Behavioral Approaches to Decision Making and Negotiation
Harvard University
Syllabus – Spring, 2002
Meetings: Mondays: 3:00 – 6:00 (2/4-4/29, 2002)
Psychology 2650
Business Studies 2420
Business School 4420

Instructor: Max H. Bazerman
Baker Library 265
617 495-6429
mbazerman@hbs.edu

Overview & Course Objectives

This course will provide a research overview of the field of behavioral decision making and decision analytic perspectives to negotiation. A core focus of the course will be the individual as a less than perfect decision making in individual and competitive contexts. On the decision making side, we will start with March and Simon's (1958) work on bounded rationality, work through the groundbreaking research of Kahneman and Tversky, and update this line of inquiry through the turn of the millenium. On the negotiation side, we will start with Raiffa's (1982) critical work on the interaction of prescriptive and descriptive research on negotiation, continue through the development of a behavioral decision perspective to negotiation, and examine how the field is currently evolving. We will examine the implications of imperfect behavior for theoretical development, as well as for how to train individuals to make wiser decisions.

This course will involve students in an intensive, thorough survey of the intersection of analytic and behavioral perspectives to decision making and negotiation. Each class, we will cover an area in depth, explicate some major perspectives in the field, review a select set of readings, and discuss some of the critical issues that have been raised with regard to theory and experimentation.

1. obtain exposure to selective aspects of the decision making and negotiation literature
2. gain an understanding of central concepts in decision making and negotiation
3. develop expertise in a domain of interest
4. explore new research ideas
5. improve your scholarly writing skills
6. gain experience reviewing papers
7. gain experience revising manuscripts

Grading

1. 1st draft paper submission
2. Revision of paper
3. Reviews of other students' papers (auditors will also do paper reviews)

   A major part of your grade is writing a scholarly paper that will be peer-reviewed by fellow classmates and graded by myself. The paper should represent an original idea and develop research suitable for submission to an academic journal. The paper should be on decision making and/or negotiation. If it is unclear whether your paper fits this umbrella, please check with Max in advance of developing your work.

   You will be accountable for the existing research that bears on your topic. So, do not wait until the week before the deadline to begin your work. In fact, you are required to write a 1-2 page overview of your paper plans and a 5-minute presentation for 2/25. The paper should fit one of three molds:

   1. Empirical: The paper will contain two major sections: front-end matter (theory, literature review and hypotheses) and empirical methods (design of an experiment). Basically, I am looking for a Journal of Personality and Social Psychology, Organizational Behavioral and Human Decision Processes, or American Economic Review paper up to the point where the paper reports "results".
   2. Conceptual: The paper would provide a full literature review and develop new conceptual ideas. Basically, I am looking for a paper that might be submitted to Academy of Management Review, Psychological Bulletin, Journal of Economic Perspectives, etc.
   3. Your definition of a project that moves you toward an academic publication - this must be approved by Max by 2/25.

   The paper will be done in two phases. The first is an initial submission of the paper (having it mostly done, with a clear outline of the section you still need to write, is acceptable). The second phase will be a revision of this paper (NOT A NEW PAPER) based on the feedback you get from the reviewers (students in the class) and the action editor (Max). The second draft should be turned in with a "letter to the editor" explaining how you responded to the reviewers and the editor.

   To make this peer-review process possible, each student in the class will complete two reviews of other students' papers. Guidelines are provided in Appendix 2 of this course outline.

   All assignments will be turned in by email in advance of the start time for the class.

   Note: Your paper should be original and not one that you are working on for another course requirement. It may build on an earlier paper that you turned in for a grade. However, if that is case, the earlier paper should be turned in as well. It is fine for the paper to be part of your progress toward other graduate program requirements (e.g., proposals, dissertations, etc.)

4. Class participation (leading discussions, contributing to discussions, and presenting your research idea to the class).

