Conflict & Decision Making:
Management and Regulation of Economic Problems

COURSE MATERIALS ON WEB

B.30.3313.70 - Room 3-60
Syllabus- Summer 2000
Leonard N. Stern School of Business- New York University
Professor Seth Freeman
(718) 575-8597 - seth.freeman@gte.net

The first purpose of this course is to help you learn to use economics (and other decision making principles) to come to better decisions about hard economic problems.

Whatever your business is, you face hard dilemmas. When you create a budget, for example, you have to reconcile dozens, or even hundreds of conflicting needs. Even when you face a seemingly minor problem- like how to cope with a shortage of parking space at your company's office building- the more you examine the problem the more you find complex dilemmas waiting for you. Your job in business is to find wise solutions to these sorts of large and small dilemmas. One of our goals is to learn to do it better.


At the same time, you are not the only one who faces hard dilemmas. You and I and the hundreds of millions of other people who live in this country face hard dilemmas in our economic lives together. What do we do when car buyers want SUVs but, by the manufacturer's own admission, they are an environmental and safety hazard? What do we do when adult and child workers in China are willing to work for pennies a day in barbaric conditions making toys and clothing for our children? What do we do when everyone wants to get on the Internet, but in the process we jam up the network? A related goal of our work is to learn how we deal with these sorts of problems.

To learn how we can deal with these private and public problems, we'll study a large number of dilemmas in business and public life. For example, how do you decide on a budget when there are so many competing needs and groups involved? What can we do about overuse of business expenses, African Elephants, and the Long Island Expressway? How can your industry develop if growth threatens to destroy the environment but failure to grow could destroy your business and the local economy? How do you decide whether to sue or settle? Whether to lay off workers? In short, how do firms and governments cope with the hard dilemmas of economic life?

One way we'll answer this question is by seeing whether economics can actually help us in practical ways. Sure, you learned economic theory in your earlier course work, but can it really be a tool for dealing with real world problems? At the same time, inevitably, we'll find a lively debate about the validity and the assumptions of economics, a debate I'll be challenging you to think about. For example, what, exactly, is a cost? A benefit? What does it mean to be 'rational,' and is it helpful to try to be rational? Where do fairness, kindness, trust, and, love fit in? Are there dangers in the economic approach? In the process, you'll learn to look at an economic problem from several perspectives and think critically about them. You'll discover complexities, false conflicts, useful tools and decision making traps. Most importantly, you'll develop your ability to think rigorously and creatively about dilemmas- a crucial skill for managing hard business problems in a complicated world.


I will assume that you are somewhat familiar with basic micro and macroeconomic concepts but you do not need advanced economics training. The course will not be quantitative; we will only use a few charts and graphs and we will use few if any equations. Mostly we will work with economic theory conceptually. I will also assume that you have not studied law before (though it's fine if you have).

I hope that you take from the course an ability to think more fully about legal and economic problems and the effects they have on your business and your community. As we'll see, using economics and other thinking tools together can give you fresh insights which you can use to contribute more wisely to the people you serve, which is the underlying purpose of the course.

Grading 

10% Class participation

30% Optional Midterm*

30% Optional Project*

30% Final

*You will have the option of waiving the midterm or waiving the project or doing both. If you waive the project, the midterm and the final will each be worth an additional 15% (i.e, 45% for the midterm, 45% for the final). If you waive the midterm, the project and the final will each be worth an additional 15% (i.e., 45% for the project and 45% for the final).

If you wish to waive the midterm you must submit a note to me before the midterm telling me you wish to do the project instead and telling me what kind of project you wish to do (see below).

A Note about Class Participation

Please do not feel you must speak a lot in class to satisfy the class participation requirement. I realize that not everyone is very verbal and that speaking a lot in class does not necessarily mean you are contributing a lot. Since we do a number of in-class exercises and games which you can't replace with notes, I do expect you to attend each class. A significant portion of your grade for class participation will depend on your attendance. Therefore, please be sure to sign in in each class using the attendance sheet near the door.

