Judgment and Decision Making
#1 Introduction
Prof. Dr. Corinna Laube Butler
Let´s get to know each other
director of
Prof. Dr. Corinna Laube Butler
Dean of Psychology and Program
Mindfulness and Leadership (M.sc.)
Email: corinna.laube_butler@hs-fresenius.de
Tel.: +49 (0)30 7001579-13
cori_laube
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Let´s get to know each other
Your background?
Your most favorite book?
If you had 1mio Euros, what would you do with that? 
Your hobbies?
Your role model and why?
Your favorite restaurant/bar/place in Berlin?
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The 36 Questions that can lead to love
(Aron et al. 1997)
 Do you have a secret hunch about how you will die?
 Share a personal problem and ask your partner’s advice on how
he or she might handle it. Also, ask your partner to reflect back to
you how you seem to be feeling about the problem you have
chosen.
 Before making a telephone call, do you ever rehearse what you
are going to say? Why?
 If you could change anything about the way you were raised,
what would it be?
 Is there something that you’ve dreamed of doing for a long time?
Why haven’t you done it?
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My expectations
Active participation
Questions questions
questions (it´s your time,
use it!)
Amazing presentations 
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Your expectations?
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Conditions
Learning Outcomes/Competences:
The students know the process of human judgement
and decision-making behaviour in practice, and are in a
position to distinguish these from normative decisionmaking models. They are able to describe both the
micro and macro-economic consequences of the
underlying behavioural approaches.
In-class study: 56h
Self-study: 69h
Students understand under which conditions specific
aspects of human decision-making emerge.
Furthermore, they are familiar with strategies with which
targeted action can be taken to affect the architecture of
decisions, in order to promote specific patterns in
decision-making
5 credit points
Judgement and Decision Making I Prof. Laube Butler I
MIBM/MDME
Total of 125h
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Conditions
Teaching Methods:
Type of exam:
In-class study: Lecture and
seminar with literature study
guidance.
Self-Study: Literature study
and preparation of lectures,
presentations and project
reports
Students complete this module
by passing a written exam,
which comprises 90 minutes.
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Literature
Bazerman, M. H. & Moore, D. A. (2009):
Judgement in Managerial Decision Making.
8th Edition. Wiley
Recommened readings:
 Gigerenzer, G., Hertwig, R., & Pachur, T. (Hrsg.) (2011):
Heuristics: The Foundation of Adaptive Behavior, Oxford
 Kahneman, D. (2011): Thinking, fast and slow, 15. Aufl., New York
 Thaler, R., & Sunstein C. (2009): Nudge – Improving decisions
about health, wealth and happiness, London
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Materials
You find all materials
(slides, papers etc.) in Ilias
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#1 Introduction to Managerial
Decision Making
1.
2.
3.
4.
5.
The Anatomy of Decisions
System 1 and System 2 Thinking
The Bounds of Rationality
Introduction to Judgmental Heuristics
Syllabus
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The Anatomy of Decisions
Judgments involve cognition
Common decision situations:
How to select a post-MBA job?
Who to hire for your company?
What startups should you fund?
Which firm to acquire?
What do these scenarios have in common?
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Example
You are finishing your MBA at a well-known
school. Your credentials are quite good, and you
expect to obtain job offers from a number of
consulting firms. How will you select the right job?
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Six Steps to Rational Decisions
Six Steps
to
Rational
Decisions
1. Define the problem
2. Identify the criteria
3. Weigh the criteria
4. Generate alternatives
5. Rate each alternative on each criterion
6. Compute the optimal decision
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Homo economicus
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Assumptions
The concept of Homo Economicus relies on the
assumption that people act in their rational self-interest
i.e. they do what is best for them
● People know what they want and their priorities
● People can judge the benefit (or utility) the consumption
of a good will bring
● People have stable preferences over time
● People act selfishly i.e. seek to satisfy their own needs
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Homo economicus vs homo sapiens
What prevents us from making „optimal“ decisions all the time?
