Innholdsfortegnelse for Spring 2017 i Rotman Management

Dr. David Rock and his colleagues at the Neuroleadership Institute have developed the SEEDS Model, which shows that biases fall into five key categories. Below are samples for each catagory. SIMILARITY BIASES In-group Bias: Perceiving people who are similar to you (in ethnicity, religion, socioeconomic status, profession, etc.) more positively. (“We can trust her; her hometown is near mine.”) Out-group Bias: Perceiving people who are different from you more negatively. (“We can’t trust him; look where he grew up.”) EXPEDIENCE BIASES Confirmation Bias: Seeking and finding evidence that confirms your beliefs and ignoring evidence that does not. (“I trust only one news channel; it tells the truth about the political party I despise.”) Halo Effect: Letting someone’s positive qualities in one area influence overall perception of that individual. (“He may…

IN OUR DAILY LIVES we frequently face a tension between what we want to do and what we believe we should do. After a long week at work, we may want to share an expensive dinner and a few drinks with friends — when we know we should go home early and get a good night’s sleep; similarly, we might be tempted to get caught up on the current season of Homeland when we know we should focus on drafting that report we promised our colleague. For decades, researchers have examined the battle between highly desirable options that provide immediate gratification (e.g., eating junk food, procrastinating, overspending) and options that provide more long-term benefits (e.g., eating healthy food, meeting deadlines and saving for retirement). Harvard Professor Max Bazerman calls this…

Usman Hayat: What is the ‘right way’ to think about money? Dan Ariely: The right way is all about opportunity cost. Every time you buy something — a cup of coffee, a car, a house — you should be asking, ‘What am I giving up now, and in the future, for this act of consumption?’ Of course, an infinite number of possible other consumption choices exist. Comparing, say, apples to oranges is simple: Nobody has ever stood in front of a fruit bowl saying, ‘I have no idea which one I want’, because the opportunity cost is so clear: Do you feel like eating an apple or an orange? But with money, you’re likely to be thinking, ‘Should I buy that new bicycle now, or put the money into my…

Once turned into practice, the science of human feedback will transform the way we think about the skills we value most, but feel most pessimistic about being able to learn or teach: The social, emotional and relational skills that modern businesses prize most. You say charisma, collaborativeness and relationality cannot be taught? You may be right; but if by that you mean these things cannot be learned, you are wrong. The unteachable can be leaned through feedback that is precise, adaptive, targeted, iterative, actionable and developmental. The coach trained in human feedback science focuses on the basic unit of social work of the learner — say, footage of a real presentation, meeting or work session in which the learner interacts with others. To be precise and specific, each communicative act…

DESPITE THEIR BEST INTENTIONS TO FOCUS on customer needs, many companies spend most of their time looking inward. If you are not convinced of this, try this experiment: In your next internal meeting, divide a piece of paper in two. On the left side, record each mention of an internal topic, such as financial or operational performance, plans, metrics, employees or culture; on the right side, record each discussion of an external topic, such as competition, technology, innovation, social media or customer needs and wants. If your ‘introverted’ score is higher than your ‘extroverted’ score — keep reading. Consumer-facing companies in developed economies have experienced little to no growth since the global recession of 2008. As a result, the smartest of the bunch are now increasingly looking outward, trying to…

In your research, you have found that investor risk appetites vary by season. How so? As daylight becomes less abundant in the fall and winter months, our moods respond accordingly. Many people can identify with the notion of ‘winter blues’; but at a more clinical level, psychologists have identified a condition called Seasonal Affective Disorder (SAD), which causes severe depression in a significant part of the population. Early in my career, I was intrigued by the possible implications of this disorder on financial decision making. Findings from Psychology had long shown that when people are in a negative mood, they become more risk averse, and combined with my finance perspective, this all seemed to be part of the same big picture. My colleagues and I were able to show that,…

MOST OF US RECOGNIZE THAT, generally speaking, people fear change and the unknown. We prefer familiar goods and people, status quo choices, and gambles that seem unambiguous. What some people might not realize is that these effects are not only manifested in the realm of consumer goods, but also in capital markets. My co-authors and I recently set out to develop a model based upon two underlying psychological forces: 1. The tendency for individuals to use a ‘focal choice’ as a benchmark for comparison in evaluating other possible choices. We refer to this focal choice option as the status quo; and 2. The tendency to skeptically evaluate choice alternatives that deviate from the status quo. An individual who is subject to the status quo bias prefers either the current state…

