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Summary of Week 04 Lecture Critical aspects of management theory

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Beyond Narrative: We as the audience are responsible for the narratives.

Example of culturally driven Market narrative Psychologically, "Entrepreneur" evokes big success and millions But 90% of entrepreneurs are small business Media driven narrative: Holders of US Debt #1: Federal Reserve #2: SSA (social security) #3: China Media driven narrative (Example with a movie trailer)

Analysis of the reading

1. How did the actors participate? They were not NINJAS yet They participated as investors Low risk Expecting 13% annual revenue They had to put a lot of money to it Behavior description Media shows success stories Real state agents want people to buy Government does nothing and lowers interest rates 2. Why they did what they did? (What were they thinking?) Because home buyers were not sophisticated, they did not know that high return=high risk, and they actually thought that the house market was high return = low risk Because the investment opportunity was so good -rationally-that it would have been irrational not to participate. Context analysis Market psychology - Herd mentality (Everybody is doing it) - Belief in value of individual research - selective memory(Only recall success stories) - the banker will lend the money. The information sphere (Fig 1)

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Summary of Week 04 Lecture Critical aspects of management theory

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The Federal Reserve did NOTHING - They kept the interests low - They thought that despite all the signals, red flags, and warnings, this time it was going to be different - Allan Greenspan told himself a fairy tale: the derivatives will disperse the risk 3. Managerial aspects Fallacies present Confirmation bias (Banks wouldn't loan me the money if they didn't KNOW that I win able to pay) Narrative example: San Francisco began to tell stories about Asians (especially Japanese) buying houses like crazy. Cognitively Dissonant market. Survey subjects responded two contradictory answers: - They did not feel influenced by the media on they buying decisions, but they kept talking about the housing Markets, thus contributing to the media craziness - They thought that people often buy out of panic, but when asked to describe the market, they said it war mathematically explainable Other managerial examples of the narrative trap (AOL Example) AOL told themselves a story and once they believed it, they had no access to a model like that one adopted by Google The Internet had a Content problem In the 2000's no-one anticipated Google What to do? Be like Socrates: Only be certain that you know nothing Question yourself Acknowledge that you don't have all the answers

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