Assignment:
Review decision biases in intertemporal choice and choice under uncertainity:testing a common account by gitchen b.champan and bethany j.weber
Review Individual Decision Making and Group Decision Processes by John Payne and Arnold Wood
Review mental accounting and consumer choice by Richard H.thaler
Groups may be both a boon (for example, they statistically outperform individuals) and a bane (for example, they take too long) of decision making. While they can systematically outperform individuals, groups are also prey to systematic bias and organizational skewing.
Consider the systematic decision-making processes of your own organization. Using the readings for this module, the Argosy University online library resources, and the Internet, respond to the following:
• What are the group decision-making processes and structures in place at your current or with a previous employer that were designed to eliminate bias, create structure, and cultivate consistently better decisions?
• Were the processes successful? Why, or why not?
• How may the structure have facilitated organizational skewing?
Create response in a 300 words. Apply APA standards to citation of sources.
Consider the following in your comments:
• What are the other issues you may perceive in the structures your peers have described in their posts?
• What recommendations would you make to further objectify the systems they have in place?"Social loafing" describes the fact that people tend to work harder as individuals than as members of groups. The net result of this effect can be that groups are less effective unless incentives are in place to motivate individuals.
Another group pitfall is "conformity." Conformity, as the word suggests, refers to matching one's belief systems, attitudes, appearance, and behaviors to the perceptual norm of the group. This can have disastrous consequences for organizations when the majority view leads to poor decisions. Being complicit with the group point of view clearly puts limits on both creativity and the available frames.
Finally, similar to conformity, "groupthink" diminishes the values of individual creativity, uniqueness, and independent thinking. It occurs when insulated groups succumb to local loyalties and the related pressures to conform to the group. These conformance pressures tend to limit critical evaluation of alternative solutions in favor of consensus and conflict avoidance. Groupthink can lead to decaying judgment and efficiency. However, it is also true that groupthink, when appropriately facilitated, can accelerate the decision-making process and improve its precision.
Of course, groups are fertile incubators of creativity and thereby, new frames and previously unseen options. Groups benefit enormously from repeatable frameworks and centralized, policy-based rules. These tools streamline, or help manage, complex decisions as well as help alleviate the social pitfalls outlined. They also tailor decision-making processes to coincide with the strategies, structures, and even the incentive schemes of organizations so that managerial choices reinforce organizational strategy.
In light of the limitations of group decision making, it is important to understand where crowd-based solutions lose their luster, or even completely fail, and how and where decentralized decision making offers superior outcomes.
Roughly two-thirds of the US economy is attributed to consumer spending or roughly 10 trillion dollars in 2010 (US Department of Commerce: Bureau of Economic Analysis, 2011). This enormous amount of capital itself as well as how it is utilized is of constant interest to marketers, economists, and political leaders. Beyond the influences of social heuristics, how do your own internal metrics and accounting principles influence your decisions and how can those practices create opportunities? In other words, what is your mental accounting?
In 1980, Richard Thaler coined the term mental accounting in an attempt to describe how people categorize and quantify economic outcomes (Thaler, 1980). Eight years later, Shefrin and Thaler proposed that mental accounting is divided into discrete repositories; these "buckets" are current income, current wealth, or future income. Moreover these buckets have some interesting qualities from a cognitive and subsequently, accounting perspective (Shefrin & Thaler, 1988).
These accounts are largely non-fungible and the marginal propensity to consume from each account is different. The implications for this are profound; how utility is evaluated varies based on the mental account used. Likewise, perception of value changes at different points in time; people are prey to subjective frames.
Adding complexity to this mix, it is true that in your mental accounting applies two values to any transaction-acquisition value and transaction value. The acquisition value is the money you will trade to physically acquire a good or service while the transaction value is the price you place on getting a good deal.
Finally, the value placed on gains and losses differs between individual mental accounting. Similar to prospect theory, people have a tendency to skew utility in order to minimize losses and maximize gains.
Mental accounting of consumer-oriented decisions, coupled with the complexity of consumer choice (imagine all the different options and financing plans on the car purchase), and the departures taken from perfect rationality all influence consumer behavior. They determine when an individual chooses to act or postpone a purchase, how he or she perceives gains and losses, and how timing bears on the individual's choices. Marketers especially want to leverage these predilections to frame one's perceptions and choices in nonrational ways. However, one's personal balance between self-control and buyer's remorse is at stake.
Shefrin, H. H., & Thaler, R. H. (1988). The behavioral life-cycle hypothesis. Economic Inquiry, 26, 609-643.
Thaler, R. H. (1980). Towards a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1, 39-60. US Department of Commerce: Bureau of Economic Analysis. (2011). National economic accounts: National GDP. Retrieved from
https://www.bea.gov/national/#gdp