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2011/2012  BA-HAP_VPDM  Decision making and risk management

English Title
Decision making and risk management

Course Information

Language English
Point 7,5 ECTS (225 SAT)
Type Elective
Level Bachelor
Duration One Semester
Course Period Autumn
scedule: Wed.: 9.50-12.25, uge: 36-41, 43-46
Time Table Please see course schedule at e-Campus
Study Board
Study Board for BSc/MSc in Business Administration and Psychology
Course Coordinator
  • Laurel Austin - Department of Management, Politics and Philosophy
Laurel C. Austin - lau.lpf@cbs.dkSecretary Karina Ravn Nielsen/ Lucie Alexanian - electives.lpf@cbs.dk
Main Category of the Course
  • Business psychology
  • Communication
  • Management
  • Economics, macro economics and managerial economics

Taught under Open University-Taught under open university.
Last updated on 29 maj 2012
Learning Objectives
Students will develop their ability to think logically and analytically about decision and risk situations. They will also understand and be able to recognize cognitive limitations in how people make decisions, and suggest ways to overcome them. They will be able to use normative models of decision making, apply principles of risk management, and use simple probability information in analysing a decision situation.
At the end of the course, the student must be able to:
• Demonstrate comprehensive understanding of the ideas/theories/concepts covered in the course.
• Demonstrate the ability to appropriately apply those ideas/theories/concepts to decision situations.
• Provide structure to decision situations based on theories from the class, and use that structure to analyze and discuss decision situations.
• Recognize common cognitive limitations and biases that affect human inference, decision making, and risk management, as well as ways to overcome or limit them.
• Know how to interpret and use basic probabilistic information when making decisions that involve uncertainty.
Open to all undergraduates.
4 hour open book exam
Decision making and risk management :
Assessment Written Exam
Marking Scale 7-step scale
Censorship No censorship
Exam Period Winter Term
Aids Please, see the detailed regulations below
Duration 4 Hours
open book; calculators are allowed.
Individual 4 hour written exam – open book; calculators are allowed.
Course Content

This course will provide students with a foundation in the area of judgment and decision making under uncertainty, an inter-disciplinary field that draws on insights from cognitive and social psychology, economics and statistics. Emphasis will be placed on situations that involve risk and require risk management by individuals, groups or organizations. Studentswill learn and apply a variety of theories related to decision making and risk management, especially focusing on how cognitive limitations affect decision making and related behaviors. Students will learn ways to recognize limitations and make decision processes more effective. We will apply three types of theories: normative, meaning theories about how decisions ought to be made; descriptive, meaning theories that describe how people actually make decisions; and prescriptive, meaning theories about how to help people make better decisions.

The course will cover some basic probability and statistics. Students will study descriptive theories of human inference and understanding of probabilistic information. We will examine widely observed limitations in human inference and learn how to use decision models to help overcome them. We will consider the implications for both individuals, groups, and public policy decision makers.

Teaching Methods
The course will be a mixture of lectures and case discussions. Students are expected to be actively involved in case discussions; in this way students are best able to learn from each other, as well as the instructor. Students are expected to come to class prepared, having read the materials assigned for the day prior to the start of class. Students are welcome to bring articles, newspaper articles, web-pages, etc., that are relevant to topics discussed during the semester.

The Psychology of Judgment and Decision Makingby Scott Plous, McGraw Hill, 1993  (or a similar text book to be determined.)
 Austin, L. and Fischhoff, B. (2010).  Consumers’ collision insurance decisions: A mental models approach to theory evaluation. Journal of Risk Research. Online first publication: April 21, 2010.  DOI: 10.1080/13669871003703278.
Aven, T. and O. Renn. (2009).  On risk defined as an event where the outcome is uncertain. Journal of Risk Research, 12:1, 1-11.
Baron, J. 2008. What is thinking?  In Thinking and Deciding, Fourth Edition.  Cambridge: Cambridge University Press, pp 5-22
Baron, J. 2008. Normative theory of choice under uncertainty’ Thinking and Deciding, Fourth Edition.  Cambridge: Cambridge University Press, Chapter 10, pp 233-256
Dawes, R. (1988).  Appendix A1 in Rational Choice in an Uncertain World,  275-291.  Fort Worth: Harcourt Brace Jovanovich
Dawes, R.  1979.  The robust beauty of improper linear models in decision making.  American Psychologist, July 1979, pp 571-582
Edmondson, A. 2002. Group Process in the Challenger Launch Decision (A), HBS Case 9-603-068
Edmondson, A. 2003. Process in the Challenger Launch Decision (B), HBS Case 9-603-070.
Downs, J., W. Bruine de Bruin, and B. F.  2008. Parents’ vaccination comprehension and decisions. Vaccine (2008) 26, 1595—1607
Fischhoff, B., Nadaï, and I. Fischhoff (2001).  Investing in Frankenfirms. The Journal of Psychology and Financial Markets,  2 (2):100-111
Gawande, A.  (1999, February 8).  The cancer cluster myth.  New Yorker, 34-37. http://crab.rutgers.edu/~mbravo/cluster.pdf
Gigerenzer, G. and Goldstein, D. 1996.  Reasoning the fast and frugal way: Models of bounded rationality.  Psychological Review, 103(4), 650-669
Hastie and Dawes, 2010.  ‘What is decision making?’ in Rational Choice in an Uncertain World, 2nd ed., Chap 2, pp 23-43. Thousand Oaks: Sage.
Krishnamurti, T., Eggers, S. and Fischhoff, B. 2008).  The impact of over-the counter availability of ‘‘Plan B’’ on teens’ contraceptive decision making.  Social Science in Medicine.  67: 618-627.  
Lovallo, D. & Kahneman, D. 2003. Delusions of Success: How Optimism Undermines Executives’ Decisions, Harvard Business Review, 81(7), pp.56-63. (Library link forthcoming)
Patterson, K., (2002, May 5).  What doctors don’t know (almost everything).  New York Times Magazine.   Available at: http://www.nytimes.com/2002/05/05/magazine/what-doctors-don-t-know-almost-everything.html
Renn, O.  (2006).  Risk Governance: Towards an integrative approach (White Paper).  IRGC, Geneva.  Pp 20-26.  For those interested, full white paper is available online at: http://www.irgc.org/IMG/pdf/IRGC_WP_No_1_Risk_Governance__reprinted_version_.pdf
Roberts M.  and Sonnenberg, F. (2003).  Decision Modeling Techniques. In Decision Making in Health Care: Theory, Psychology and Applications, G. Chapman (ed), Cambridge University Press, pp 20-36
Simon, H. (1979).  Rational Decision Making in Business Organizations. The American Economic Review, v 69, No4 (Sept), 493-513.
Slovic, P. and Peters, E.  (2006).  Risk perception and affect.  Current directions in psychological science, 15 (6): 322-325.
Tversky A., and Kahneman, D (1971).  Belief in the law of small numbers.  Psychological Bulletin, 76:2, 105-110.
Tversky A., and Kahneman, D (1981). The framing of decisions and the psychology of choice.  Science, 211, 453-458.