Instructors:



Instructors: Ben Lee

Office: ASC 221

Office hours: MWTh 2:30-4:30 pm

Tu 2:00-3:00 pm

best by appointment

Email: bblee@usc.edu

Mobile: (626) 221-7833

Check your email linked to Blackboard regularly. The instructor will regularly send emails about class agenda and logistical arrangements through Blackboard.

Course Description and Objectives

In our personal and professional lives, we make decisions and act when the environment is complex and turbulent, the information uncertain, and meaning ambiguous. Such conditions make us vulnerable to poor outcomes. Such outcomes may be spectacular: many remember how the space shuttle Challenger exploded in flight. Other consequences are less dramatic, but no less hurtful to the affected: think about a 65-year old who has neglected to save and invest for retirement.

The purpose of this course is to help you build a foundation for thinking and acting well. After taking this course, the instructor hopes that you do not contribute to the equivalent of blowing up a space shuttle, or become destitute when you cannot earn an income.

To that end, the course aims to develop an understanding about

• the prescribed rational approaches to processing information when making decisions;

• the ways people systematically deviate from rationality by relying on heuristics and by being burdened with cognitive biases;

• the ways to avoid the most egregious irrational errors;

• the underlying mathematics surrounding risk taking;

• the ways in which information environments in organizational contexts can become much more complex and turbulent, and the ways in which such conditions can overwhelm people;

• the distinction between uncertain organizational situations (when having more information is useful) and equivocal situations (when having more information is not useful).

• the ways in which people can make sense of confusing organizational environments, and build resilience to act well in face of informational challenges.

Course Materials

Required materials

• Smart Choices: A Practical Guide to Making Better Decisions (abbreviated as SC), by John S. Hammond, Ralph L. Keeney, and Howard Raiffa (1999, Harvard Business School Press).

• Why Smart People Make Big Money Mistakes, and How to Correct Them: Lessons from the New Science of Behavioral Economics (abbreviated as WSPMBMM), by Gary Belsky and Thomas Gilovich (1999, Simon & Schuster).

• Fortune’s Formula: The Untold Story of the Scientific Betting System that Beat the Casinos and Wall Street (abbreviated as FF), by William Poundstone (2005, Hill and Wang).

• How to Lie with Statistics (abbreviated as HLS), by Darrell Huff (1993, W. W. Norton).

• A Primer on Decision Making: How Decisions Happen (abbreviated as PDM), by James G. March (1994, The Free Press).

• Managing the Unexpected: Resilient Performance in an Age of Uncertainty (2nd edition) (abbreviated as MU), by Karl E. Weick and Kathleen M. Sutcliffe (2007, John Wiley).

• Knowledge Management (abbreviated as KM), by Carl Frappaolo (2006, Capstone Publishing).

• Various supplementary articles.

Recommended materials

• Against the Gods: The Remarkable Story of Risk, by Peter L. Bernstein (1996, John Wiley).

• Normal Accidents: Living with High-Risk Technologies, by Charles Perrow (1984, Basic Books).

• The Art of Decision Making: Mirrors of Imagination, Masks of Fate, by Helga Drummond (2001, John Wiley).

• Information and Organizations, by Arthur L. Stinchcombe (1990, University of California Press).

• Sensemaking, by Karl E. Weick (1995, SAGE Publications).

• The Knowing-Doing Gap: How Smart Companies Turn Knowledge into Action, by Jeffrey Pfeffer and Robert I. Sutton (2000, Harvard Business School Press).

Cases

• Friendly Fire: The Accidental Shootdown of U.S. Black Hawks over Northern Iraq, by Scott A. Snook (2000, Princeton University Press).

• Decision for Disaster: Betrayal at the Bay of Pigs, by Grayston L. Lynch (1998, Brassey’s).

• The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA, by Diane Vaughan (1996, University of Chicago Press).

• The Bhopal Tragedy: What Really Happened and What It Means for American Workers and Communities at Risk, by Ward Morehouse and M. Arun Subramaniam (1986, Council on International and Public Affairs).

