BA107 Social and Political Environment of Business

1
BA107 Social and Political Environment of
Business

• Summer 2003
• Session 3 - Ethics

2
Agenda for today

• Stragglers
• A game
• What is ethical?
• Nike case discussion

3
I think there are a few items from last Thursday
that need to be addressed.

• Handouts
• Index cards, Economist article, Section syllabus
• Style guide
• www.economist.com/research/StyleGuide/index.cfm
• Advocacy vs. Debate
• Advocacy papers are more susceptible to
  confirmatory bias
• As such, the grades trend lower and with higher
  variance
• Right vs. wrong answers
• Life is lived forward, but understood backwards.
• Kierkegaard
• Paper length
• Survey results

4
If not required, people would take or not take
this class for a variety of reasons.

• General
• Previous coursework or life experience
• See the arch. Think the arch. Be the arch.
• necessary to understand (why is it necessary?)
• will help me to understand
• ethics are important (to me) (do these people
  need the class?)
• Convince/show/surprise me (convince/show/surprise
  yourself or each other)
• Yes
• Interested in interplay of business and ethics
  (mostly)
• Learn to do better analysis
• Rhetoric 10 Intro. To Practical Reasoning
  Critical Analysis
• No
• Other things to do
• Topic irrelevant (wouldnt it be nice to focus on
  widgets)
• Fluff class
• Will not help advance my career
• Sustainable businesses (Scott, p14-15)
• Help you not terminate your career

5
You made the first day very enjoyable. To return
the favor, lets start by playing a game where
you can win some money. Its called the
ultimatum game.

• I have 10 that I want to give to split between
  two people.
• Problem How to divide it?
• Game rules
• Proposer offers some amount to the responder.
• If responder accepts, then they split the money
  accordingly.
• If responder refuses, neither gets any money.
• Example Person A offers a 8/2 split. If
  Person B is willing to accept 2 or less then I
  pay out. If Person B says more than 2 then I
  keep my money.

6
The group version of this game is similar except
that I have two 10 prizes to give away.

• One half of the class are proposers
• On an index card, write down the last four digits
  of your SID and the maximum amount you are
  willing to give to the responder.
• Other half are responders
• On an index card, write down the last four digits
  of your SID and the minimum amount you are
  willing to accept from the proposer.
• For each prize, I will randomly draw one card
  from each pile and will pay out the proposed
  split if responderltproposer.

7
Moving onto the topic at hand. What is ethics
and what is it not? Is it the same as right vs
wrong?
8
What does it mean when we say a company is
ethical? Is it companies or their employees that
are ethical?
9
Economics makes an unambiguous normative
prediction for individuals behavior in the
ultimatum game.

• Proposers should offer one penny.
• Deciders should say yes to one penny.
• Arguably they should say yes to 0 payment.
• Can someone explain this prediction?
• Is this prediction logical?
• Would the prize size matter?
• Is this a fair way to split the prize?
• Is it descriptive of actual human behavior?
• Thoughts
• Group results

Utotal U() U(fairness)
10
So lets try another way to split a, this time
hypothetical, 10 prize. The famous, you split
I pick approach.

• Similar to the ultimatum game except that a
  payment is guaranteed to occur
• What if you have more than two people?
• Does this seem fair?
• Is it more fair than ultimatum?

11
John Rawls veil of ignorance uses this
approach to determine just and moral choices.

• In a nutshell
• Suppose you knew that you were going to get one
  of two options but you didnt know which.
• How would you want to define the options?
• Example You know youll get one of the 10
  splits but you dont know which. How would you
  split the 10?
• Rawls claims that the decisions you make behind a
  veil of ignorance will be just.

Pop quiz Should there be a defined income
transfer from Nike stockholders to the overseas
workers?
Wrinkle After you decide, you will become either
a Nike stockholder or one of the overseas workers.
12
Turning to business, and to facilitate
discussion, lets focus on areas in which we all
have experience.
13
One increasingly common practice is to give an
unsolicited free gift. It is increasingly common
because it works. But is it ethical? Does it
matter who is doing it?

• Mail surveys
• Include a 1.00 even while acknowledging that
  your time is worth more
• Why a crisp new bill
• Habitat for Humanity
• Sends a free mug as gift with no obligation

14
The order effect (Anderson,1965) says that,
when presented with a list of attributes, people
will weigh the early ones more heavily.

• While researching firms you read about a CEO who
  is envious, stubborn, critical, generous,
  industrious, and intelligent. In general, how
  likeable do you think he is?
• While researching firms you read about a CEO who
  is intelligent, industrious, generous, critical,
  stubborn, and envious. In general, how likeable
  do you think he is?

A recent study at a major investment firm showed
that senior directors had a higher opinion when
given the top description.
Just to be fair, a car salesman describes the
pros and cons of both his car and the competitor
you mentioned you were thinking of. But, he
describes his car in pro-con order and the
competitors in con-pro order. Ethical?
15
The anchoring effect (Tversky Kahneman, 1974)
says that peoples judgments can be
systematically affected by irrelevant facts.

• In front of you is a wheel of fortune. The
  perimeter is lined with an array of numbers, and
  after the wheel is spun, the needle lands on
  10/65. You are asked, Is the percentage of
  African countries in the UN greater or less than
  10/65? Not having given the matter much
  thought, you answer 45. You are then asked to
  estimate the exact percentage.

People in 10 condition 25 People in 65
condition 45
Youre looking at a car that costs about 20k.
The car salesman looks at your credit
application. I see the last two digits of your
phone number are 71. Do you think you should pay
more or less than 71k for this car. With a
quizzical look, you say, less of course. He
then asks, Well how much do you think you should
pay? Ethical?
16
Are celebrity endorsements ethical?

• Nike sneakers Just Like Mike
• Uniform Service Jerry Rice
• If you use x, you will look like me.
• Others?

Argument 1 Celebrity endorsements, even when
not relevant, provide information because a
celebrity would never risk their name (aka brand)
by endorsing something that wasnt
good. Argument 2 Celebrity endorsements work
by invoking a blatantly unrealistic Just Like
(fill in the blank) image. Jane Famous Person
just bought a car just like this? If false, is
it ethical? If true, is it ethical?
17
Suppose a salesman notices something about the
customer that would allow him to bias the
customers decision process.
Youre a car salesman looking to make the
month-end quota. A customer drives up in a green
car and is wearing a green shirt. They say that
they are looking for a new car like the one they
are currently driving. You have two cars you
could show them. The first, a brown one, is the
updated version of their current car. The second
one is green and is a couple of rungs higher on
the cost/quality ladder. Which one do you show
them first?
18
Special good deal for those students who said
they are interested in marketing.

• Are marketers ethical?
• Are marketers unethical?
• Wheres the boundary?
• If society continues to increase the emphasis on
  ethics, is marketing a sustainable activity?

19
New topic. The Nike case study

• Immediate reactions after reading?
• Emotions
• Policies or shoulds
• Facts findings
• Consclusions
• Recommendations for
• Nike
• University of Oregon
• AIP/FLA (industry)
• WRC (students)
• Nike shareholders

20
Homework for Thursday. Flaming Fords the rest
of the story.

• Ford Pintos had a tendency to explode if hit in a
  rear-end collision.
• Probability of any given Pinto having such an
  accident is low. Probability of it exploding if
  hit is also low.
• Ford explicitly calculated that
• (Design change) gt CarsLawsuit/boom
  P(accident)P(boomaccident)
• Whatchyathink?
• Is cost/benefit analysis inherently unethical?
• Dont consumers make the same tradeoffs?
• What if your retirement depended on Ford stock
  price?