The World Bank’s Global INsights Initiative (GINI) was formed to put the key findings of your World Development Report into practice. Please summarize those findings. The main message that came out of that report was that development policy is due for a redesign, based on a more realistic understanding of how people think, behave and make decisions. In contrast to the rational model — whereby people have unlimited computational power to make rational decisions on the basis of consistent and self-interested preferences and explicit information — realistic thinking is very different. It relies on three principles: We usually think automatically and fast; we are highly influenced by our environment and by social norms; and explicit and implicit information derived from our worldviews (i.e. mental models) affect how we interpret information…

AROUND THE WORLD, many countries are facing an obesity epidemic. In the U.S. alone, obesity rates have more than doubled in the past two decades, to a prevalence rate greater than 20 per cent; and the Canadian rate is virtually the same. Although obesity is a multifaceted disease, increased consumption of unhealthy food and beverages is a major driver. Experts contend that large-scale interventions are required to dissuade people from eating unhealthy food — particularly in restaurant settings, where we are consuming an increasing proportion of our calories: Food eaten outside of the home accounted for 34 per cent of the food budget in 1970. By the late 1990s, that number had increased to 47 per cent, and it is still growing. As a result, experts have proposed initiatives to…

FROM REVENUE COLLECTION to trade policy to infrastructure investment, the varied mandates of government are complicated and diverse. Yet at its core, the role of government is simple: To maximize the welfare of citizens by improving their wellbeing, creating fair and efficient marketplaces and planning for the future. Governments attempt to accomplish this by helping citizens, organizations, their own agencies and local businesses make good choices. As such, the government — just like every other organization that exists — is in the business of behaviour change. Indeed, almost every activity that a government undertakes boils down to the need to encourage or discourage certain behaviours. There are four particular types of behaviour change that policymakers focus on: 1. COMPLIANCE. Getting people and businesses to behave in accordance with prescribed standards…

WHEN ECONOMICS WAS FIRST IDENTIFIED as a distinct field of study in the late 19th century, Psychology did not yet officially exist as a discipline. Nevertheless, many economists moonlighted as the psychologists of their times. Adam Smith, best known for The Wealth of Nations, wrote a less well-known book, The Theory of Moral Sentiments, which laid out psychological principles of individual behaviour that are arguably as profound as his economic observations. The book is bursting with insights about human psychology — many of which presage current developments in Behavioural Economics. For example, Smith commented that “We suffer more... when we fall from a better to a worse situation, than we ever enjoy when we rise from a worse to a better.” Loss aversion! Research in the field of behavioural decision…

THE STANDARD ECONOMIC VIEW SUGGESTS that people will commit to an action if the expected benefits outweigh the costs. But this model is incomplete in an important way: It overlooks how actions come to mind. Before you weigh the costs and benefits of an action, what cognitive processes lead you to think of it in the first place? In this article we will show that actions are more likely to enter into consideration when they are cognitively accessible, and that accessibility depends on three psychological parameters: automaticity, identity and privacy. We believe this framework can inform new interventions to change a wide range of behaviours by making certain actions more (or less) cognitively accessible. Automaticity and Reflection In his 1992 Nobel lecture, Gary Becker described the personal story of how…

Eric Kirzner: Many of us have been surprised by how well the market has responded to Donald Trump’s presidency thus far. How do you account for it? Charles Brandes: What is so interesting to me is, all of the expert opinions and polls turned out to be wrong — and we should keep that in mind, as far as investing goes. Expert opinions are something you have to be very careful about. As we have seen over history, in many cases, they are worthless. Whether people have been surprised by the results of Trump so far or not, the fact is, nobody really knows what effects his presidency will have on the market. Having said that, we do know a few things: Since 2008, value investing has not performed as…