   Each class, one or two student will lead the discussion. This will involve making an integrated presentation of the readings for that week. This presentation will start the class, and should be about 10-15 minutes in length. Specifically, the discussion leader is expected to prepare a 1- page integration of the papers in a fashion that: (1) accurately represents the key ideas and contributions of the papers and (2) prompts discussion..

   It is not acceptable to: (1) prepare list of questions to discuss; rather discussion leaders should make "assertions" and suggest "hypotheses"; (2) provide a review of each paper in an annotated style; rather, discussion leaders should critique the paper, or better yet, suggest theoretical and empirical extensions of the paper; (3) provide a "boilerplate" critique (e.g., the shortcomings of lab experiments; small sample size, etc.).

   The purpose of the discussion is NOT to review the readings (everyone has read them), but rather, to articulate the central idea of the argument/finding and then discuss its internal consistency, psychological appeal, ability to account for data, stimulate new research and connection to other areas.

   Students are expected to attend all class meetings and to be prepared (i.e., complete readings in advance of every class meeting). Students are expected to contribute to the discussions. Students are expected to email Max in advance if they cannot attend a class.

   We will also use approximately 1/2 of the last 2 class sessions for research presentations. Presentations will be 15 minutes in length. Only students taking the course for credit are expected to present.

5. Final – 90 minutes, date to be determined: The final will be personalized to encourage you to connect your paper to broader discussions that occur throughout the course. Arrange to have a computer available in class or at your home. The final will be open book/web/etc.

Readings

2/4: Intro to Decision Making

• March, J., & Simon, H. Organizations, Chapter 6, Wiley: 1958.
• Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1131.
• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapters 1-2.
• Class activity: Intro and overview of decision making by Max.   Some new decision puzzles.   Getting started on your ideas.

2/11: Preference Reversals - Inconsistency within the Decision-Maker

• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapter 3.
• Tversky, A., Slovic, P., & Kahneman, D. (1990). The causes of preference reversal. American Economic Review, 80, 204-217.
• Hsee, C.K., Loewenstein, G.F., Blount-Lyons, S. & Bazerman, M.H. Preference Reversals Between Joint and Separate Evaluations of Outcomes, Psychological Bulletin, 1999, 125, 576-590.
• Thaler, R. (1985). Using mental accounting in a theory of purchasing behavior. Marketing Science, 12-23.
• Kahneman, D., Knetsch, J.L., & Thaler, R. (1990). Experimental tests of the endowment effect and the Coarse theorem. Journal of Political Economy, 98, 1325-1328.
• Gilbert, D. T., Pinel, E. C., Wilson, T. D., Blumberg, S. J., & Wheatley, T. P. (1998). Immune neglect: A source of durability bias in affective forecasting. Journal of Personality and Social Psychology, 75, 617-638.

2/18: Motivated Illusions & Intrapersonal Conflict

• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapter 4.
• Taylor, S. E., & Brown, J. D. (1988). Illusion and well-being: A social psychological perspective on mental health. Psychological Bulletin, 103(2), 193-210.
• Tyler, T., & Hastie, R. (1990). The social consequences of cognitive illusions. In M.H. Bazerman, R.J. Lewicki, & B. Sheppard (Eds.), Handbook of Negotiation Research: Research on Negotiation in Organizations, Greenwich, Ct: JAI Press.
• Bazerman, M.H., Tenbrunsel, A.E. & Wade-Benzoni, K.A. (1998). Negotiating with Yourself and Losing: Understanding and Managing Conflicting Internal Preferences. Academy of Management Review, 23, 225-241.
• Loewenstein, G. (1996). Out of control: Visceral influences on behavior. Organizational Behavior and Human Decision Processes, 65, 272-292.
• Thaler, R., and Shefrin, H. M. (1981). An economic theory of self control. Journal of Political Economy, 89, 392-406.