Please do not tell me if you expect to miss a given class. The only exceptions to this rule are these: do please let me know in the first week if you expect to miss more than three of our 18 class sessions, and do please let me know if you miss class due to a religious observance.

I hope that you will be actively engaged in the discussion and that your questions and comments reflect this. Class participation most definitely includes question asking, which I encourage. 'Dumb' questions are quite welcome- often they're the best ones of all.

A Note About The Exams

My purpose for the exams is to make sure you understand broad themes and the use of specific analytical tools. To do that, the exams will generally consist of short answer and essay style questions, with few multiple choice or true false questions. These exams let me get out of your way so you can tell me what you've learned. Also, unlike a multiple choice test, they allow me to give you partial credit for a partially correct answer. As a result, students usually do better than they would on multiple choice exams.

Notes On the Project

If you elect to do the project, you can create a term project in the form of a paper (10-12 double spaced pages with standard margins and 12 point type), a video or presentation (25-40 minutes long with a written copy of talking points included) or do something else that looks at a significant economic problem in public or private life and a possible policy for addressing the problem from an economic perspective and at least one other (i.e. non-economic) perspective. More specifically, the project should include the following:

What Should Your Optional Project Include?

Discussion of the Dilemma. Here, in your own words tell me the specific facts of the dilemma based on your reading and note that a copy of one of the articles you've read is attached as an appendix. Be sure to tell me who are the key people or groups involved in the dilemma, what their respective interests are, and any other background insights you think are relevant. Why is this a dilemma? What is at stake? What's interesting about it? What makes it hard to solve?

Economic Solution(s) Here, propose at least one fairly specific (set of ) solution(s) to the dilemma that harnesses neoclassical microeconomic ideas (such as the use of free markets using the price mechanism, incentives, private property rights, and so) and one fairly specific solution that relies on another economic approach (such as classical regulation, communal control, open access, etc.) How would it work? Why will it solve the problem? Test your answer with research.

Creative and Human Solution(s) Here, briefly propose at least one other plausible (set of ) solution(s) that might satisfy the main interests of the main parties to the dilemma other than strictly neoclassical or regulatory solutions. Look beyond the traditional debate for innovative solutions. How would it work? Why will it solve the problem? Don't just think about the what; think about the who too: Who will make a difference and who will be affected? Test your answer with research.

Whenever possible, talk to someone who has expertise with the problem and ask her about your economic and creative ideas.

Critical Thinking. Here, select the solution you are most interested in and briefly discuss two good arguments against it. Think critically. Use both economic and noneconomic arguments in this section. (By "noneconomic arguments" I mean such things as arguments about social justice, ethical analysis, philosophy, politics, technology, integrative problem solving, etc.)

Closing Thoughts Here, state what your conclusion is- would you use the idea(s) you have critically assessed if you were the decision maker? Why? What changes would you make to your idea? What did you learn about the problem as you tried to solve it? What did you learn about the ability of economics to wisely help solve the problem?



What Should the Term Project Be About? If you elect to do the project, it should demonstrate economic, creative, and critical thinking. Some examples of good topics:

Who should own the Internet?

Is free agency killing baseball? How Can We Do Things Better?

Why are tigers dying out and what can be done?

The economics of the illegal drug market- should we legalize drugs?

How can we wisely help children in Zimbabwe who have been orphaned by AIDS?

How can we wisely help people in Zimbabwe emerge from with terrible poverty?

What should we do about imported products made with child labor?

A million landmines in Cambodia- what to do?

Can you use internal markets to decide who gets what in your own firm?

Job creation in the inner city- is there any solution?

Layoff policies at AT&T- are they wise?

The 1911 Triangle Shirt factory fire and its aftermath- what should have been/was done?

The official measurement of prosperity- what does it reveal? conceal? Is there a better way?

Should AIDS patients sell their death benefits? (Viatical Insurance policies)

The pros and cons of employee stock ownership programs

Should corporations continue to be treated as U.S. citizens with civil rights?

The virtual corporation; why not contract out everything?

The economics of prostitution- can/should anything be done?

How should we respond to natural disasters? Do relief programs help or hurt?

