1. 1 Business System Analysis & Decision Making - Lecture 6 Zhangxi Lin ISQS 5340 July 2006

2. 2 Chapter 4: Motivational and Affective Influence on Decision Making When Affect and Cognition Collide Positive Illusions Self-Serving Reasoning Affective Influences on Decision Making

3. 3 When Affect and Cognition Collide Two different selves - “want” vs. “should” New Year’s Resolution: Keep a good diet Exercise twice a day: 6:30a and 6:30p Learning 5 Chinese characters every day in this year (Then I will learn 1800 Chinese characters a year later – enough for basic Chinese communications) Stop watching TV When spending a weekend in Las Vegas, I will budget my gambling within $150 – no more absolutely. Quitting from alcohol, drug, or cigarette Internal inconsistencies between transient concerns and long- term self-interest Conrad Hilton’s marriage with Jaja

4. 4 Life-long Welfare Planning Your economic status of your life 0-18: Family sponsored 19-24: many self-support or by loan 25-65: Working age 66-?: Retired How to control you expenses when you are at the working age in order to guarantee life quality after you retired? 18 24 65 Life quality Income

5. 5 Advices from Different Research Disciplines to Multiple Selves Decision Theory Howard Raiffa Formalizing identification & Weighting multiple criteria “should” can confront “want” with its limited perspective Negotiation Research Schelling It is hard for two selves to negotiate if they are not present simultaneously as there is no internal mediator

6. 6 Positive Illusions Unrealistically positive views of the self Better than others on a variety of desirable attributes Unrealistic optimism Judge bias that leads people to believe that their futures will be better and brighter than those of other people The illusion of control Falsely believe that ability to control uncontrollable events Self-serving attributions Tendency to take a disproportionately large share of the credit for collective successes and to accept too little responsibility for collective failures.

7. 7 Some Good Side of Positive Illusions? Good side – adaptive role Increase personal commitment Help individuals persist at difficult tasks Facilitate coping with aversive and uncontrollable events Allow us to maintain cognitive consistency, belief in a just world, and perceived control Bad side Cause people to temporarily fool themselves – short- term benefit with long-term costs Negative impact on learning and the quality of decision making Contribute to conflict and discontent

8. 8 Self-Serving Reasoning A real story in a developing country: A villager asked his relative living in town: “Why people living in town are not poisoned to dead?” City dwellers in developing countries complain that there is no enough control to the use of chemicals in farms that supply their food every day. Many of them have the experience of being poisoned by the food because of the pollution. It is true that farmers have been using too much chemicals to grow their crops, vegetables, fruit, etc. However, they complain that people in cities exploited too much from them. Also they created too much pollutions. Also those poisoning chemicals were produced by people living in cities Self-Serving reasoning cause the tendency to select standards of evidence in self-serving way. Different parts of the US legal system use different standards of evidence A speeding ticket can be issued if a driver is driving one mile above the speed limit according to the regulation. Do you know anyone have ever be ticketed because of speeding for one mile over? Why?

9. 9 Affective Influences on Decision Making – How emotion drives behavior Influences: People in good moods are more optimistic and people in bad moods are more pessimistic Fear and anxiety create risk-averse behavior Happy individuals may be less motivated to expend cognitive effort (system 2 thinking) and more likely to rely on heuristic processing (system 1 thinking) Regret Silver-medal winners are less happy with their achievement than the bronze-medal winners in the Olympic Game You have been buying lotteries. Your never got any good luck. Each time you check the number – there is less than a half of numbers in your lottery tickets match the winning number. So you feel ok – it is obviously not a easy thing. However, one day you realized that you are so close to be the winner – only one number miss the winning number. You start to feel upset and regret.

10. 10 Case: catching a flight – also see p77- 78 (***) I arrived at San Jose International Airport from Tokyo and next connecting flight is departing in 90 minutes according to the schedule. However, it took me 45 minutes to get through the immigration check because of the long line. Then I spent another 30 minutes at the Custom check – I was asked to open all luggage for inspection – I was an unlucky person among all passengers. Will I be able to catch the connecting flight? How do you feel? What are the possible outcomes of this situation? Missing the last flight back to Dallas The flight was late – I caught it Others?