The assignment focuses on Behavioral economic theory-excessive and unwarranted risk. You are required to explain how behavioral economic theory can explain some of the excessive and unwarranted risk taken on by managers and owners of firms that have failed or had major set backs.
Behavioral economic theory-excessive and unwarranted risk
Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters optimistic overconfidence. Thus begins chapter 24 “Engines of Capitalism”. In this chapter Kahneman, proposes that many business failures are due to excessive risk taking by senior management and/or founders. He further states that this risk taking is based on a number of factors with the most common being, (over) optimism, entrepreneurial delusions and competition neglect all of which can lead to overconfidence.
Behavioral economic theory-excessive and unwarranted risk
Applying the concepts discussed in chapter 24 as well as chapters 1-4 and 35-38, explain how behavioral economic theory can explain some of the excessive and unwarranted risk taken on by managers and owners of firms that have failed or had major set backs. For example, Kahneman states that, overconfidence is a direct consequence of features of System 1…which can be mitigated but not vanquished. Provide a specific example from the field,. The failure can be of an entire company, a project, product or implementation of an idea. The example can be from either a company you have worked for on one in the news. Provide specific examples and references from at least two outside sources properly cited. (750-1000 words. Carefully cite your sources using APA guidelines
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