2/25: Time and Decision Making

• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapter 5.
• Staw, B. M. (1976). Knee-deep in the Big Muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16, 27-44.
• Loewenstein, G., & Thaler, R. H. (1989). Intertemporal choice. Journal of Economic Perspectives, 3, 197-201.
• Bazerman, M.H., Baron, J., and Shonk, K. (2001). You Can't Enlarge the Pie: Six Barriers to Effective Government , Basic Books, 2001, Chapter 5.
• Students - 1-2 pages and overviews of your projects

3/4: Fairness, Ethics, and Rationality

• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapter 6.
• Kahneman, D., Knetsch, J. L., & Thaler, R. (1986). Fairness as a constraint on profit seeking: Entitlements in the market. American Economic Review, 76, 728-741.
• Diekmann, K.A., Samuels, S.M., Ross, L., & Bazerman, M.H. Self-Interest and Fairness in Problems of Resource Allocation. Journal of Personality and Social Psychology, 1997, 72, 1061-1074.
• Tetlock, P. E., Kristel, O. V., Elson, S. B., Green, M. C., & Lerner, J. S. (2000). The psychology of the unthinkable: Taboo trade-offs, forbidden base rates, and heretical counterfactuals. Journal of Personality and Social Psychology, 78, 853-870.
• Baron, J., & Spranca, M. (1994). Protected values. Organizational Behavior and Human Performance, 70, 1-16

3/11: Behavioral Finance – Investor Mistakes

• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapter 7.
• Barber, B.M., and T. Odean, 2000a, Online Investors: Do the Slow Die First. working paper.
• Odean, T. 1999, Do Investors Trade Too Much?, American Economic Review, Vol. 89, 1279- 1298.

3/18: Critiques and Limits of the Bias Perspective

• Gigerenzer, G. (2000). Adaptive thinking. NY: Oxford University Press, Part V intro and Chapter 12, pages 237-266.
• Wilson, T.D., & Schooler, J.W. (1991). Thinking too much: introspection can reduce the quality of preferences and decisions. Journal of Personality and Social Psychology, 60, 181-192.
• Tetlock, P.E. (2000). Cognitive biases and organizational correctives: Do both disease and cure depend on the politics of the beholder. Administrative Science Quarterly, 45, 293-326.

3/25: Spring break

4/1: Negotiation Anaytics and Individual Biases in Negotiation

• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapters 8-9.
• Sebenius, J. (1992). Negotiation Analysis: A Characterization and Review. Management Science, 38, 1-21.
• Bazerman, M.H., Curhan, J., & Moore, D. (2000). The Death and Rebirth of the Social Psychology of Negotiations. In G. Fletcher & M. Clark (Eds.), Blackwell Handbook of Social Psychology: Interpersonal Processes, Blackwell.
• Kahneman, D, & Tversky, A. (1995). Conflict resolution: A cognitive perspective . In K. Arrow, R.H. Mnookin, L. Ross, A. Tversky, & R. Wilson (Eds.), Barriers to conflict resolution . NY: W. W. Norton & Co., 44-61.
• Ritov I. (1996). Anchoring in simulated competitive market negotiation. Organizational Behavior and Human Decision Processes, 67, 16-25.
• Class activity: Overview of negotiations by Max Papers are due

4/8: Competitive and Motivated Biases in Negotiation

• Robinson RJ, Keltner D, Ward A, Ross L. 1995. Actual versus assumed differences in construal: 'Naïve realism' in intergroup perception and conflict. J. Pers. Soc. Psychol. 68:404-17
• Ball, S.B., Bazerman, M.H., & Carroll, J.S. (1991). An Evaluation of Learning in the Bilateral Winner's Curse. Organizational Behavior and Human Decision Processes, 48, 1-22.
• Ross, L. (1995). Reactive Devaluation. In K. Arrow, R.H. Mnookin, L. Ross, A. Tversky, & R. Wilson (Eds.), Barriers to conflict resolution . NY: W. W. Norton & Co., 26-43.
• Babcock, L., & Loewenstein, G. (1997). Explaining bargaining impasses: The role of self- serving biases. Journal of Economic perspectives, 11, 109-126.
• Kramer, R.M., Newton, E., & Pommerenke, P.L. (1993). Self-enhancement biases and negotiator judgment: Effects of self-esteem and mood. Organizational Behavior and Human Decision Processes, 56, 113–133.