• When Genius Failed: The Rise and Fall of Long Term Capital Management, by Roger Lowenstein (2000, Random House).

• Conspiracy of Fools: A True Story (on Enron), by Kurt Eichenwald (2005, Broadway Books).

• All That Glitters: The Fall of Barings, by John Gapper and Nicholas Denton (1996, Hamish Hamilton).

• Into Thin Air: A Personal Account of the Mount Everest Disaster, by Jon Krakauer (1997, Villard Books).

Course Materials (continued)

Writing

• The Art & Craft of Case Writing (2nd edition), by William Naumes and Margaret J. Naumes (2006, M. E. Sharpe).

• They Say/I Say: The Moves that Matter in Persuasive Writing, by Gerald Graff and Cathy Birkenstein (2007, W. W. Norton).

• Writer’s Reference (with Extra Help for ESL Writers) (6th edition), by Diana Hacker (2007, Bedford / St. Martin’s).

• USC Writing Center, usc.edu/schools/college/writingcenter/information_for_students.

Evaluation of Performance

Course project and presentation 36%

Evaluation from team members 04%

Decision-action analysis and critique 25%

Reflections on simulation exercises 15%

Leading a discussion 10%

Participation in class 10%

Grading Practice and Philosophy

This course uses the following grading scheme:

A 95% or higher

A- 90%-94%

B+ 87%-89%

B 83%-86%

B- 80%-82%

C 70%-79%

F 69% or lower

To get a better sense of what these numbers mean, consider these scenarios.

You are a professional engaged by your client to deliver a service wrapped in the form of a project. The project earns a B+ to A- grade, if you delivered the service competently, on time, within budget, and with adequate quality. Your client is reasonably pleased, and you are on her short list of people to call for the next job.

To earn an A for the project means the equivalent of impressing your client, outperforming her expectations. For example, you manage to deliver on time and with quality even when the job scope and demands unexpectedly expand under unreasonable deadlines. This earns you the equivalent of being called first when your client has another job, or being asked to join the client’s firm.

On the other side of the spectrum, a C represents a minimally acceptable result, often delivered grudgingly. An example of a C experience is this: You are at a local franchise restaurant ordering breakfast to go for your colleagues. The service staff packs your order, and moves on to the next customer. You check the bag, and realize that the receipt is missing. You ask for the receipt because you want to be able show your colleagues what their order costs. However, the service staff says, “No, I can't give you a receipt because the order is closed.” You ask to talk to a supervisor. The supervisor comes to the counter. The staff and the supervisor then speak to each other in a non-English language, saying essentially, “What's her problem? Why the eff does she want a receipt for?” You understand perfectly the non-English language, and you say to them, “I need the receipt to show my colleagues, to collect money from them. So give me my effing receipt.” The supervisor reopens the order, and gives you a receipt, making a tremendously displeased face the whole time. So, in this scenario, you got your food and your receipt, so the restaurant staff delivered, but the quality of your experience is poor. The restaurant in this scenario earns no better than a C.

More in terms of your performance in this course, an example of earning a C would be turning in a 12-page report when report asks for 20 pages, or otherwise failing to fulfill in the paper required criteria.

At end of the poor outcome spectrum, an F grade represents failure. This may occur when a student fails to attend more than four classes, or fails to turn in assignments, or does something remarkably bad, such as committing plagiarism.

Delivery of Assignments

The following are important administrative issues about delivery of assignments:

First, all written assignments must be emailed as attachments to the instructor.

Second, all documents should be in Microsoft Word .doc format. If you are using Microsoft Office 2007 (with the .docx format), please convert documents to the .doc format. Documents are to be double-spaced with 1-inch margins, in Times Roman 12 point font.

Third, delivering your assignments on time is crucial to your success in this course. Successful delivery means that the assignment must be received (not merely sent) by the deadline. A deadline in a given week is 6:00 pm on the day class is held. For example, an assignment due on Week 2 has a deadline of 6:00 pm on Tuesday January 20, 2009. Missing deadlines incurs significant penalties (e.g., half of the possible score). Any late assignment still has to be completed and delivered, or it may prevent you from completing the course.