WHEN WE WANT TO LEARN a new skill in life, we try out a new behaviour. Some behaviours fulfill their intended purpose, while others do not. Feedback — signals from the environment that tell us whether or not the behaviour we produced had the intended effect — is essential to changing, adapting or modifying human behaviour. This is what learning is all about. Whether or not a skill can be reproduced by an algorithm, learning any skill requires feedback and is essential to the measurement of learning. In the skills environment of the Fourth Industrial Revolution — wherein information is free and complex, interpersonal skills whose development requires textured, precise, timely personalized feedback have become the highest value contributions to human capital. The result: Feedback has become the critical missing…

FOLLOWING THE COLLAPSE of the world’s largest Ponzi scheme in 2008, clients of Bernard Madoff Investment Securities lost an estimated $65 billion in unrealized gains. In hindsight, investors detected major alarm bells that signaled Madoff’s returns were too good to be true: They were impossibly steady and high, at 11 per cent per year, never experiencing a down year, and were consistently higher than those of the S&P 500 index, with surprisingly little volatility. Madoff employed a small, three-person auditing firm that had only one active principal accountant; the other principal was an 80-year-old retired accountant living in Florida. He was extremely secretive about his investment strategy and selective about who could invest in his funds. Despite these telltale signs of fraudulent behaviour, Madoff’s Ponzi scheme was not uncovered for…

WHY ARE SOME PEOPLE more successful than others? One obvious answer is talent; another is opportunity. But even people who have comparable levels of talent and opportunity often enjoy strikingly different levels of success. Applying the scientific method to this age-old question has yielded important new insights regarding the determinants of both everyday success and extraordinary achievement. What is lacking — and of central interest to me as a researcher — is an integrative framework for understanding the requirements for these two kinds of success. The idea that the determinants of everyday success differ from the determinants of extraordinary achievement goes back to the earliest days of psychology. Sir Francis Galton (1822-1911) contrasted ‘self-denial’ in the face of ‘hourly temptations’ with what he considered, other than talent, to be the…

You believe that the ability to ‘read other people’ is the human brain’s greatest asset. Please explain. This ability — which I also call our social sense or sixth sense — enables us to achieve life’s most important goal: connecting with other human beings. It allows us to cooperate with those we should trust and avoid those we shouldn’t. At its best, it enables understanding between friends, empathy between strangers, forgiveness among enemies and cooperation between people, co-workers — even countries. Psychologists have been studying this ability for some time now, and we have found that people use three intuitive tools to make inferences about what is going on in another person’s mind. The first one is no surprise: Given that we are egocentric, we use our own thinking as…

1. The Framework Define the development objective. 2. The Desired Behavioural Change Identify a specific target behaviour that needs to change to reach the development objective. 3. Context & Analysis Identify the stages of the current and desired decisionmaking process as well as potential bottlenecks that keep people from behaving in a better way. 4. The Intervention Describe the solution to reach your development objective 5. Learning Pilot and document the effectiveness of your intervention.…

Prioritizing is usually seen as an individual skill that some are good at, others not so much. We prioritize whenever we think about how we will spend our time today, this week, this month — or this year. But the fact is, prioritizing is also a key organizational capability. Indeed, how and why organizations prioritize their activities is vital to their success. Yet, surprisingly, this is one of the least understood and most neglected areas of organizational life. The word priority appears in the English language as early as the 14th century. The Merriam Webster dictionary defines it as, ‘what matters most.’ In organizational terms, prioritization sets the agenda in terms of what really matters, which is reflected in how resources are allocated — especially the scarcest resources: Time and…

WHEN YOU FIRST SEE THE FLIES, it’s a bit unsettling. Your first reaction is that the washroom you are in is unhygienic; but you soon realize that the flies in the urinals of the men’s room at Amsterdam’s Schiphol Airport aren’t real: They are only images etched into the porcelain. However, they are famous enough to be featured in the academic literature for both Economics and Psychology. As the New York Times reported, after the flies were added to the urinals, ‘spillage’ on the men’s room floor decreased by 80 per cent. According to Nudge co-author Richard Thaler, behavioural economist at the University of Chicago, the explanation is simple: Men like to aim at targets. Thaler says the flies are one of his favourite examples of a ‘nudge’ — a…

