Decision Making and Behavioral Economics



Dr. Ioannis P. Christodoulou



45 contact hours



Aim of the Course:

We are here to ''Free your mind'' with an ultimate goal to ''Be better than yourself - be better than expected by others''

This course focuses on basic strategic decision making and economic assumptions about rational choice and utility maximization. It is essential a step further after ''Contemporary Strategy Analysis''. It focuses on key elements of decision making, human/soft elements that create strategy as a negotiated outcome and through various hidden processes unclear to non-trained minds.

Together we will explore the evaluation and self-evaluation of biases in behavior of individuals and companies, customers, sales people, financial managers and employers, as well as tools of dealing with these biases. The course provides a new perspective on decision-making mechanisms under uncertainty and shapes a “real-life” attitude towards business thinking and implementation of strategic decisions.

We aim to:
- Enable you to think different about outcomes of relationships, both in business and personal life, where uncertainty and emotion is involved
- Explore key elements of Strategic Decision Making models and the background theory
- Identify basic illusions, traps and fallacies with decision making on a company and on an individual level. More than that, identify psychological biases and other deviations from the type of behavior suggested by “mainstream” models
- Practice on ways to deal with those biases and traps in decision making
- Explore alternative ways of thinking fast and efficiently
- Deal with major perceptual issues on decision making and designing strategies
- Dive into popular historic and business examples of catastrophic/ amazing decisions made and their processes. Thus, view decision making and behavioral economics through the eyes of great leaders.
- Learn how to make decision under crisis/stress and post crisis management
- Deal with problems thought key negotiation techniques and conflict management
- Strategize and make decisions under chaotic situations.

More than that, broader aims of this module are to deal with the emotional life of science, the power of imagination and constructive realization, the creative moment/process, and the alternate ways in which scientists and humanists think about the world. Along the way we provide in-depth portraits of some great geniuses and business leaders of our time.

It will be an intensive module that we give you a final push to enter the market well prepared to deal with yourself, the others and the unknown challenges to come.

Thank you and see you in class!

Course Content (list of topics covered):

For every of those underline topics below we will have a case study and debate as well:

1) Introduction to Strategic Decision Making and Behavioral Economics

2) People are not always rational.

  • Why “behavioral”? Why “economics”? What is the link to the decision making?
  • Risk and uncertainty. 
  • Most common behavioral biases. Illusions.
  • Games of trust and prisoner’s dilemma
  • The Rationality of Irrationality (LF)
  • The limits of Rational Choice (LF)
  • Beyond Rational Choice (LF)

3) Normative theory on how people make a choice?

  • Expected utility theory
  • Risk attitude
  • The myth of the Master Strategist (LF) 
  • The myth of Eureka Moment and the myth of Isolated Genius
  • The Knowledge-Doing Gap / How to turn knowledge into Action and Decisions

4) Strategic decision making - Key models and Theory.

  • For example, entrepreneurial, intuitive, adaptive , rational/planning and many more along with their critical evaluation /application (e.g. bounded rationality discussion)
  • key reasons why SDM sometime ends up in catastrophic decisions
  • Decision making and Strategy Lessons from Andrew Grove (Intel), Bill Gates (Microsoft), Steve Jobs (Apple) and even Nelson Mandela, Abraham Lincoln, Aristotle and Alexander the Great.

5) Traps in Decision Making

  • Key traps in SDM: Framing Trap, Anchoring Trap, Status Quo Trap, Confirming Evidence Trap, Escalation of Commitment of Sunk Cost, Forecasting and Estimations Traps. (Hammond et al. -Harvard Business Review, Hidden Traps in Decision Making)
  • Advise in Avoiding SDM Traps/ Framing effects
    • Survival frame
    • Status quo bias
    • Anchoring
    • Mental accounting
    • The power of defaults
    • Using reference points in practice
  • Other SDM models to be taken into consideration: Logical Steps model, Avoidance Model, Rational Planning Model, Political Model, Symbolic Culture Model, Visionary Model

6) Perception and Decision Making

  • Sense Making
  • Conflict Management
  • Stress Management
  • Ethical Integrity and the illusion of innocence (PU)
  • The Illusion of stability / Effect of Inertia 
  • Inventions of the mind/ Are mathematics truly working? (AL)
  • Contradictory Geniuses (AL)
  • Prisoner of the Wired World/Dealing with time and yourself to make decisions (AL)
  • Machiavellian Behavioral Economics and Satan's Strategic Decision Making (LF)
  • Tolstoy and History (on decision making and strategy) (LF)

