1. Information: Efficient markets-Perfect and symmetric information-Market participants are Rational beings Uncertainty: Gaussian (black Sholes model) People: Homo-economicus (Rational man)-Infallible superman with perfect knowledge and judgment-Selfish and calculating-No emotions whatsoever

2. Perception- Leibowitz hypothesis:Speed, Ledoux-text sign replaced by pictures, Menon:double whistle

3. Intentional blindness: Focus so hard on something that we become blind to the unexpected even when we are staring at it, It is easy to miss details when you are not looking for them. Less of memory thing, Bear(Gorilla) expt

Change blindness, failure to detect changes in the environment caused by visual (or other) distraction. Short term memory failure to store info about current environment. Comparison of one image to other image that is held in memory.

4. Types of perceptual learning :( Assimilation): Concept-driven, top-down processing perceptions guided by expectations and prior knowledge (quicker perceptual recognition, improved comprehension & recall; anchoring and confirmation biases), info ambiguous

(Accommodation): Data-driven, bottom-up processing perception guided by objective characteristics of the stimulus, children

5. Properties of perception: Holistic, Constructed (preference, memory), Contrast & assimilation, Relative (cone), Automaticity, Adaptation (impact bias), Expectation – self-fulfilling prophecy, Brands---

6. Just noticeable differences (JND): Perceptual system works on percentage increments. Absolute levels are important(1kg,100gm), (5 kg,100gm).

Weber-Fechner law: ∆I / I = K I is the intensity of stimulus; K = constant across levels of I(1kg,100gm), (5 kg,100gm)

Steven’s power law: Ψ(I) = kIα Ψ(I) represents subjective magnitude of sensation Αlpha depends on type of stimulus

7. Diminishing sensitivity: how much you value something depends on context.(200Rs save 100metres, or walk 5km,or suit)

8. Impact bias: People do not foresee their level of adaptation or how quickly they will adapt (impact bias). Tendency to overestimate our emotional reaction to future events. Research shows we don’t feel as bad as we expect when things go wrong.

9. Automaticity is the ability to do things without occupying the mind with the low-level details required, allowing it to become an automatic response pattern or habit. It is usually the result of learning, repetition, and practice. Faster/cognitive miser

10. “Neuromarketing”: Studies cognitive and affective responses to marketing stimuli & consumer preferences

Uses fMRI, EEG, heart rate, respiratory rate, galvanic skin response

You evaluate things with data you have. You simplify things and u dnt capture details- beer beer+

1. Halo effect: Drawing general impression from a single characteristic (like knowledge, intelligence etc)

2. Stereo-typing: Judging someone on the basis of our perception of the group to which he/she belongs

3. Self-Serving Attributions : Own actionoutcomegood/baddispositional/situational. Maintaining a positive self-image/high self esteem

4. Fundamental attribution error: underestimating role of chance in life. Others actionoverestimate internal underestimate situational

1. Decision making choice & judgement. No magic formula. Decision making is an art AND science. Needs constant practise.

Decision making as a process v/s decision making as a outcome. Closest guarantee to a good outcome is a good process.

2. Risk: danger + opportunity. Reducing risk reduces opportunity. Trade-off exists. 3. Goal of decision modelling Behaviour = f (Decision problem, Env. factors, Psych. factors)

St.Petersburg paradox: lottery game though infinite earning you will give 2 or 3 Rs

4. Gambling paradigm: Gambling among different prospects which are risky and each prospect is given value.

5. NPV is not used in decisions like mergers acquisitions/new product/geography. Scenario analysis create multiple scenarios compare between best and worst case (gives measure of overall risk).

6. Scenario Analysis: Steps in scenario analysis: Determination of critical factors (e.g., state of economy, regulatory)

Determine values each factor can take/Create multiple scenarios & determine outcomes (cash flows) for each

Assign probabilities to each scenario/Do sensitivity analysis.

7. Risk neutral: expected value/ risk taking: utility.

1. Prospect theory: Reference point, Loss aversion, Risk averse for gains and risk seeking for losses, Probability weighting.

Loss means 2.25 times more than that of profit. People use ~2 in model. Slope is 2times stepper in loss domain than in gain.

Risk seeking in loss domain & risk averse in gain domain

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Psychophysics of probability perception: people overweigh/overreact lower probability and underweight higher probability.