Trading in "pollution rights"?!?

Loser-pays rule for litigation- great or terrible idea?

Do proxy laws discourage shareholder activism? Should they?

What is a rain forest worth?

Who should/does own TV broadcast rights? Does it matter?

Is slavery efficient? What if it is?

This is merely a list of examples. Your project should draw on a topic you are really interested in. Usually it's best to start with a narrow topic (e.g. the economics of the Troy, New York vagrancy law of 1978) and broaden it as needed. I suggest this because it's usually easier to broaden a topic than to narrow one and because a broad topic can leave you feeling overwhelmed, which will only discourage you.

Getting My Approval of Your Topic You should submit a project topic with a one paragraph description by Class 10. Please include your email address. The project is due the last day of finals. If you create a video or a presentation, you should schedule a meeting time so I can review it with you on or before the last class.

Grade on the Project. The grade on the Term Project will be based on the following formula: 25% writing or presentation (style, grammar, spelling, format, clarity), 25% research (use of published works, interviews, experiments, etc.) and 50% analysis (insight, accurate use of economic tools, critical thinking, organization). You should seriously use at least four separate sources in your research; don't be content to simply read one work and comment on it. In citing these sources, you may use footnotes at the bottom of the page, endnotes at the back of the paper or any other formal or informal citation method as long as it's clear who said and thought what. One way is to refer in the text to a work like so: (Biko, 1996) and then at the end give a bibliography alphabetized by author.

If you are thinking about using the same project for two courses, please speak with me first. Please also let me know if you have prior experience or expertise on the topic you select. Hopefully it's unnecessary to say the following: please don't plagiarize. By 'plagiarize' I mean claiming the ideas or words of another person as your own. If I suspect plagiarizing I will do all I can to find out. If I discover plagiarizing I will assign an F for the paper.

 If You Have Taken Conflict & Negotiation

If you have taken Conflict & Negotiation, another course I teach here at the business school, you may notice a few concepts in this syllabus that you have encountered before. (I would estimate that 15% of the material is somewhat familiar; 85% is entirely new.) The reason for this is that both courses are concerned with conflict, as the names imply, and because negotiation is the single most pervasive method of decision-making in business life. Do not worry, though; this course is quite different. Here, our concern is in learning to grapple with economic problems, whether or not you negotiate them with anyone, and for that task we'll be developing and using a number of tools, cases, and insights far removed from what you learned in the other course. Even in the case of tools and cases which you have encountered before, we will learn about them in novel ways. If you have not taken Conflict & Negotiation before, rest assured that you do not need to have taken it and those who have taken it will not have an advantage over you.

Day-To-Day Course Logistics

Seating- To help me learn your names, please pick a seat you will be comfortable with throughout the semester. Please also be sure to introduce yourself if you join us after the first class starts.

Handouts- You'll find handouts for the day's class in a stack on a desk near the door as you walk in. Please take one of each handout. (Please don't take anything from the Professor's desk.) If you wish to take an extra handout for an absent friend, just be sure to take it from the bottom of the stack. (Otherwise you may inadvertently throw off one of our in class simulations.) If you miss a class, you can pick up handouts for that class from me. To help us make the best use of our time, please only ask me for back copies after class.

Getting Assignments Between Classes- The syllabus lists when I'll hand out each assignment and when each is due. However, if you miss a class, you may miss the assignment itself. To make sure you know what you missed before it's due, please exchange your phone number(s) and E-mail addresses (if any) with at least two classmates before you leave class tonight. You can, of course, contact me with any questions you have about announcements or assignments (or anything else, for that matter), but for basic information please check with your classmate first.

Web Page- This semester I will be posting class outlines and other word-processed materials on my Web page for the course. These items will be available one week after the class. Since sometimes I also distribute articles which I can't post on the web yet, you should check the outline and check with a classmate to see if you need to get these articles separately.

Office Hours I hold office hours immediately after each class. If you would like to schedule an appointment, simply call or E-mail me by early afternoon, or you can let me know after class that you would like to meet and we'll work out a time. You are welcome to come talk with me about any thing related to the course or anything else outside of class that you are grappling with.