Course Project and Presentation

The course project and presentation is the main deliverable. The project is a team effort, and each student will recruit and select one to three others to form the team. The team members must agree on project’s topic, and the instructor must approve the topic.

Topics may focus on a set of organizational decision(s) that contributed to poor outcomes. Examples of such cases include:

• the fiasco at the Bay of Pigs,

• the disaster surrounding space shuttle Challenger,

• the fall of Enron,

• the past and present crises in the financial sector, such as the current housing and credit crisis, the collapse of Bear Sterns, Long Term Capital Management, Barings Bank, and others.

See the recommended readings for such cases. A focus on individuals is also acceptable, and should be discussed with the instructor.

The project’s primary task is to analyze and understand how and why the failure occurred, in terms of biases exhibited by key individuals, and poor sensemaking by the collective. Another task is to explore how similar outcomes may be avoided in the future.

The project deliverables take two forms. The first deliverable is an oral presentation, to be given during the final sessions of the course. Each presentation should last no more than 18 minutes; another 12 minutes will be devoted to discussion. The second deliverable is a written paper or a creative product in another medium (e.g., a video, or a website). A written paper must be between 25 to 40 pages. The length and substance of the content in other medium should be discussed with the instructor. This second deliverable is due 6:00 pm May 5, 2009. For details about the project, please see document “Course Project Guidelines”.

The grade for the course project is shared for all members. This means that you should choose your team members carefully, agree on how to march each member’s skills and experience with the appropriate responsibilities, and coordinate everyone’s efforts to succeed. At the same time, your contributions to the team will be evaluated by your peers. For more details about how to manage and contribute to your team, see the document “Course Project Guidelines”.

Decision-Action Analysis and Critique

The assignment requires you to analyze and critique one major decision you made in the past, and one major decision you are making or will make soon. For the past decision, focus on one that did not turn as well as you would like. Describe the options, choice and outcomes. Describe how it was the information environment was uncertain or ambiguous or otherwise challenging. Reflect on how you might have improved that decision and the subsequent actions. Do the same for the current or upcoming decision. Your analysis and critique must rely on the concepts covered in this course.

Each analysis-critique should be at least 5 pages. The past-decision analysis and critique is due on Week 5. The upcoming-decision analysis is due on Week 10.

Reflection on Simulation Exercises

In this course, we will participate in two simulation exercises. These exercises allow us to learn about important concepts in a more experiential and active manner. To anchor this form of learning, after each exercise, each student will reflect on and write about their experiences and lessons. Each paper should be at least 2 pages in length, and is due the week after the simulation exercise.

Leading a Discussion

Each student will lead a discussion centering on one or two of each session’s assigned readings. More than one student may lead at a given session. Each discussion should take 12-20 minutes, depending on the number of readings covered. The discussion leader’s responsibilities include:

• Reading the material thoroughly.

• Identifying the key ideas to be discussed.

• Preparing 3-5 open ended questions that will challenge students to think critically about the ideas.

More details are described in the document “Notes on Leading a Discussion.”

Attendance and Punctuality, Participation and Attention in Class

Come to class. If you are not here, the instructor cannot teach, and you cannot learn. At the same time, many of you are working professionals and also have personal lives. So, it is understandable that you may be forced to miss an occasional class. You are therefore allowed one absence without penalty. Thereafter, the second absence lowers your final grade by 2% (i.e., a 91% drops to 89%), the third absence lowers by another 3%, the fourth another 4% (i.e., missing four classes lowers the final grade by 2 + 3 + 4 = 9%). Absences beyond the fourth open the possibility that you may fail the course.

Come to class on time. Being on time is appreciated and is respectful to your instructors and peers. The same principles apply for staying through the session. Being late will cost half of the penalty for absences. The same dis-incentive applies for leaving class early without notifying the instructors.

Come to class prepared to participate. Participation takes the form of discussing and asking questions about the material and topics. This process is critical to the success of this seminar-format course.

