your 4-6 paragraph final response.

Activity #1: A man bought a horse for $60 and sold it for $70. Then he bought it back for $80 and again sold it for $90. How much money did he make in the horse business? Now let's see how a group attempts to solve this problem. Imagine the following group discussion. Wendy (The group leader): I'm suspicious of the problem - it seems deceptively simple. Let's each share what we think the answer is, and say a few words about why we think our answer is right.

Q1. Bennett: I'm pretty sure the answer is $10. The way I solved the problem was to think in terms of a stock exchange. If I buy a share of stock for $60 and sell at $70,. I'm up $10. Then, if I change my mind and buy the same stock at $80, I've just paid $10 more than $70 and erased my earlier earnings. Selling the stock at $90 leaves me $10 ahead, though, so I come out okay.

A1: What type of theory, principle, or heuristic do you think Bennett is using in the decision-making process?

Bennett seems to be using a social comparison (social comparison theory), comparing this problem to the stock market (although it is not a correct analogy); and thus, Bennett derives at an incorrect answer e.g., $10.00. Making these types of generalizations often bias ...