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Decision Making Theories
Two schools of thought:
1. Prescriptive models: How decisions should be made
2. Decriptive models: how decisions are actually made
BUT significant deviations between normative and descriptive
models occur – one example……
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St. Petersburg Paradox
Described by Daniel Bernoulli in 1738, a.k.a. St. Petersburg Lottery,
Bernoulli’s Paradox
Rules of the lottery:
 a fair coin is tossed repeatedly, until a tail appears, ending the
game
 the pot starts at €1 and is doubled each time a head appears;
after the game ends, you’ll win whatever is in the pot
1. Imagine you have a ticket to play the game (once). For how
much would you be willing to sell it (i.e., what price would you
ask for it)?
2. What is the expected payoff of the lottery?
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St. Petersburg Paradox
This is an example of a game where nobody follows the expected payoff
principle
Possible outcomes are not limited (in theory, heads can appear any
number of times in a row) → average payoff is a weighted sum of infinite
number of values:
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System 1 and System 2 Thinking
a descriptive model
System 1
System 2
Intuitive
Fast
Automatic
Effortless
Implicit
Emotional
Slow
Conscious
Effortful
Explicit
Logical
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Which Table is Longer?
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Which Table is Longer?
System 2:
both tables
are the
same lenght
and width
System 1:Table
on the lift is
longer and
skinnier than the
table on the right
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System 1 and System 2 Thinking
a descriptive model
Please calculate:
2x2=?
27 x 34 = ?
System 1:
4
If a baseball bat and a ball cost
a total of $1.10, and the bat
costs $1 more than the ball,
then how much does the ball
cost?
System 1:
$0.10
System 2:
918
System 2:
$0.05
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System 1 and System 2 Thinking
a descriptive model
Please decide fast:
An amazone voucher for
10 Euros now
vs.
An amazone voucher for
20 Euros that costs 7 Euros
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Bounded Rationality
Framework by Herbert Simon (1958):
Time and cost constraints limit the quantity and quality of
availabe information
Individuals are also constrained by their memory capacity,
perception and attention
Saticificing rather than maximising: Rather than examining all
possible alternatives, we search until we find a satisfactory
solution that will suffice because it is good enough
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Bounded Rationality
We use heuristics
 Heuristics are cognitive short-cuts that we use to make decisions.
- They serve as simplifying strategies and rules of thumb to make quick decisions.
- While they facilitate the process of making decisions, in some cases, they are
misleading (cognitive biases)
We discount the future
 We have limited willpower and as a result, we often weight the importance of
the present much more than the importance of the future
We care about others’ outcomes
Bounded awareness
 We are not always aware of obvious and readily available information
Bounded ethicality
 We also display inconsistent ethical behavior in ways that we are unaware of
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Heuristics applied
You are looking to hire a marketing MBA student for your
company. You decide to limit your search to new MBA’s from the
top six management schools.
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Introduction to Judgmental Heuristics
Exercise
Please do some research on the following heuristics and design
one or two powerpoint slides to explain it.
1.The Availability Heuristic
2.The Representativeness Heuristic
3.The Confirmation Heuristic
4.The Affect Heuristic
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Topics
Bounded
Awareness
Common
Biases
Overconfidence
Introduction &
getting to know
each other
Framing &
Reversal of
Preferences
Behavioral
Decision
Making
Motivational and
Emotional Influences on
Decision Making
Thinking Fast
and Slow
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Nudging &
Boosting
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Thinking Fast and Slow
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Expectations for the Presentation
Minimum 30min, maximum 60min
Well structured, clean and nice slides (pictures, one slide-one thought)
Entertaining and fun (ideally also group excercises, role play, demonstrations – there are no limits, be creative)
Minimum of one exercise!
Feel free to do your own research and include recent newspaper articles, blogposts etc.
(always indicating the source!)
Please send me the slides the latest Sunday before the lecture via Mail
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BONUSPOINTS
You can get up to 9 Bonuspoints for the presentation:
− Quality of slides (format, grammar, one thought/one slide, easy to
read, lots of pictures etc.) - 2 points
- Quality of content (information well structured, most important aspects
highlighted, logical to follow, take home messages, examples etc.) 3 points
- Presentation style (free and clear speech) – 2 points
- Involvement of audience – 1 point
- Keeping the deadline – 1 point
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Presentations
Look into Ilias for the google docs link
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Write down your
take home message!
Three facts/skills you learned today
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