1. Economics v/s psychologyrational v/s real behaviour

2. Rational agent -Calibrated/Perfect knowledge/Stable preferences/Full self-control/Selfish/Calculating/Emotionless

Implications-People maximize/what’s knowable is known/All opportunities exploited

3. Bounded rationality—Herbert Simon-People do not optimize in the “rational” manner described by economists/They conduct a less than complete search for alternatives/They then choose an option that meets a certain threshold of satisfaction. That is, they Satisfice, not Optimize. This may be a generally efficient strategy, given time & resources, BUT…

4. Are we in control of our decisions? People are not good at comparing they cling to reference points>> compromise effect

5. Intuitive: Automatic/Emotional/Fast/Much older/Parallel processing/Unlimited capacity/flow effortlessly/mostly it determ

REFLECTIVE/Analytical: Deliberative/Cold/Slow/Relatively new/Sequential processing/Limited capacity/when stakes high

6. Framing: The way a problem is framed can profoundly influence the decision you make. Example: Framing as gains vs. losses.Framing with different reference point How to avoid? Reframe problems in various ways>When others recommend decisions, examine the way they framed the problem. Challenge them with different frames.

7. Availability/saliency bias: Being overly influenced by vivid & recent memories while making judgments/estimations. Example: Purchase manager chose supplier whose name was most familiar. Turned out supplier’s name was in the news for extortion charges. How to avoid? Examine all assumptions to ensure they are not influenced by your memory/Get actual statistics, not just impressions

8. Confirmation bias: Seeking only & overweighing info that supports your existing pt of view. Example: A CEO considering cancelling a plant expansion asks an acquaintance, who cancelled such an expansion, for advice. She, of course, says to cancel. How to avoid? Examine ALL evidence with equal rigor, confirming & disconfirming>Ask a respected colleague to argue against your view> Avoid “yes-men”>”Advisor against the deal” - compensated if merger did not go through (Warren Buffet)

9. Anchoring Bias: Giving disproportionate weight to the first info you receive (relevant or irrelevant; quantitative or qualitative) Example: A marketer projects future product sales by looking only at past sales figures. In a fast-moving market, poor forecasts result How to avoid? Pursue other lines of thought in addition to your first one>seek info from a variety of people and sources after thinking through the problem on your own>Avoid anchoring your advisors by revealing your ideas/judgments>in negotiations.

1. BIG 5OCEAN: Conscientiousness/Agreeableness/Neuroticism or emotional stability/Openness to experience/Extraversion

2. Self-report surveys-Most common; easy to administer/Drawback – incorrect reporting Observer-ratings surveys-Perceptual issues/Conflict of interest issues Projective measures (Rorschach ink-blot, Thematic Aptitude Test)-Inconsistent/Not effective

3. Myers-Briggs Type Indicator (MBTI): Extraverted (E) vs. Introverted (I)/ Sensing (S) vs. Intuitive (N)/ Thinking (T) vs.

Feeling (F)/ Judging (J) vs. Perceiving (P)

1. Self-interested bias: Is there any reason to suspect errors motivated by self-interest? Review the proposal with extra care, especially for over optimism 2.Heuristic: Has the team fallen in love with its proposal? Rigorously apply all the quality controls on the checklist.3.Groupthink: Were there dissenting opinions within the team? Were they explored adequately? Solicit dissenting views, discreetly if necessary.

4. Saliency Bias: Could the diagnosis be overly influenced by an analogy to a memorable success? Ask for more analogies and analyze similarity to current situation 5.confirmation bias: Are credible alternatives included along with the recommendation?

Request additional options 6.Availability bias: If this decision had to be made again, what information would you want? Use checklist of data needed for each kind of decision 7.Anchoring bias If this decision had to be made again, what information

would you want? Use checklist of data needed for each kind of decision 8.Haloeffect Does success in one area justify success in another? Eliminate false inferences and ask the team to seek additional comparable examples 9.Sunk cost and endowment fallacy: Is the team overly attached to past decisions? New investments should be made, disregarding past expenditures that don’t affect future costs or revenues

10. Optimistic biases: Three contributing factors:- Overconfidence, Planning Fallacy, Competitor Neglect. Take an outside view;

use war games 11.disaster neglect Is the worst case worse enough? Conduct a “pre-mortem 12.loss aversion: Is the team overly cautious? Realign incentives to share responsibility for the risk or to remove risk