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Managerial Decision Making: Example Problems

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1. Discuss your most recent decision to purchase a major item i.e. entertainment center, automobile, home, etc. In what way did the acquisition utility or the transactional utility come into play for you?

2. Explain the availability, representativeness, and affect heuristics. In your answer, compare the three and discuss the positive and negative aspects of each.

3. Lately, the stock market has experienced unprecedented volatility - wild ups and downs. Discuss how stock trading has created a lot of this volatility and the decisions for stock traders to buy and sell wildly in terms of hyperbolic discounting.

4. Bernard Madoff, a once highly regarded member of the Wall Street community, recently pleaded guilty of running a $50 billion ponzi scheme. Research the driving forces behind his seemingly unethical behavior and discuss your findings. How did favoritism and bounded ethicality come into play in this case?

5. Read the case Fairness in Punishment from the link: http://www.solutionlibrary.com/business/management/managerial-decision-making-fairness-in-punishment_7nel. Discuss the Decatur School Board's decision to adopt a "no tolerance on school violence" in terms of fairness. How did implicit attitudes, perhaps, influence the school board's decision to punish such a disproportionate number of African-American students?

6. Recently, the American International Group (AIG), a global insurance and financial services organization, accepted billions of dollars from the United States Government in order to remain solvent and in operation. After receiving this money, the organization decided to pay over $160 million in bonuses. Discuss the ethical problems associated with this decision. Could in-group favoritism play a role in this decision? If you were the CEO, what decision would you have made?

7. Research the subject of the Enron and Arthur Andersen relationship. Discuss your findings in terms of the application of ethics in the various decisions made by the Enron and Arthur Andersen teams. How did bounded ethicality play a role in these decisions?

8. Eventually, the United States and Iran will have to sit down and negotiate the use of nuclear power. Discuss the issues that could be involved in such a negotiation. What cognitive mistakes might be made by the negotiators in this case? How could these mistakes be overcome in order to reach an acceptable agreement?

9. Assume that you are part of a mediation team that has been brought in to help overcome an impasse between negotiators who are deliberating the use of embryonic stem cells for a research project. The decision makers are polarized along ethical and religious lines. Since this is a potentially emotional issue, what would you do in order to break this impasse? How could the fixed pie concept come into play in this situation?

10. Recently, General Motors and the United Auto Workers had to sit down and negotiate a change in the labor agreement, in order to keep the company from going bankrupt. Consider what might have gone on during these negotiations and discuss how framing might have been used, and what issues might have been discussed, in order to reach an acceptable agreement.

11. Research Kurt Lewin's model for change. Then, discuss the three-staged de-biasing process (unfreezing, change, and refreezing) and explain the mechanisms that make each of them hard to implement. In your discussion, include how you believe such a process can help you, personally, to improve your decision-making.

12. Describe the concept of analogical reasoning. Then, considering your last purchase decision, discuss how analogical reasoning could have helped you to improve your decision and increase your satisfaction with the product or service that you purchased.

13. Bazerman and Moore suggest that we should understand the biases of others. Discuss this concept in terms of why it is important for us to understand other peoples' biases. In your discussion, focus on how you might be able to improve your decision-making in a group setting.

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Answer 1
Transactional Utility
Transactional cost concern the perceived pleasure or displeasure associated with the financial aspect of the purchase. Transactional cost is determined by the differences between the internal reference price and the actual product price. This is the regular price that the consumer expects to pay for the product (McKenzie, 2009). For example, few days ago, I wanted to purchase a television set for my family. For the purchasing of a television set, my target price was approximately $500. I went to the market to take knowledge about the different prices of the different television set as per the brand name and companies. I have many choices to select best quality and best price television set from the market. But, the prices of a television set with high quality is very high than my budget. I made a decision to purchase a less quality television set that priced less than $500.

The decision of purchasing a less quality television set given me positive transactional utility. It also helped me to increase the total utility that was come to purchase the television set. The transactional utility may be negative, if there the internal reference price is less than the selling price of the product. There is also no transaction utility, if the internal reference price and the sales price of the product are same in the market (Kahneman & Tversky, 2000). According to this transactional utility I would prefer those television set which matches the criteria of my budget. In this process transaction utility take place because of differences in the product prices and my budget.

