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2011/2012  KAN-CMP10  The Psychology of Decision Making

English Title
The Psychology of Decision Making

Course Information

Language English
Point 15 ECTS (450 SAT)
Type Mandatory
Level Full Degree Master
Duration One Semester
Course Period Autumn
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
Main Category of the Course
  • Business psychology
  • Economics, macro economics and managerial economics
Last updated on 29 maj 2012
Learning Objectives
At the exam, the students must demonstrate the ability to:
1. Comprehensive understanding of the models, theories, methods and ideas from the course

2. An ability to analyze a decision situation, considering the decision from the perspectives of at least two stakeholders in that decision (groups or individuals making the decision, or impacted by it). This analysis should demonstrate understanding of what you need to know, as well as understanding of what you do or do not know, given your analysis.

3. An ability to appropriately apply methods, models, theories and ideas from the course to the decision making situation that is being analyzed.

4. An ability to draw and appropriately present conclusions from your analysis, including discussion of limitations of your method and analysis.

The Psychology of Decision Making:
Assessment Home Assignment
Marking Scale 7-step scale
Censorship No censorship
Exam Period Autumn Term
Aids Open Book, Written Aid is permitted
Duration Please, see the detailed regulations below
Based on a description given by the teachers the students will have to write a project proposal. The project proposal has to be approved by the teachers before the student can begin working on the project.
The exam is an individual mini-project of max.10 standard pages. The students will each be given 1 hour supervision.

The student will be awarded one grade according to the 7-point grading scale, reflecting an overall assessment of the project.

Examination takes place in November/december. Make-up and re-examination takes place in February. Registration for make-up and re-examination does not take place automatically.

Make-up examination and re-examination:
The re-take takes place according to the same rules as the regular examination.

Course Content

This course will provide students with a foundation in the psychology of judgment and decision making, especially with respect to business and economic decisions. The study of judgment and decision making is an inter-disciplinary field, drawing on insights from cognitive and social psychology, economics and statistics. We will cover some basic probability and statistics in order to understand normative theories of how people should make decisions, as well as descriptive theories of how they do make decisions. Students will develop an understanding of the cognitive processes and limitations that commonly affect peoples’ ability to intuitively apply normative theories and how these limitations can lead people to systematically draw conclusions and make decisions that are inconsistent or sub-optimal. We will discuss prescriptive theories that offer ways to overcome cognitive limitations and make decision processes more efficient and effective.

Teaching Methods
Teaching methods will take the form of lectures, case studies, class discussions and exercises, and small group work. Part of the class sessions are devoted to practical application of the course material. Students will achieve the most benefit in this course if all actively participate and contribute during class sessions.
Student Workload
Forelæsninger 39 hours
Forberedelse (herunder læsning af pensum) 281 hours
Forberedelse til og deltagelse i eksamen 100 hours

Required Books
The Psychology of Judgment and Decision Makingby Scott Plous, McGraw Hill, 1993
Thinking Strategically”, Avinash K. Dixit and Barry J. Nalebuff, Norton, New York, 1991
Games and Information”, Eric Rasmusen, Blackwell Publishing, 4th edition
"Judgement in Managerial Decision Making", M. Bazerman and D. Moore, 7th edition
HBS Cases (purchase from HBS website – directions to follow)
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.
Workplace Safety at Alcoa (A) HBS 692-042.
Goldstein, D.G., Johnson, E.J., Hermann, A., & Heitman, M. (2008). Nudge your customers towards better choices. Harvard Business Review, December.
Herzog, S. M., & Hertwig, R. (2009). The wisdom of many in one mind. Improving judgment with dialectical bootstrapping. Psychological Science, 20, 231-237.
Luce, M.F. (1998). Choosing to avoid: Coping with negatively emotion-laden consumer decisions. Journal of Consumer Research, 24, 409-433.
Miller, G.  The Magical Number Seven, Plus or Minus Two: Some Limits on Our Capacity for Processing Information,The Psychological Review, 1956, vol. 63, pp. 81-97
Rottenstreich, Y., & Hsee, C.K., (2001). Money, Kisses, and Electric Shocks: On the affective psychology of risk. Psychological Science, 12, 185-190.
Shiv, B., et.al. (2005). Investment behavior and the negative side of emotion. Psychological Science, 16, 435-439.
Soll and Larrick.  (2009). Strategies for Revisiong judgment: How (and how well) people useothers’ opinions.  J of experimental Psycholoyg: Learning, memory and cognition, 35:3, 780-805
Stanovich, K.E. & West, R.F. (2008). On the relative independence of thinking biases and cognitive ability. Journal of Personality and Social Psychology, 94, 672-695.
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.
Wilson, T.D. & Brekke, N. (1994). Mental contamination and mental correction: Unwanted influences on judgments and evaluations. Psychological Bulletin, 116, 117-142. [This article makes clear how difficult it can be to eliminate judgmental biases)

Download from CBS Library

Fischhoff, B., Nadaï, and I. Fischhoff (2001).  Investing in Frankenfirms. The Journal of Psychology and Financial Markets,  2 (2):100-111
Gibbons , Robert, "An Introduction to Applicable Game Theory," Journal of Economic Perspectives 11 (1997), 127-149
Thaler, R. (1985).  Mental accounting and consumer choice.  Marketing Science, 4, 199-214.
Will be put on Learn before session
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
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
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.