Sustainable Management Metropolia Business Ethics IP week

1. Sustainable ManagementMetropolia Business Ethics IP week 10 Sustainable Behavior

2. Behavioral aspects • Are there systematical errors in our behavior? • At individual • Group • Organizational level • Can we change our value system?

3. Does free will exist?

4. conclusion • Decision making process to large extend handled by unconscious mental activity • If decision is prepared by unconscious brain then free will must be illusion • Brain makes decision, not conscious mind

5. How to make decisions • Unconscious thinking better at solving complex problems • More abstract • Not bogged in details • Get to gist of the problem quicker • When compared to conscious thinking

6. Biases in decision making • Cognitive dissonance • Fooling yourself or rationalizing bad decisions • E.g. smoking • Loss aversion • Loss is harder to cope with than the gain • E.g. why people stick on the wrong path

7. Daniel Kahneman 2002 • Choose a low reward if it means that they have more than the neighbours, rather than a high reward that is lower than their neighbours. • Competition and relative success are important factors next to simple economic decision making

8. Source: Judgment in Managerial Decision Making Max H. Bazerman and Don Moore 7th edition , 2009 John Wiley & Sons

9. behaviour • New evidence points to the limitations of the conscious mind, while emphesizing the power of the unconscious mind to drive us in unethical behaviour. • Bounded ethicality = psychological process that leads to unethical behaviour that is inconsistent with conscious beliefs and preferences

10. Decision making We tend to make our decisions emotionally and then motivate them rationally • Unaware of drivers • Behavioral aspects • Individual • Groups (social) • Aware of drivers • Philosophy • Values • Ethics Intuitions or System 1 thinking Rational, logical or System 2 thinking

11. Biases • Over claiming Credit • In-Group Favoritism • Discounting the Future • Implicit Attitudes • Conflict of Interest • Indirect Unethical Behavior

12. 1 Overclaiming credit • Student project team members estimation of own effort adds up to 139%. • Joint ventures fail often due to this effect: • Own contribution is considered higher than partner • Leads to lower investment • But partner thinks exactly the same about situation • Leads to downward spiral

13. 2 In-group favoritism • We identify more to people who are like us, who belong to the same social group. • We feel virtuous about doing an in-group member a favor, and are unaware about the negative consequences for out-group members (like when resources are limited) • E.g. banks are more likely to deny Afro-Americans a loan than Caucasians

14. 3 Discounting the future • Our explicit stated concern over the future of our planet with it’s limited resources collides with our implicit desire to consume (the latter wins) • Organizations reason similar. E.g. They prefer cheaper building material to cut cost even though the more expensive material can save money in the future.

15. 4 Implicit Attitudes • When we meet someone, automatically stereotypes of race, sex and age come to mind • 75% of all visitors to IAT site prefer white over black, even black persons themselves • IAT tests relative strength, not absolute, of preference (favor one more over the other) • In practice this behavior is rooted deeply, see Morgan Stanley 2004 sex discrimination lawsuit, they paid 54 mln $

16. Do the test ourself • Implicit.harvard.edu • Choose your first language • Do the test • And read the FAQ! • Beware of interpreting the result to hasty! • Next week we’ll discuss the results

17. 5 Conflict of Interest • E.g. financial advisor get paid a fee over the transaction they have recommended to their client • Arthur Anderson accepted the flawed accounting practices of Enron, why? • It is impossible to be critical and maintain a good relationship with your client (and get future contracts) • All people tend to view data from a self serving perspective

18. 5 Conflict of interest • Solution? • Try to liberate yourself from structural conflicts of interest (like payment system) • Don’t trust honesty (nobody is immune to it) • Don’t trust yourself (nobody is immune to it)

19. Case • A medicine is sold with low margin, high costs, but it is critical (life saving) to it’s users • Can they raise the price from 3$ to 9 while the production costs are 5$ a pill? • Is it ethical? • Now you sell the rights to produce the pill to a less known firm who will sell it at 15$ • Is that ethical?

20. 6 Indirect unethical behavior • Merck sold the rights of a cancer drug called Mustargen to Ovation Pharmacauticals. The latter raised the price 10 fold. • Merck avoids public accountability, the small unknown Ovation can handle it. In fact they are specialized in it. • People tend to obscure their unethical behavior. Or they try to stay ignorant of the consequences of their selfish behavior.

21. How to improve? 6 strategies • Use decision-analysis tools • Acquire expertise • Debias your judgment • Reason analogically (create abstract principles from previous cases so that you create general applicableness and appropriateness) • Take an outsiders view • Understand biases in others