Judgment of participation is based on the instructor’s general impressions formed throughout the semester. Meaningful participation has certain characteristics. They include: being analytical and thoughtful; being relevant to the topic and demonstrating familiarity with the assigned readings; and contributing to the collective learning experience. On the other hand, poor participation disrespects peers and instructors; demonstrates ignorance of the assigned readings; or move the discussion in unproductive tangential directions.

If you participate consistently and meaningfully, you will earn high scores. If you are silent or otherwise disengaged, you will earn very little.

Note on use of personal laptops during class.

Many of you expect to be able to use your personal laptops in class. Laptops are useful tools, and also distracting devices. We know that with your laptop in front of you, you will tend to IM, email, or watch YouTube videos while the instructors and your peers are trying to engage in the lessons. This is very frustrating. Schools elsewhere (notably USC’s Marshall School of Business) have banned the use of laptops in their classes.

This course would not like to impose such a blanket regulation. Instead, we as a class will operate on principles, and the central principle is mutual respect. The instructor is committed to provide you the best possible learning experience. In return, please extend to us the basic courtesy of paying attention in class.

Academic Integrity

The Annenberg School for Communication is committed to upholding the University’s Academic Integrity code as detailed in the in the SCampus Guide. It is the policy of the School to report all violations of the code. Any serious violation or pattern of violations of the Academic Integrity Code will result in the student’s expulsion from the Communication Management program.

The School and the University is committed to the general principles of academic honesty that include and incorporate the concept of respect for the intellectual property of others, the expectation that individual work will be submitted unless otherwise allowed by an instructor, and the obligations both to protect one's own academic work from misuse by others as well as to avoid using another's work as one's own. By taking this course, students are expected to understand and abide by these principles.

All submitted work for this course may be subject to an originality review as performed by Turnitin technologies () to find textual similarities with other Internet content or previously submitted student work. Students of this course retain the copyright of their own original work, and Turnitin is not permitted to use student-submitted work for any other purpose than (a) performing an originality review of the work, and (b) including that work in the database against which it checks other student-submitted work.

Students with Disabilities

Students requesting academic accommodations based on a disability are required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP when adequate documentation is filed. Please be

sure this letter is delivered to your instructor as early in the semester as possible. DSP is open Monday-Friday, 8:30-5:00. The office is in the Student Union 301 and their phone number is

(213) 740-0776.

|Jan 13, 2009 (Tu) |Introduction and orientation |

|Week 1 | |

| |Project Activity: Explore topics and cases |

|Jan 20, 2009 (Tu) |Theme: How one should make decisions. |

|Week 2 |Readings: |

| |Utility Theory from Jeremy Bentham to Daniel Kahneman, by Daniel Read (2004), Working paper, London School |

| |of Economics and Political Science [Blackboard] |

| |“Making Smart Choices” pp. 1-14 in SC |

| |“Problem” pp. 15-30 in SC |

| |“Objectives” pp. 31-46 in SC |

| |“Alternatives” pp. 47-64 in SC |

| |“Consequences” pp. 65-82 in SC |

| | |

| |Lesson Activity: Lead discussion |

| |Lesson Activity: Choose discussion leadership topics and readings. |

|Jan 27, 2009 (Tu) |Theme: How one should make decisions (continued). |

|Week 3 |Readings: |

| |“Tradeoffs” pp. 83-108 in SC |

| |“Uncertainty” pp. 109-134 in SC |

| |“Risk Tolerance” pp. 135-162 in SC |

| |“Linked Decisions” pp. 163-188 in SC |

| |A Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management & Business, by Charles Munger |

| |(1994), speech to USC School of Business [Blackboard] |

| |A Brief History of Decision Making, by Leigh Buchanan and Andrew O’Connell, in Harvard Business Review (Jan |

| |2006) [Harvard Business School Publishing] |

| | |

| |Lesson Activity: Lead discussion |

| |Project Activity: Explore topics and cases, form project groups. |

|Feb 3, 2009 (Tu) |Theme: What? We are not rational? |

|Week 4 |Readings: |

| |“Why Smart People Make Big Money Mistakes” pp. 13-24 in WSPMBMM. |

| |“When Six of One Isn’t Half a Dozen of the Other” (prospect theory, loss aversion, sunk cost fallacy) pp. |

