Why  do  we  make  bad  decisions?    

Prof.  Samuel  Sejjaaka,  PhD  Abacus  Business  School  

 

How  to  make  be@er  decisions…  

Want  to  be  a  farmer:  what  should  you  plant?  

InformaEon  

•  Many  Emes  we  have  the  wrong  informaEon  •  Many  Emes  we  do  not  know  how  to  get  the  right  informaEon  

•  We  are  also  not  in  a  posiEon  to  know  if  those  giving  us  the  informaEon  are  experts  about  the  subject  

•  #DILEMMA:  A  KIND  OF  MORAL  HAZARD!  

Moral  Hazard  as  Context  

•  Moral  Hazard  – Making  a  decision  on  the  basis  of  imperfect  informaEon  

– Making  a  decision  because  you  are  not  responsible  for  the  consequences  

•  Adverse  SelecEon  – Making  the  wrong  choice  because  of  informaEon  asymmetry  

Poor  Understanding  of  Risk  •  How  many  Emes  have  you  seen  an  interview  with  a  lo@ery  loser?  

•  What  is  the  probability  of  winning  the  lo@ery?  

•  Bernouli,  1738  Expected  Value    =  Odds  of  gain  x  Value  of  gain  •  Gaming  and  Be_ng  Tax  is  also  known  as  the  Stupidity  tax!  

…risk  vs.  return?  

•  Why  are  we  poor  at  esEmaEng  the  expected  value  of  our  potenEal  gain?  

•  Why  do  we  have  a  poor  view  of  opportunity  cost?  – Poor  comparisons  – Fear!  

Making  poor/wrong  comparisons(1)  

•  Would  you  take  Ugx  50,000/=  today  or  Ugx  60,000/=  in  a  months  Eme?  

 45      50      55      60    

1-­‐Feb  

1-­‐Mar  

Series1  

Making  poor/wrong  comparisons(2)  

•  Would  you  take  Ugx  1,200,000/=  in  twelve  months  Eme  or  Ugx  1,300,000/=  in  thirteen  months  Eme?  

 1,150      1,200      1,250      1,300    

Jan-­‐16  

Feb-­‐16  

Series1  

Making  the  wrong  comparisons  (3)  

•  #COMPARISON  CHANGES  THE  VALUE  OF  THINGS!  

•  #SHIFTING  COMPARISONS  OVER  TIME  LEADS  TO  WRONG  DECISIONS  

•  Would  you  pay  $100  for  this?  

Fear  is  a  hazard!  (1)  

Fear  is  a  Hazard!  (2)  

•  Tendency  to  freeze  •  Tendency  to  hurry  when  making  decision  

•  Tendency  to  do  nothing!  

•  Tendency  not  to  analyze  -­‐  denial  

Fear  is  a  Hazard!  (3)  

•  Are  you  living  the  life  you  want  to  live?  

•  Are  you  in  the  job  you  want  to  be  in?  

•  Are  you  with  the  one  you  want  to  be  with  

•  Are  you  as  happy  as  you  could  be?  

ImpaEence:  Meet  the  Unluckiest  Man  in  The  World…  

•  Ronald  Gerald  Wayne  (born  May  17,  1934)  

•  Co  founder  of  Apple  •  Wayne  received  a  10%  stake  in  Apple  but  relinquished  his  equity  for  US$800  less  than  two  weeks  later,  on  April  12,  1976.  

…the  Unluckiest  Man  in  The  World  

•  In  February  2015,  Apple's  value  exceeded  $700  billion,  making  it  the  most  valuable  U.S.  company  by  far.  Had  Wayne  kept  his  10%  stock  unEl  then,  it  would  have  been  worth  approximately  $60  billion  

5  Ways  to  Kill  Your  Dreams  •  Believe  in  overnight  

success  •  Believe  someone  else  has  

the  answers  for  you  •  Believe  in  se@ling  when  

the  business  is  growing  •  Believe  the  fault  is  

someone  else’s  •  Believe  that  the  only  

thing  that  ma@ers  are  your  goals…  

ParEng  Shots…  •  Always  make  sure  you  

have  the  right  informaEon  

•  Understand  risk  –  risk  is  actually  a  good  thing!  

•  Do  not  make  meaningless  comparisons  

•  Be  paEent  •  A  bad  decision  is  be@er  

than  none  –  overcome  your  fears!  

Abacus  Business  School,  Liaison  Office,  

Serena  Conference  Centre  First  Floor,  Room  335,  

Telephone:  +256  414  234  120;  Email:  info@abs.ac.ug  

Website:  www.abs.ac.ug