You have described the goal of your research over the last 40 years as follows: “To introduce humans into Economics.” Please explain. The truth is, the people who populate Economics textbooks bear very little resemblance to the humans we interact with on a daily basis. Standard economic models describe people who are as smart as the smartest economist, who are not affected by emotion, and who have no issues with self-control. That’s ‘Homo Economicus’; I call them ‘Econs’ for short — and I truly don’t know anybody like that. In reality, we do not have perfect willpower and we don’t always choose what is best for us — which is why obesity and insufficient retirement savings are so common today. You have said that Daniel Kahneman and Amos Tversky’s Prospect…

IN CASE YOU HAVEN’T NOTICED, we are in the midst of a renaissance in artificial intelligence (AI). Major tech companies like Google, Facebook, Amazon, Microsoft, Tesla and Apple are prominently including AI in their product launches and acquiring AIbased startups by the dozen. At one end of the spectrum are people who view this as an augmentation of human labour, and on the other, those who see it as a replacement of human labour—with the consequent followon logic of excitement to fear. In both cases, proponents point to an advance — an AI that plays Go, or one that can drive a truck — and define a future path by extrapolating from the human tasks that it enhances or replaces. Economic history has taught us that this is a flawed…

Carla O’Dell: Why don’t we make better decisions? Chip Heath: Psychologists have spent a number of years studying all of the biases we have, and they’ve found that there are a number of basic ways we think about the world that lead us to the wrong conclusions. For example, we frame decisions narrowly. The typical person only thinks of one alternative when making a decision. How can we think more broadly and give ourselves multiple options in the decision-making process? The trick is to force yourself to come up with a second alternative, which is generally not hard, once you discipline yourself. One of the best tricks we’ve learned is what we call ‘the vanishing options test’. Think to yourself, “What if the option I’m thinking about right now suddenly…

THE LITERATURE HAS DOCUMENTED a wide variety of behavioural biases in financial markets: Individuals are overconfident, they exhibit loss aversion, they demonstrate familiarity bias, and they are driven by mood and sentiment, to name a few. When such biases affect the decision making of finance professionals, they can quickly become their own worst enemies. It is widely believed that less-sophisticated investors make poorer choices than their professional counterparts. But the fact is, financial professionals are human, too. In this article we will look at which particular biases are most likely to affect three categories of finance professionals: Financial planners and advisors; financial analysts and portfolio managers; and institutional investors. A better understanding of these biases can help finance professionals achieve their clients’ long-term financial objectives. Key Biases for Financial Planners…

The basic building block of higher learning in most STEM and professional schools is a technical problem — requiring the learner to produce a problem solving method (or, algorithm) — a sequence of operations that takes the evaluator from the problem statement to the solution in small and self-evident steps. An adaptive feedback agent (AFA) takes each step in the problem solving process (from turning a ‘word problem’ into numbers and symbols and performing operations on these to get to the solution) and gives instantaneous feedback to the learner at each step, using intuitive prompts (‘forgot to invert the matrix’, ‘this is a European call option, use formula….’) that also contain prompts to targeted tutorials (‘differentiating polynomials’, ‘inverting matrices’). A script rolling in the background films the entire sequence of…

Like most of you, I consider myself an honourable member of society: Trustworthy, honest and moral. Yet I don’t always act accordingly — and judging by the magnitude of insurance fraud, tax deception and the illegal downloading of music, films and games, most of you are like me. One could say that we are hypocritical. However, to standard economists, most of what people say is just cheap talk: It’s meaningless. Only what people do is meaningful: Actions speak louder than words. This is what economists call, ‘revealed preferences’, and to an economist, it means that all those who say they care about morality — but then go ahead and engage in various transgressions — don’t really care. To a behavioural scientist like me, the world looks a bit more complex.…

Figuring out what consumers truly value these days is no easy feat. Describe how you discovered 30 ‘elements of value’. My colleagues and I have been studying consumers for many years. After literally hundreds of studies, about three years ago we consolidated our findings and were able to identify 24 ‘elements of value’ — but we suspected there were more. So, in 2015, we did some new qualitative research — talking directly to consumers about the products they were buying. As people spoke about why they made a particular purchase, we kept asking questions, trying to get at the fundamentals. If someone told us their bank was ‘convenient’, we didn’t accept that answer: We would probe further by asking, ‘What does convenience mean to you?’ The consumer would then delve…

