Abstract

Although economists often model decision makers as rational actors, the heuristics and biases literature that springs from the work of Nobel Prize winner Daniel Kahneman and his late colleague Amos Tversky demonstrates that people make decisions that depart from the optimal model in systematic ways. These cognitive and behavioral limitations not only cause inefficient decision making, but also lead people to make decisions that are unethical. This article seeks to introduce a selected portion of the heuristics and biases and related psychological literature, to highlight its implications for ethical decision making, and to serve as the basis for a lecture that could inform students regarding these matters. If business actors are on guard against errors in their own decision making processes, perhaps they can avoid some of the ethical pitfalls that recently put Enron and so many other companies in the news.