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Chapter 2 Economist View of Behavior Solution

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CHAPTER 2

ECONOMISTS’ VIEW OF BEHAVIOR

CHAPTER SUMMARY

This chapter uses the cheating scandal at Merrill Lynch to illustrate how a manager’s view of behavior can affect decision making. It summarizes the economic view of behavior and contrasts it with other views. The chapter presents a graphical analysis of utility maximization and decision making under uncertainty. The concepts in this chapter are an important foundation for subsequent material in the book.

CHAPTER OUTLINE

ECONOMIC BEHAVIOR: AN OVERVIEW Economic Choice Marginal Analysis Managerial Application: Marginal Analysis of Customer Profitability Opportunity Costs Managerial Application: Opportunity Costs and V-8 Creativity of Individuals Managerial Application: Creative Gaming of the System
GRAPHIC TOOLS Individual Objectives Indifference Curves Constraints Individual Choice Changes in Choice
MOTIVATING HONESTY AT MERRILL LYNCH
MANAGERIAL IMPLICATIONS Managerial Application: Medicare Creates Perverse Incentives for Doctors
ALTERNATIVE MODELS OF BEHAVIOR Only-Money-Matters Model Happy-Is-Productive Model Managerial Application: Happy-Is-Productive versus Economic Explanations of the Hawthorne Experiments Good-Citizen Model Managerial Application: Culture and Behavior Product-of-the-Environment Model
WHICH MODEL SHOULD MANAGERS USE? Academic Application: The Economic Framework and Criminal Behavior Academic Application: Criticisms of the Happy-Is-Productive Model

DECISION MAKING UNDER UNCERTAINTY Expected Value Variability Risk Aversion Certainty Equivalent and Risk Premium Risk Aversion and Compensation
SUMMARY
APPENDIX: CONSUMER CHOICE Marginal Utility Slope of an…...

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