7) Advanced Strategies and Decision Making:

  • Chaos and dealing with it/ Competing on the edge REVISITED
  • Hypercompetitive strategies
  • Competition and collaboration (Co-opetition)
  • Blue Ocean REVISITED (Kim and Maubornge)
  • Death of Competition (Moore)
  • Judo Strategy (Yoffie and Cusumano)
  • Changing the Rules of the Game/All the right moves (CM)

8) Dealing with issues of the classic approaches:

  • Managerial Arrogance/Myopia
  • Murphy's Law
  • Personal assessment of risk attitude. 
  • Personal perception of probability
  • Bayesian bias and distortions in assessing probability
  • Everybody lies
  • Representativeness bias
  • Loss aversion
  • Components of prospects theory.
  • Value function instead of utility: probability weighting
  • Reference point

Additional Key Concepts to be covered:

Decision short-cuts: heuristics

  • First and second signal systems
  • Fast and frugal decision-making
  • The role of emotions on decision making
  • Elements of neuroscience
  • Application to finance: momentum, anchoring, house money effect

Money matters

  • Priming with money 
  • Why do we pay so much for something that costs so little?
  • Why free could be more valuable than something we pay for?
  • Financial solution to procrastination and self-control
  • Monetary vs. non-monetary compensations


  • Overconfidence
  • Illusion of knowledge • Illusion of control
  • Time discounting: effect for savings and bequests
  • Incentives or punishment? • The role of external factors
  • Gender • Social norms • Status games
  • “Self-made” • Performance vs. salaries

Course Organization - Teaching methods:

  • Lectures, 
  • Debates and Dialogue assisted by Videos and Slides, 
  • Quizzes,
  • Lots of business and historic case studies, 
  • In-class presentations and competitions between teams.

Course Reading - Literature:

We will utilize latest academic research as well as established books on decision making and behavioral economics.

For example, Daniel Kanhneman in his path-breaking book “Thinking Fast and Slow” describes “no fewer than three biases (confirmation, hindsight, outcome), 12 effects (halo, framing, Florida, Lady Macbeth, etc.), four fallacies (sunk-cost, narrative, planning, conjunction), six illusions (focusing, control, Moses, validity, skill, truth), two neglects (denominator, duration) and three heuristics (mood, affect, availability)”.

Suggested Books on Behavioural Economics:

  • Montier, James. Behavioural Investing: A Practitioners Guide to Applying Behavioral Finance. Wiley, 2009. 
  • Ackert, Lucy, and Richard Deaves. Behavioral finance: Psychology, decision-making, and markets. South-Western Pub, (2009) 
  • Pompian, Michael. Behavioral Finance and Wealth Management. Wiley, (2006)
  • Thaler, Richard. The Winner’s Curse. Paradoxes and Anomalies of Economic Life. (1992)
  • Shiller, Rober. Irrational Exuberance. Broadway Books, (2006)
  • Ariely, Dan. Predictably Irrational. Harper Collins, (2008) (core book)
  • Ariely, Dan. The Upside of Irrationality: The Unexpected Benefits of Defying Logic, (2011)
  • Camerer Colin F., Loewenstein George, Rabin Matthew , '' Advances in Behavioral Economics, '' Princeton University Press, (2003)
  • David Levine Is Behavioral Economics Doomed (available online at

Suggested books on Decision Making (not only academic but essential):

