1. STRATEGIC DECISION-MAKING FOR LAWYERS APPLYING CONCEPTS FROM FINANCE, BEHAVIORAL ECONOMICS, AND GAME THEORY TO IMPROVE CASE MANAGEMENT AND LEGAL ADVICE TO CLIENTS © 2013 David Chariton & Myer Sankary 1

2. 2 MOTIVATION 1)WHAT’S THE PROBLEM? What should lawyers know about finance and economics? 2)WHY DO WE NEED TO KNOW WHAT WE DON’T KNOW? What you don’t know can be costly to you and/or your client. 3)PURPOSE OF PROGRAM To become better informed about the decision making process using concepts from finance, behavioral economics, and strategic game theory.

3. © 2013 David Chariton & Myer Sankary 3 IT’S A JUNGLE OUT THERE! And we need to learn to survive!

4. © 2013 David Chariton & Myer Sankary 4 BAD DECISIONS IN THE SPOTLIGHT What do these two seemingly different situations have in common? SCOTT LONDONLEO APOTHEKER

5. © 2013 David Chariton & Myer Sankary 5 PROBLEM SOLVING & DECISIONS

6. © 2013 David Chariton & Myer Sankary 6 DECISIONS – FAST AND SLOW GUT FEELING/ INTUITIONCOGNITIVE RATIONAL ANALYSIS FAST/ INSTINCTIVE SLOW / THOUGHTFUL Daniel Kahneman, “Thinking Fast and Slow”

7. © 2013 David Chariton & Myer Sankary 7 INTRO TO KEY CONCEPTS 1)VALUE – fundamental concept in finance 2)MODIFIERS TO VALUE a)TIME b)RISK / UNCERTAINTY c)RELATIVE VALUE 3)MONETARY VS. NON-MONETARY VALUE 4)OPPORTUNITY COSTS 5)SUNK COSTS © 2013 David Chariton & Myer Sankary 7

8. 8 IRS DEFINITION OF “FMV” © 2013 David Chariton & Myer Sankary 8 “…the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.” So… everyone should agree on the value of everything! Pablo Picasso's “Nude, Green Leaves and Bust” Sold for $106.5M in 2010 36,000 sqft (9 bedrooms + 13 bathrooms) house in Beverly Hills. On market for $49.5M in 2010

9. © 2013 David Chariton & Myer Sankary 9 WHAT IS THE VALUE OF $1M? © 2013 David Chariton & Myer Sankary 9

10. 10 WHAT IS THE VALUE OF $1M? © 2013 David Chariton & Myer Sankary 10 TODAYRECEIVED IN 10 YEARS VS. DISCOUNTED PRESENT VALUE TIME VALUE OF MONEY

11. © 2013 David Chariton & Myer Sankary 11 WHAT IS THE VALUE OF $1M? © 2013 David Chariton & Myer Sankary 11 $1M FOR CERTAIN10% CHANCE OF $10M VS. RISK-REWARD TRADEOFF SAME “EXPECTED VALUE”

12. © 2013 David Chariton & Myer Sankary 12 WHAT IS THE VALUE OF $1M? © 2013 David Chariton & Myer Sankary 12 $1M CASH CHANCE OF AVOIDING EXTENDED PRISON TERM VS. RELATIVE VALUE VS. ABSOLUTE VALUE MONETARY VS. NON-MONETARY VALUE

13. © 2013 David Chariton & Myer Sankary 13 OPPORTUNITY COSTS / SUNK COSTS © 2013 David Chariton & Myer Sankary 13 OPPORTUNITY COSTS What else could you be doing with your money, time, energy, etc.? SUNK COSTS Don’t throw good money after bad!

14. © 2013 David Chariton & Myer Sankary 14 DECISION-MAKING MODEL 1)DECISION & OUTCOME “TREES” 2)IMPACT OF RISK a.RISK/REWARD TRADE-OF b.“DIVERSIFIABLE” VS. “NON-DIVERSIFIABLE” 3)GAME THEORY a.NOT ACTING IN VACUUM b.CONSIDER OTHER PLAYER(S) DECISION-MODEL 4)HEURISTIC BIASES a.FAULTY ASSUMPTIONS AND/OR LOGIC b.MISALLIGNED STRATEGIES/GOALS c.“PREDICTABLY IRRATIONAL” DECISIONS © 2013 David Chariton & Myer Sankary 14

15. © 2013 David Chariton & Myer Sankary 15 SIMPLE DECISION TREE © 2013 David Chariton & Myer Sankary 15 4 th & Goal on the 2 yard line Line up for a field goal Go for it Pass Run QB Sneak Fake FG Kick FG Run Pass End run Off-tackle 35% chance of 7 points 42% chance of 7 points 31% chance of 7 points 21% chance of 7 points 24% chance of 7 points 93% chance of 3 points

16. © 2013 David Chariton & Myer Sankary 16 DON’T FORGET THE OTHER COACH! © 2013 David Chariton & Myer Sankary 16 Fake Field Goal Pass Run 31% chance of 7 points Expects Fake Caught Off-guard OFFENSEDEFENSE Expects Fake Caught Off-guard 3% chance of 7 points 12% chance of 7 points 24% chance of 7 points 25% 75% 21% 24%

17. © 2013 David Chariton & Myer Sankary 17 GAME THEORY – EXAMPLE © 2013 David Chariton & Myer Sankary 17 PLAYER B PLAYER A 1 1 0 10 0 5 5 “THE PRISONERS’ DILEMMA” TIGHT-LIPPED SING TIGHT-LIPPED

18. © 2013 David Chariton & Myer Sankary 18 BEHAVIORAL ECONOMICS © 2013 David Chariton & Myer Sankary 18 CLASSICAL ECONOMICS People act rationally based on all available information. BEHAVIORAL ECONOMICS People are subject to biases, both conscious and not.

19. © 2013 David Chariton & Myer Sankary 19 WHICH OPTION IS MORE EFFECTIVE TO GET EMPLOYEES TO SAVE SOME OF THEIR SALARIES? OPT IN? Give employees all the information about their options and let them choose whether or not to opt-into the 401k? OPT-OUT? Default is automatic enrollment in 401 k and employee can opt – out.

20. © 2013 David Chariton & Myer Sankary 20 © 2013 David Chariton & Myer Sankary 20 IMPACT OF PERSPECTIVE? STEELERS FAN: “Clearly a Touchdown!” CARDINALS FAN: “He’s Out of Bounds!”

21. © 2013 David Chariton & Myer Sankary 21 RATIONALIZING VS. RATIONAL BRAND NEW BENTLEY CONTINENTAL GT © 2013 David Chariton & Myer Sankary 21 ~$200,000~$60,000 2009 NISSAN GT WITH 55K MILES WHICH WOULD YOU RATHER VALET?

22. © 2013 David Chariton & Myer Sankary 22 BACK TO LONDON & APOTHEKER 1.How and why did they make the decisions they did? 2.Where did they go wrong? 3.What lessons have we learned from finance and economics? 4.Where do we go from here? A Cautionary Tale for All Creative, Intelligent Professionals

23. © 2013 David Chariton & Myer Sankary 23 THANK YOU! MYER SANKARY, Esq. Advanced Mediation Services/ ADR Services, Inc. myerj@sankary.com 818-231-2965 DAVID CHARITON Finance / Economics / Strategy dave@minersmills.com 323-481-6297 Disclaimer – all images and photos may be protected by copyright and they may not be used or copied for any purpose other than in connection with this powerpoint. © 2013 David Chariton & Myer Sankary 23