Following are a number of statements that may or may not apply to you. For the most accurate score, when responding, think of how you compare to most people — not just the people you know well, but most people in the world. There are no right or wrong answers: just answer honestly. 1. New ideas and projects sometimes distract me from previous ones. Very much like me Mostly like me Somewhat like me Not much like me Not like me at all 2. Setbacks don’t discourage me. Very much like me Mostly like me Somewhat like me Not much like me Not like me at all 3. I have been obsessed with a certain idea or project for a short time but later lost interest. Very much like me…

Evolutionarily speaking, the focus for Homo sapiens is on the here and now. Describe how the focus of Homo Economicus differs. As the name implies, Homo Economicus is an invention of economists. The assumption is that, as information processors and decision-makers, human beings are rational: We base our decisions on evidence; we evaluate risk and time in appropriate ways; and we combine all inputs in rational ways. The problem with that framework—which is certainly something to aspire to — is that human beings simply don’t work that way, at least most of the time. Because of the way we evolved, we had to make decisions in a timely fashion in order to survive to see tomorrow; and the result is a focus on the here and now. The problem is,…

You have found that people don’t always have well-defined preferences—and that we often ‘make up the rules’ for a decision on the spot. Describe how this works. When people make choices, they don’t simply refer to a ‘master list’ of preferences in their memory, or some preexisting choice algorithm. They use a wide variety of approaches and rules-of-thumb — and my colleagues and I found that these are often developed on the spot. We came up with the ‘constructive process view’ of decision making, which states that individuals often build strategies opportunistically, changing their processing on the spot depending upon the information they encounter during the course of solving the decision problem. At the time, we realized that, if people are making things up as they go along, and if…

NO ONE WOULD EVER DISPUTE that Cal Chambers was the smartest guy in the room, least of all Cal. As Chief Science Officer of Obsidian Pharmaceuticals, Cal holds multiple patents and has been responsible for developing the core biological platform on which all of Obsidian’s therapies are based. To a researcher like Cal, science isn’t just the focus of his work: The pursuit of scientific truth is foundational to his identity and values. To question his conclusions in any matter, scientific or otherwise, is to betray one’s foolish ignorance and Cal’s response is often withering. A brilliant scientist who has developed clinical breakthroughs, he also produces breakdowns in the workplace, through both his reflexively combative and harsh interpersonal behaviour and his micromanagement-induced bottlenecks in processes and reporting. Cal’s interpersonal challenges…

How do you define ‘nudge marketing’? Nudge marketing is all about structuring a consumer choice environment to get the consumer to do a certain thing. The issue is, we can think about ‘consumer behaviour’ as a series of single decisions or actions; or we can think about it as a constellation of behaviours that eventually lead to an outcome, down the road. Using the latter definition, nudge marketing is just one piece of the puzzle: It essentially focusses on the first step of consumer behaviour. If you think about consumer behaviour more broadly, you can do a lot more to influence positive long-term outcomes. You have found that nudging has a dark side. Please explain. The problem is, as a methodology, nudging often stops short. Vanguard is one of the…

May 1, 5:00-6:00pm Speaker: Brad Stone, Senior Executive Editor – Global Technology, Bloomberg News and Author Topic: The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World (Little, Brown, 2017) May 3, 5:00-6:00pm Speaker:Aaron Dhir, Associate Professor, Osgoode Hall Law School, York University and Author Topic:Challenging Boardroom Homogeneity: Corporate Law, Governance, and Diversity (Cambridge University Press, 2015) May 4, 5:00-6:00pm Speaker:Nick Bilton, Special Correspondent, Vanity Fair and Author Topic: American Kingpin: The Epic Hunt for the Criminal Mastermind Behind the Silk Road (Portfolio, May 2, 2017) May 8, 5:00-6:15pm Speaker: Richard Florida, University Professor and Cities Director, Martin Prosperity Institute, Rotman and Author Topic: The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class-and What We Can…