  • Lightman Alan, '' Einstein's Dreams'' , Bloomsbury Publishing PLC, (1994)
  • Pfeffer J. and Sutton R. '''The knowledge -Doing Gap'', Harvard Business School Press, (2000)
  • Eisendheardt K and Brown S. ''Competing on the Edge, Strategy as a Structured 
  • Chaos'', Harvard Business School Press, (1997).
  • Bose P. ''Alexander the Great's art of Strategy'', Parha Bose, 2003
  • Yoffie. D.B and Cusumano M.A., ''Strategy Rules, five timeless lessons from B. Gates, A. Grove and S. Jobs'', Harper Business Publishing, (2015)
  • Weir Stephen, ''History's Worst Decisions'', Quid Publishing.(2008)
  • Markides C.C. ''All the Right Moves'', Harvard Business School Press, (2000)
  • Uger Peter, ''Living High and Letting Die, Our Illusion of Innocence'', Oxford University Press, (1996)
  • Freedman L., ''Strategy, A History'', Oxford University Press, (2015)
  • Carpenter, M, Sanders, WG ''Strategic Management: A Dynamic Perspective'' Harlow: Pearson Prentice Hall, (2007)
  • De Wit, B, Meyer R,'' Strategy'', 4th Revised Edition, MacMillan, Cengage Learning EMEA, (2010)
  • Johnson, G, Whittington, R, Scholes, K ''Exploring Strategy Text & Cases'', 9th Edition, Prentice Hall. (2010)
  • Mintzberg, H, Ahlstrand, B, Lampel, J.B., ''Strategy Safari: The Complete Guide Through the Wilds of Strategic Management'' , 2nd Edition, Prentice Hall(2008)
  • Pearce, J. A. II & Robinson, R. B. Jr. ''Formulation, implementation, & control of competitive strategy' (11th edition). New York: McGraw-Hill. (2009).
  • Kahneman D., ''Thinking, Fast and Slow'' , Editions: Farrar, Straus and Giroux; Reprint edition (2013)
  • Kim W. Chan and Mauborgne Renée, ''Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant'', Harvard Business School Press, (2015)
  • Krogerus Mikaeland Tschäppeler Roman, ''The Decision Book: 50 Models for Strategic Thinking'', W. W. Norton & Company (2012)
  • Levitt Steven D. and Dubner Stephen J. , ''Think Like a Freak: The Authors of Freakonomics Offer to Retrain Your Brain'', William Morrow; Reprint edition (2014)

Suggested Articles:

  • Hammond S., Ralph L. Keeney, & Howard Raiffa, ''The Hidden Traps in Decision Making'' Harvard Business Review, (2006) (core reading)
  • David A. Garvin & Michael A. Roberto, ''What You Don’t Know About Making Decisions'' Harvard Business Review, (2001) (core reading)
  • Markides, C. C. 2000. Decide what your business is. Chapter 2 in, All the right moves: 27-43.
  • Markides, C. 1999. A dynamic view of strategy. Sloan Management Review, Spring: 55-63.
  • Kim, W. C. and Mauborgue R. 1999. Creating new market space. Harvard Business Review, Jan-Feb: 83-93.
  • Stalk, G., Evans, P., and Shulman, L. E. 1992. Competing on capabilities: The new rules of corporate strategy. Harvard Business Review. Mar/Apr, Vol. 70(2): 54-66.
  • Hamel, G., Doz., Y. L. and Prahalad, C. K. 1989. Collaborate with your competitors – and win. Harvard Business Review 67: 133-139.
  • Bonardi, Jean-Philippe and Rodolphe Durand 2003. Managing network effects in high-tech markets. Academy of Management Executive. 17, 4. pp. 40-52.
  • Markides, C. C. 1997. To diversify or not to diversify. Harvard Business Review. Nov-Dec:93-99.
  • Cascio, W. F. (2005). “Strategies for responsible restructuring.” Academy of Management Executive, 19, pp. 39-50.
  • Catmull Ed, 2008 How Pixar Fosters Collective Creativity Harvard Business Review.
  • Pascale, R.T. “Surfing the Edge of Chaos” Sloan Management Review, Spring 1999, pp. 83-94. 
  • Sternberg, O’Hara and Lubart. “Creativity as Investment” California Management Review, Fall 1997 (pp. 8-21).

Suggested Journals for further reading (key academic and practitioner journals):

  • Academy of Management Journal
  • Academy of Management Review
  • California Management Review
  • Harvard Business Review
  • Journal of Management
  • Journal of Management Studies
  • Long Range Planning
  • MIT Sloan Management Review
  • Strategic Management Journal

Exam / Assessment format:

A) Group project - Presentation

B) Final Exam: Final written examination of 1 hour.

Note: At the same time for every session we will have extra assessments (case analyses, negotiation games, mini presentations) that are essential to be completed in order for the students to proceed to the final assessments above.

Grading Policy (% or points):

Group Project      50 (presentation)
Final Exam         50
Total:               100

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