When and How to Reach Me Outside of Class: Phone: You can call me with questions, comments and problems any time from 11:00 a.m. to 11:00 p.m. any day but Sunday. My phone number is (718) 575-8597. Please do not call me to tell me you'll miss class. E-Mail: You can also write to me by E-mail. My E-mail address is seth.freeman@gte.net. Please don't submit writing assignments via E-mail without my prior permission.

Conflict & Decision Making:
Management and Regulation of Economic Problems
Readings and Assignments

Except as noted, all readings are from Manager as Decision Maker: The Business of Making Economic Choices in a Complicated World.

I will give out additional readings in class at various times during the semester.

 

I. Thinking About Choices- Basic Principles of Economics and Other Decision Making Methods
Class 1 (5/15) Introduction to the Course- Economy; Economic Thinking and the practice of Economy in a Complicated World; The Budget Dilemma

No assignment; Pick up Reading from Passions Within Reason
Class 2 (5/17) Is Economics a Science? Key Premises of Economic Thinking; 'Efficiency,' Ultimatum Game; Fairness and other Moral Sentiments; Commitment Theory; The Problem of Complexity

Reading: Manager as Decision Maker; Introduction; Chapter 1- readings on Microeconomics and its Critics (don't read passed the Wall Street Journal article) Also: Excerpts from Passions Within Reason, pp 1-7; 254-259
Class 3 (5/22) Marginality; Budget Dilemma at DowPonto; I FORESAW IT and its applications to decision making.

Reading: Chapter 1- rest of chapter (readings on Other Things to Consider When Making Decisions; The Principles Applied: A Budget Negotiation at DowPonto; I FORESAW IT: A Way to Learn To Think Broadly About Business Decisions)

Pick up: Reading on Creative Problem Solving and other readings; the Parking Lot Problem assignment
Class 4 (5/24) How Do Creative Decision makers Find Better Ideas? Ideo and the Deep Dive Process; the Parking Lot Problem Debriefing; The Psychology of Everyday Things; Empathy and Creativity; The shopping cart and the SUV problem; Prelude to Critical Thinking

Reading: Creative Problem Solving and other readings distributed in class 3.

Do The Parking Lot Problem Assignment and be prepared to discuss (not submit) your answers to it.
(No class 5/29- have a good Memorial Day weekend.)
II. Choices about Using Things- Depletion, Overusage, and Conflicting Uses
Class 5 (5/31) Law, Legal Reasoning, and Critical Thinking; Introduction to the Legal System

Manager as Decision Maker Chapter 2
Class 6 (6/5) Economics of Private and Common Ownership; The problem of Overusage and the Tragedy of the 'Commons' Other Non-economic solutions.

Manager as Decision Maker Chapter 3- An Economic Theory of Property; (skip the reading on the Coase Theorum for now), Resource Management Regimes
Class 7 (6/7) What If My Use Hurts Your Stuff? Property and the Problem of Conflicting Use; Coase and others; the Economics of Pollution and Ways to Control it

Manager as Decision Maker Chapter 3- The Coase Theorum
Class 8 (6/12) The African Elephant Problem; Implications for decision making generally

Manager as Decision Maker Chapter 3- Materials on the African Elephant Problem in Manager as Decision Maker; be prepared to discuss (not submit) the African Elephant assignment
III. Choices About Control and Autonomy in Public Life
Class 9 (6/14) Regulating the Economy- Laissez Faire Market Economics and Market Failures; the Reasons for and Effects of Industrial Regulation

Reading: Manager as Decision Maker Chapter 4- The Rise of the New Industrial Order, the Progressive Era, the Good Old Days- They Were Terrible!
Class 10 (6/19) How Does the Government Control Business Decisions? Classical and Alternative Regulation

Reading: Manager as Decision Maker Chapter 4- Regulation and Deregulation in the United States

Pick up essay on how to prepare for the midterm
Class 11 (6/21) Should Body Parts be Salable? Free markets and their critics; Reprise of the Parking Lot problem- the political economy of a 'simple' economic problem