4/15: Relationships, Trust, and Negotiation

• Loewenstein, G., Thompson, L., & Bazerman, M. H. (1989). Social utility and decision making in interpersonal contexts. Journal of Personality and Social Psychology, 57(3), 426-441.
• Valley, K.L., Moag, J., & Bazerman, M.H. (1998). A Matter of Trust: Effects of Communication on Efficiency and Distribution of Outcomes. Journal of Economic Behavior and Organizations, 35, 211-238.
• Valley, K.L., Thompson, L.L. & Bazerman, M.H. (2001). The valuable role of cheap talk in bargaining: Social improvements on rationality, HBS working paper.
• Fiske, A., & Tetlock, P.E. (1997). Taboo trade-offs: Reactions to transactions that transgress spheres of justice. Political Psychology, 18, 255-297.

4/22: Defining the Negotiation

• Carroll, J.S., & Payne, J. (1991). An information processing approach to two party negotiation. In M.H. Bazerman, R.J. Lewicki, and B.H. Sheppard (Eds.), Handbook of Negotiation Research: Research on Negotiation in Organizations, Volume 3, Greenwich, CT: JAI Press, Inc.
• Bazerman, M.H., Curhan, J., Moore, D., & Valley, K. (2000). Negotiations. In Annual Review of Psychology, Palo Alto, CA: Annual Reviews, Inc..
• Brandenburger, A., & Nalebuff, B. (1996). Co-opetition. NY: Doubleday, pages 11-39.
• Student presentations

4/29: Improving Decisions

• Bazerman, M.H. (2002). Judgment in Managerial Decision Making. Wiley, 5th edition, Chapter 10.
• Dawes, R. M. (1979). The robust beauty of improper linear models in decision making. American Psychologist, 34, 571-582.
• Kahneman, D., & Lovallo, D. (1993). Timid Choices and Bold Forecasets: A Cognitive Perspective on Risk taking, Management Science, 39, 17-31.
• Thompson, L., Gentner, D., & Loewenstein, J. (2000). Avoiding missed opportunities in managerial life: Analogical training more powerful than individual case training. Organizational Behavior and Human Decision Processes, 82, 60-75.
• Student presentations

Optional Books

Decision Making

• Hastie, R., & Dawes, R.M. (2001). Rational Choice in an Uncertain World.
• Kahneman, D., Slovic, P., & Tversky, A. (1982). Judgment under uncertainty: Heuristics and biases. New York: Cambridge University Press.
• Connelly, T., Arker, H., & Hammond, K. (2000). Judgment and decision making: An interdisciplinary reader.
• Baron, J. (2000). Thinking and deciding. New York: Cambridge University Press, 3rd edition).
• Gilovich, T. (1993). How we know what isn't so. NY: Simon and Schuster.
• Plous, S. (1993). The psychology of judgment and decision making. Boston: McGraw-Hill.

Negotiations

• Raiffa, H. (1982). The art and science of negotiation . Cambridge: Harvard University Press.
• Lax, D. A., & Sebenius, J. K. (1986). The manager as negotiator . New York: Free Press.
• Bazerman, M.H., & Neale, M.A. (1992). Negotiating rationally . New York: Free Press.
• Arrow, K., Mnookin, R.H., Ross, L., Tversky, A., & Wilson R. (Eds.) (1995). Barriers to conflict resolution . NY: W. W. Norton & Co
• Thompson, L.L. (2001). The mind and the heart of the negotiator. Prentice-Hall, 2001 (2nd ed.).
• Mnookin, R.H., Peppet, S.R., & Tulumello, A.S. (2000). Beyond Winning . Cambridge, MA: Harvard University Press.

