Behavioural
Economics
Session 7
Joshua
Foster
Agenda
- Case: Fyre Festival: Dousing the Flame.
"The contempt of risk and the presumptuous hope of success, are in no period of life more active than at the age at which young people chuse [sic] their professions. How little the fear of misfortune is then capable of balancing the hope of good luck..."
- Adam Smith, Wealth of Nations
#fyrefestival ready. pic.twitter.com/EF8ZbKaKF2
— jamiebruce (@byjamiebruce) April 27, 2017
Don't forget the luxury transport. An old school bus, which we had to get off at one point so it could make it up a hill #fyrefestival 😂🚌 pic.twitter.com/xBps8bo1h3
— Adam Thompson (@AdamThompson1) April 28, 2017
These are the secure lockers at Fyre Fest. They forgot to tell us we needed locks. #fyrefestival #fyrefest pic.twitter.com/Tqyjqbg2Gy
— William N. Finley IV(It’s real. I made it up) (@WNFIV) April 28, 2017
This is how Fyre Fest handles luggage. Just drop it out of a shipping container. At night. With no lights. #fyrefestival pic.twitter.com/X5CdZRyJWo
— William N. Finley IV(It’s real. I made it up) (@WNFIV) April 28, 2017
The dinner that @fyrefestival promised us was catered by Steven Starr is literally bread, cheese, and salad with dressing. #fyrefestival pic.twitter.com/I8d0UlSNbd
— Tr3vor.eth (@trev4president) April 28, 2017
Yrs from now my children will find this & ask, "what's Fyre?" but to answer that I must 1st tell them the story of Ja Rule #fyrefestival pic.twitter.com/Li5WMCjjkv
— allison harvard (@alliharvard) April 28, 2017
Who here has ever managed/produced an event?
What was the intended vision of the Fyre Festival?
What were the root causes of the festival's failure?
Even more survey question insights.
| If I picked a random student out of this class, what would you say is the probability that upon finishing their studies they will land a job with a starting salary over $80,000? | What do you think is the probability that upon finishing your studies you will land a job with a starting salary over $80,000? |
| $\bar{X}=50\%$ "According to Matt Sooy probably 75%" -someone | $\bar{X}=72\%$ "0% (only because I know my full time offer is less than that haha)" -someone else |
Ego utility.
Utility that is derived from beliefs about one’s traits and abilities.
- Entrepreneurs think their business is less likely to fail.
- 90% of drivers think they are better than average.
- Majority of professors think they are above average teachers.
What factors can magnify a manager's positive biases?
| 1) | 2) |
| 3) | 4) |
| 5) | 6) |
Why shouldn't we expect managers to be over-confident?
Why should we expect managers to be over-confident?
What are the organizational symptoms of managerial overconfidence?
Ego utility can grow as:
- The trait becomes more important.
- Feedback on trait becomes more ambiguous.
- One believes they have more control.
- One is perceived to be an expert.
Imagine you're a consultant to McFarland early on. What sorts of behavioural issues are you going to try to address?
- Distribution of decision-making power.
- Avenues for internal communication.
- Preparation measures.
Imagine you're a board member to McFarland for the next Fyre Festival. What are you going to recommend he do differently from day one?
- Distribution of decision-making power.
- Avenues for internal communication.
- Preparation measures.
Key Takeaways.
Managerial hubris can be the result of:
- Ego Utility, which stems from the beliefs about one’s traits and abilities.
- Motivates unreasonable optimism.
- Can cause motivated reasoning.