Course Description

Effective managers need sound judgment to navigate a complex world. Good judgment requires an understanding of the behavioral biases that can hinder effective decision-making. It also requires a foundational understanding of the modern analytical toolkit, which can mitigate the risk of mistakes and guide managerial decisions. This course explores modern managerial judgment through the lens of behavioral economics, experiments, and other forms of data. The course aims to help students (a) improve their ability to make decisions effectively, (b) understand how to create environments that encourage others to make wiser decisions-or more broadly to do good-and (c) learn how to leverage experiments and other data to guide managerial decisions. Students will learn how to use psychological, sociological, and economic research, and a thoughtful approach to data, to structure organizational or institutional environments that encourage wiser, fairer, or otherwise better decisions by others, including employees, clients, customers, counterparts in other organizations, and the public at large. Topics may include risk and loss aversion, inattention, memory, intertemporal choice, networks, organizational norms, default options, consideration sets, choice architecture, platform design, experimental methods, unintended consequences, fairness, and the public good.

The course is centered on five themes:

1. Understanding decision-making. How do people make decisions? We discuss the psychology and sociology of decision-making, emphasizing the many ways that, in their everyday lives, people make decisions inconsistent with expectations of rationality.
2. Clarifying objectives. How should leaders determine whether the decisions others are making are optimal? We address the questions leaders should consider before deciding to intervene in others’ decision-making behavior-including whether it is actually irrational and whose interest it serves.
3. Creating environments. What strategies can leaders use to design and build environments conducive to better decisions? We explore the construction of environments that encourage others to do well by doing good or to make wiser decisions themselves, through processes that include nudges, incentives, and organizational changes.
4. Leveraging experiments. How can experiments guide managerial decisions? We develop a basic understanding of experiments, address their value in assessing the effectiveness of decision-making environments, introduce frameworks for students to leverage them in such contexts, and discuss the managerial questions that arise around their use.
5. Managing complexity.What broader questions must leaders consider when creating decision-making environments? We discuss the questions leaders must ask when managing the complexity of real-life environments, including how social networks and organizational capacity may complicate an intervention, what kinds of unintended consequences interventions may produce, and which constituents the leader can or should consider. Throughout the course, we discuss the ethical issues involved in behaviorally-informed management.

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