Appendix 1

Tips on how to write a paper for an academic journal (adapted from Leigh Thompson):

1. Substance
   1. Never say, "No one has ever looked at this, so I did..."
   2. Never say, "this is interesting"
   3. Never talk at the level of methods in your introduction (e.g., variables, measures, factors)
   4. Do not write papers for academics; better to write for smart friends in another field
   5. Your study should be totally motivated from your introduction
   6. Avoid using the expression, "Research has found" or "studies have shown" (if you delete this, the sentence sounds much better)
2. Style
   1. It is a fallacy that you should leave some obvious things wrong or incomplete in the paper so as to give the reviewer/reader something to criticize
   2. Most people accept or reject a paper in the first 5 pages and then look for evidence in a confirmatory manner
   3. Use active voice!
   4. Edit! Edit! Edit! (e.g., cut all phrases such as, "in order to"; cut all boilerplate sentences (e.g., "in today's society")
   5. Use friends as editors
   6. Remember: If the reviewer or reader is confused, this is your problem, not their problem.
3. Responding to reviews:
   1. Out and out rejections: learn and move on
   2. Discouraging revise and resubmits: try to understand the editor and reviewer before beginning the revision
   3. Encouraging revise and resubmits: be careful to pay attention to details – they want to accept your paper.
4. Action items for you to take now
   1. Write down every idea you have in a logbook or journal
   2. Write every paper with the intention/expectation it will be published
   3. Ask other people to read and comment upon your work (in return, you should do the same)
   4. When you ask someone to read/comment or they ask you, ask for the date at which it will be no longer useful for them/you

Appendix 2

Tips on how to do a good journal review for a paper (adapted from Leigh Thompson)

1. In general...
   1. Don't be nasty or chastising (e.g., "the author is under a terrible misassumption…"; "the author failed…")
   2. Imagine that you will be reading your review to the author in a face to face meeting
   3. In general, do not criticize papers on the grounds of external validity (e.g., "does this generalize to all managers?")
   4. Make 3-4 main points and then make a list of your small, picky items
   5. A good review is typically between 1-3 pages
   6. Things to look for:
      1. Is there a new idea in this paper?
      2. Is there information gain from this paper or is it a conceptual replication?
      3. Are the results meaningful and worthwhile?
      4. Are the operationalizations true to the conceptual variable?
      5. Are there confounds?
   7. Never say, this should be published or not, etc. (that is the editor's job)
   8. Try to suggest solutions, not just problems.
2. Morals and ethics
   1. It is NOT appropriate to cite papers that you are reviewing
   2. It is inappropriate let someone know you are reviewing his/her paper at any time before or after, no matter what your current relationship with this person
   3. If your relationship with the author may materially affect your review, tell the editor before doing the review.

Appendix 3

Tips on how to successfully present a research paper to an academic audience (adapted from Leigh Thompson)

1. Substance
   1. Tell a story at the beginning (parable; personalize)
   2. Tell audience what your agenda is (3-4 parts)
   3. Make your experimental methods clear!! (flowchart). Can your friend in another field follow the details?
   4. If your audience are all experts in the area - don't bore them...
   5. If your audience are not experts (high variance) – don't lose them
2. Style
   1. Use an overhead projector or powerpoint computer display
   2. Do not make font too small
   3. Do not get defensive
   4. Do not refuse to take questions at any point during the talk
   5. Do not insist that questions should be postponed until end of talk
   6. Be thoughtful about questions (they are what you are evaluated upon)
   7. Rehearse!
   8. Be ready to hear questions that have never occurred to you before.
   9. Be flexible on time. Be ready to shorten parts of your talk.
3. Action items you can take now
   1. Seize every single public speaking opportunity you can
   2. Submit your work to conferences
   3. Get a tough skin.