Reading: Manager as Decision Maker Chapter 4- The Buying and Selling of Human Body parts

If and only if you wish to do the paper, submit a paragraph describing your paper topic in class and stating whether you also wish to take the midterm. If you do not submit this I will assume you are taking the midterm in lieu of the paper.
Class 12 (6/26) Midterm

No assignment

Pick up readings for next class
IV. Choices About Control and Autonomy in Private Life
Class 13 (6/28) Taylor, Coase, Peters, and the Organization of the modern firm; Internet Effects

Reading: Manager as Decision Maker Chapter 5- Introduction, Taylor-Made; also read materials distributed at the midterm

Pick up additional readings for next class
(No class 7/3- have a good Independence Day) 
Class 14 (7/5) Economics of Firms; Decision Rules; Economics of the Decision to Incorporate; Who Really Owns a Corporation? What is the Purpose of a Corporation?

Manager as Decision Maker Chapter 5- Corporations, Selection of the Most Appropriate Business Form; Separation of Ownership and Control. Also read other readings distributed last class.

Pick up readings for next class
Class 15 (7/10) Economics of Corporations, continued

Readings distributed last class

Pick up readings for next class
Class 16 (7/12) Economics of Securities Markets and Regulation

Readings distributed last class

Pick up rules for Sue or Settle
VI. Choices About Business Relationships and Broken Relationships
Class 17 (7/17) Psychological games; Sue or Settle; the Economics of Litigation and its alternatives

Manager as Decision Maker Chapter 6; rules for Sue or Settle distributed last class

You may also want to begin reading Chapter 7.
Class 18 (7/19) Win As Much As You Can; The Trust Dilemma; Commitment Theory Reprise; Trust Substitutes and Trust; Building and their application to Economic life

Reading: Manager as Decision Maker Chapter 7

Pick up rules for Trust Substitute Jeopardy
Class 19 (7/24) Trust Substitute Jeopardy; thoughts about the final; Conclusion to the course

Read the rules to Trust Substitute Jeopardy and be prepared to play
Final Exam Wednesday, July 31 7:40 p.m. Room 3-60

Biography

Professor Seth Freeman, J.D., practiced corporate and securities law for about six years with large firms in New York City following his graduation from the University of Pennsylvania Law School in 1984. Since 1992 he teaches courses on business and law at New York University's Stern School of Business and at Columbia Business School. He is also a visiting professor at L'Ecole Superieure de Commerce de Bordeaux. He teaches courses on a number of topics including Conflict & Negotiation, Business law, Conflict & Decision Making, and Entrepreneurial Transactions.

Professor Freeman graduated in 1981 from Cornell University with a degree in Economics. His areas of practice as a lawyer included aircraft leveraged leases, initial public offerings, real estate finance, private placements, interest rate swaps, leveraged buyouts, and other mergers and acquisitions. He is also a trained mediator who has done volunteer, training, and board work for several non-profit organizations devoted to conflict management and reconciliation.

Professor Freeman also trains and consults with corporations such as UBS AG (formerly Swiss Bank Corporation) and Stew Leonard's on matters relating to negotiation.

 

Class 1 - Introduction to Economic Reasoning

I. Introduction

A. The Beauty and Centrality of Economy to Your Life

1. Economy- Doing more with less with simple, powerfully effective, thoughtful choices

2. Learning to see the beauty and pervasiveness of economy in different fields

B. Economy and the Manager's Dilemma

C. Economy and the policy maker's dilemma

D. Dilbert and the absurdity of business

E. Peck on decision making and suffering

F. How do you make wise choices in a complicated world?

II. Economic Thinking- One Way to Deal with Complicated Choices

A. Simplifying assumptions about human nature and goals

1. People act out of self-interest

2. People try to get the most material wealth they can

B. Powerful, counterintuitive, predictive

C. Example- Opportunity Cost and The Color of Money

D. Using Opportunity Cost in Your Real Life

E. The First Conflict & Decision Making Challenge!

F. Exercise- The Dot Com Budget Dilemma

G. Are there Consequences Economics Ignores?

III. The Ultimatum Game

IV. Some Things Economics Doesn't Explain Very Well

A. Resentment, Voting, The Wallet Case, Charity, Kindness to Strangers, Heroism, Devotion

B. Is This Behavior Common? Is it Unwise? If so, why do we do it? If not, is Economics Unwise?

C. A question to think about: Can you witness an example of self-interested behavior? Can you witness an example where people do not behave in self-interested ways?