| |51-80 in WSPMBMM |

| |“The Devil That You Know” (status quo bias, endowment effect) pp. 81-104 in WSPMBMM |

| |“Not All Dollars are Created Equal” (mental accounting) pp. 31-50 in WSPMBMM |

| |“Anchors Aweigh” (anchoring, confirmation bias) pp. 129-150 in WSPMBMM |

| |“The Ego Trap” (overconfidence) pp. 151-174 in WSPMBMM |

| |“I Herd It Through the Grapevine” (information cascades) pp. 175-199 in in WSPMBMM |

| |Other supplementary articles |

| | |

| |Lesson Activity: Lead discussion |

|Feb 10, 2009 (Tu) |Theme: How not to be confused by numbers, and how to gamble |

|Week 5 |Readings: |

| |“Number Numbness” (ignorance about probabilities) pp. 105-128 in WSPMBMM. |

| |“The Gee-Whiz Graph” pp. 60-65 in HLS |

| |“The One-Dimensional Picture” pp. 66-73 in HLS |

| |“How to Statisculate” pp. 100-121 in HLS |

| |“Nature’s Admonition to Avoid the Dice” pp. 188-191 (geometric mean) in FF |

| | |

| |“Prologue: The Wire Service” pp. 1-12 in FF |

| |“Claude Shannon”, “Project X” & “Edward Thorp” pp. 13-30, 38-44 in FF |

| |“Gambler’s Ruin” & “Randomness, Disorder, Uncertainty” pp. 49-58 in FF |

| |“The Bandwagon” pp. 58-62 in FF |

| |“John Kelly, Jr.”, “Private Wire” & “Minus Sign” pp. 62-78 in FF |

| |“The Kelly Criterion, Under the Hood” pp. 97-103 in FF |

| | |

| |Lesson Activity: Lead discussion |

| |Deliverable: Decision Analysis 1 and discussion |

|Feb 17, 2009 (Tu) |Theme: More on how to gamble, especially how not to go broke |

|Week 6 |Readings: |

| |“Henry Latane” pp. 192-197 (mean-variance expectancy) in FF |

| |“The Trouble with Markowitz” pp. 197-201 (mean-variance vs. Kelly criterion) in FF |

| |“Shannon’s Demon” pp. 201-209 (rebalanced portfolio) in FF |

| |“The Feud” pp. 209-213 (Kelly criterion as greedy, etc) in FF |

| |“Pinball Machine” pp. 214-221 (distribution of Kelly outcomes) in FF |

| |“Keeping Up with the Kellys”, “All Gambles Are Alike” & “A Tout in a Bad Suit” pp. 222-236 (utility vs. |

| |compounding gains; volatility of gains; size in aggressive vs. insane betting) in FF |

| |“Martingale Man” & “Kicking and Screaming” pp. 277-282 (Long Term Capital Management) in FF |

| |“I’ve Got a Bad Feeling About This”, “Fat Tails and Frankenstein” pp. 282-293 (blowing up) in FF |

| |“Survival Motive” pp. 293-299 (overbetting, esp. p. 298) in FF |

| | |

| |Lesson Activity: Lead discussion |

|Feb 24, 2009 (Tu) |Theme: The more we are together, the more things get confusing |

|Week 7 |Readings: |

| |“Limited Rationality” pp. 1-55 (satisficing, bounded rationality, attention and search) in PDM |

| |“Ambiguity and Interpretation” pp. 175-219 (uncertainty, ambiguity, equivocality, interpretation) in PDM |

| |“A metaphorical model” pp. 117-129 in Overload and Boredom: Essays on the Quality of Life in the Information|

| |Society, by Orrin E. Klapp (1986). [copies] |

| |“Fiascoes” & “The Groupthink Syndrome” pp. 2-13, 174-197 in Groupthink, by Irving L. Janis (1983). [copies] |