Answer 2
Availability Heuristics
The availability heuristics is a tendency to judge the frequency or an event by the ease with which relevant instances come into mind. Consumers are more likely receive information about the event or product that influences their judgment. Word of mouth is an example of accessible information that leads to use the availability heuristics (Baumeister & Bushman, 2007).

Representativeness Heuristics
The representativeness heuristics can be defined as the tendency to judge the frequency or an event to make comparisons with the category prototype or exemplar. By this way, a consumer can make simple estimation or judgment about the product. Representativeness heuristics also leads biased judgment of a consumer to use the services of the product (Hoyer & Macinnis, 2009).

Affect Heuristics
The affect heuristics is an experiential system for ascribing risks and benefits to particular option. The positive and negative feelings about the product determine the consumer's judgments about the risk and benefits. If the consumer feel positive about the product, it tends to judge the risk arising is low and the benefit s is high.

Most of the people use heuristics for multi attribute decisions problems as well as for risky decision making. In availability heuristics a consumer gather information about the product and take decision but in the representativeness heuristics a consumer compare the product with the prototype. While in the affect heuristics a consumer create feeling about product that determines the judgment about the risk and benefits of the product (Doris, 2010).

The representativeness heuristics suggest that company's position offers a close prototype that has positive associations in consumers' minds. While in the availability heuristics, marketers provide positive and different products as per consumer's experience through the marketing communication. A consumer uses the affect heuristics to make many different kinds of quantitative judgments (O'Hagan, 2006).

Answer 3
Stock Market and Unprecedented Volatility
In recent years, the stock markets of all the countries have experienced the unprecedented volatility. Stock trading activities such as short term and day trading increases the volatility. The forthcoming additions of future contract on individual stock also create high volatility in the stock market (Bernstein & Bernstein, 2001). When the stock market limits the price more restrictive, it helps to control the volatility of stocks in the market. Trading outside stock exchange also contributes in high volatility or stock crises, especially for countries which have bearer those shares, which are not controllable.

Stock trading activities also increase in volatility. Stock trader invest their money in stock index future trading, this helps to increase the short term volatility in the market. In stock market, if a stock has wide trading range, it would consider as a high volatility and if a stock has narrow trading range, is would consider as a low volatility (Ianieri, 2009).

Hyperbolic discounting is a rule that investors use to manage extraordinary rates of discount between the present and the near future, but a much lower rate of discount between near future and far future. Stock brokers take a decision of buying and selling order according to its discounted payoff. Stock market gives the option to the stock trader to sell or buy the stocks in the future. This affects the decision of stock trader of buying and selling the stock in the market. The stock market provides option to the stock trader to buy and sale its stock. For this, market provides the status to stock trader and trader makes decision of buying and selling stock according to this status (Hernandez, Posada & Paredes, 2009).

Answer 4
Ponzi scheme and Unethical Behavior
Ponzi scheme is an investment scheme that involves the payment of return to existing investors from the fund contributed by new investors in the scheme. This scheme promises investor to give a high rate of return from the investments in short time. The driving force behind this unethical behavior was that the Ponzi scheme promises the investor to give the high return in short time. This encouraged Bernard Madoff to fraud with the investors and people. This scheme has a consistent rate of return that encourages investors and people to invest their money.

Bernard Madoff sold the investment through unusual channels or by an inappropriate regulated business. This also encouraged Madoff to run this scheme. Ponzi scheme involves unlicensed individuals and unregistered firms that promote Madoff to run this scheme. The major driving force of this scheme was the unregistered investments with the SEC and with the state regulators (Roberts, Dollar & Kraynak, 2007).

Laws and acts encourage this Ponzi schemes. The sponsors of the Ponzi scheme attract the investors by providing higher rate of return with the less investment risk. The Ponzi scheme involves investment that has not registered with the state regulators or with the SEC. This creates favoritism and allows Madoff to follow ethical in this scheme. Ponzi scheme uses the unlicensed seller and unregistered company (Doty, 2009). For the investment the federal and state security laws required individual ...

Solution Summary

This solution provides assistance with the managerial decision making problems attached.