D. One Implication of the Ultimatum Game: Life is Complicated


V. Dot Com Budget Dilemma II

VI. The Problem of Making Decisions About Economic Problems In the Face of Human Pressures

VII. Implications for Regulating and Managing in a Complicated World

A. The hard work of thinking about complicated choices

B. The value of different approaches (economics, creativity, empathy and humanity, critical thinking)

C. The need to integrate different approaches

D. Goal of the course- developing the ability to think deeply, broadly, discerningly about problems

E. A Warning


The Centrality of Economy

Economy (\i-kan-e-me\ n..., [...fr. Gk oikonomia, fr. oikonomos household manager, fr. oikos house + nemein to manage] - 1: archaic: the management of household or private affairs and esp. expenses 2: a: thrifty, efficient use of material resources: frugality in expenditures also: an instance or means of economizing: saving b: efficient and concise use of nonmaterial resources (as effort, language, or motion) for the end proposed 3: the arrangement or mode of operation of something: organization 4: the structure of economic life in a country, area, or period; specif: an economic system

Management - "We're going to have to do more with less."

Comedy - "Brevity is the soul of wit."

Writing - "Good writing is succinct."

Engineering - "An engineer is someone who does for $0.50 what any fool can do for $5."

Nature - "No one will ever improve on nature's designs, for nothing is superfluous or

Art- "The key to line drawing is knowing what to leave out."

Science- "We accept as true the simplest theory which explains all the observed facts."

It's the First Conflict & Decision Making Optional Extra Credit Assignment!

The Opportunity Cost Challenge!


Here's an optional extra credit assignment that's worth up to 5 points on the class participation portion of your grade. Submissions are due any time before the midterm.

The next time you are trying to decide an economic question (e.g., "How many courses should I take at NYU this fall? "Should I lease my next car?" "How much should we spend on Summer Interns at the office?"), deliberately think about your best alternatives. That is, if you don't do what you're thinking of doing, what could you do instead? Use real research and brainstorming creativity to develop at least five specific ideas. (It's fine to work with someone else to do this.) Then select the best of these alternatives and compare it to what you're thinking of doing. How does doing this work change the way you look at the problem? Do you feel more sure of your choice? Why or why not? Write a three to four paragraph memo to me in 12 point type describing what you did and what you saw in the process. Include in your memo a one sentence definition of Opportunity Cost. Also Include your email address right under the date line of the memo.

It's Another Conflict & Decision Making Optional Extra Credit Assignment!

The 'Budget Constraints are Beautiful' Challenge!

Here's an optional extra credit assignment that's worth up to 5 points on the class participation portion of your grade. Submissions are due any time before the midterm

This challenge invites to see how people actually use limitations to create beauty and excellence. For this challenge, find an excellent, serious poem, writing, or piece of art where the creator had to follow specific, known, well-defined rules. For example,

Spend a while getting to know the work and then attach a copy to a memo in which you comment on why the work is beautiful or highly effective at what it is trying to accomplish. Your comment must obey some constraint(s) itself, which you may select, as long as you make it clear what constraints you are using. For example, you can write a rhyming poem, a one liner, haiku, a song lyric, an op-ed piece, etc. So for example, if you find a piece of haiku, write about it using that form or another form (such as a sonnet, a limerick, or) commenting on what specifically the writer did to achieve excellent economy; that is, why specifically does this work succeed within the constraints of the art form? (E.g., one reason Ira Gerswhin's lyric to "Our Love is Here to Stay" works so well is because of it skillfully matches the meaning ("clear" and "stay") to the melody- (each phrase falls on a long note.) * * * * * *