| | |

| |Lesson Activity: Lead discussion |

|Mar 3, 2009 (Tu) |Simulation exercise 1 |

|Week 8 | |

|Mar 10, 2009 (Tu) |Themes: Why do organizations have departments? |

|Week 9 |Readings: |

| |“Information, Uncertainty, Structure, and Function in Organizational Sociology” & “Market Uncertainty and |

| |Divisionalization” pp. 1-20, 100-151 in Information and Organizations, by Arthur L. Stinchcombe (1990) |

| |[copies] |

| | |

| |Deliverable: Decision Analysis 2 and discussion |

| |Deliverable: Reflection on simulation exercise 1 |

| |Project Activity: Update on course project progress |

|Mar 17, 2009 (Tu) |Spring Break |

|Mar 24, 2009 (Tu) |Simulation exercise 2 |

|Week 10 | |

| |Project Activity: Update on course project progress |

|Mar 31, 2009 (Tu) |Theme: “Shit!” When things go horribly wrong… |

|Week 11 |Readings: |

| |The Collapse of Sensemaking in Organizations: The Mann Gulch Disaster, by Karl E. Weick (1993), in |

| |Administrative Science Quarterly (vol. 38, pp. 628-652) [Blackboard]. |

| |The Vulnerable System: An Analysis of the Tenerife Air Disaster, by Karl E. Weick, in Journal of Management |

| |(vol. 16, pp. 571-593). [Blackboard] |

| |Lessons from Everest: The Interaction of Cognitive Bias, Psychological Safety, and System Complexity, by |

| |Michael Roberto (2002), in California Management Review (vol. 45, pp. 136-158). [Harvard] |

| |“Normal Accident at Three Mile Island” & “Complexity, Coupling & Catastrophe” pp. 15-31 62-100 in Normal |

| |Accidents: Living with High-Risk Technologies, by Charles Perrow (1984). [copies] |

| | |

| |Lesson Activity: Lead discussion |

|Apr 7, 2009 (Tu) |Theme: Preventing things from going horribly wrong and recovering when they do |

|Week 12 |Readings: |

| |“Managing the Unexpected” pp. 1-22 in MU |

| |“Expectations and Mindfulness” pp. 23-42 in MU |

| |“The Three Principles of Anticipation” pp. 43-64 in MU |

| |“Principles of Containment” pp. 65-82 in MU |

| |“Organizational Culture: Institutionalizing Mindfulness” pp. 109-138 in MU |

| |“How to Manage Mindfully” pp. 139-160 in MU |

| | |

| |Sensemaking in Organizations: Small Structures with Large Consequences, by Karl E. Weick, in Social |

| |Psychology in Organizations: Advances in Theory and Research (1993) [copies] |

| |Enacted Sensemaking in Crisis Situations, by Karl E. Weick, in Journal of Management Studies (vol. 25, pp. |

| |305-317) [copies] |

|Apr 14, 2009 (Tu) |Theme: To be determined |

|Week 13 |Readings: To be determined |

| | |

| |Project Activity: Meetings with team members and instructor |

|Apr 21, 2009 (Tu) |Theme: If we only we know what we know |

|Week 14 |Readings: |

| |“Introduction to Knowledge Management” pp. 1-5 in KM |

| |“What is Knowledge Management pp. 7-22 in KM |

| |“The Evolution of Knowledge Management” pp. 23-30 in KM |

| |“The E-Dimension of Knowledge Management” pp. 31-42 in KM |

| |“The Global Dimension of Knowledge Management” pp. 43-52 in KM |

| |“Knowledge Management in Practice – Success Stories” pp. 71-86 in KM |

| |“Key Concepts and Thinkers in Knowledge Management” pp. 87-106 in KM |

| | |

| |Teaching Smart People How to Learn, by Chris Argyris, in Harvard Business Review (May-June 1991, pp. 5-15). |

| |[Harvard] |

| |“Decision Engineering” pp. 221-272 in PDM |

|Apr 28, 2009 (Tu) |Project Deliverable: Presentations |

|Week 15 | |

|May 5, 2009 (Tu) |Project Deliverable: Course project paper or creative product |

|6:00 pm | |

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