Memorandum

From: Youssef Shoukry, Lucia Delgado Sanchez, and Pedro Liedo Orozco
To: Wioleta Dziuda
Re: Carter Racing
Date: May 22, 2017

The goal of this memo is to report the process of group decision making regarding whether the
Carter Team should participate in the Pocono Race. We provide a description of the voting
process and explain how we reached to our final decision.

The team followed an open vote sequential procedure where the information of how someone
voted was public and known before each member of the team submitted their vote. The only
person that did not have any information of how someone else voted was the first one to vote.
The results were the following:

First round of votes

First voter: Lucía Vote: No
Second voter: Youssef Vote: No
Third voter: Pedro Vote: Yes

After Lucia and Youssef explained to Pedro that he might have a sunk cost bias towards taking
his decision, a second voting round occurred. The results of the second round were the
following:

Second round of votes

First voter: Pedro Vote: No
Second voter: Lucia Vote: No
Third voter: Youssef Vote: No

The final decision, by unanimity, was not to race.

Pedro engaged in strategic behavior when he realized the decision was not going to change, he
considered himself not to be pivotal so it didn't matter how he voted. Therefore, he decided to
vote first and vote accordingly to what he expected others were going to vote. Note that the
decision was going to be taken with a simple majority rule. Pedro also expressed that he did not
totally understood some of the jargon on the articles and when he saw that the two other
teammates were confident about their votes he thought he could have fail to assess the
information. Thus, he did some herding behavior since he considered the other's decision was
better than what he taught.

When the discussion took place, the team also explained that it was more painful to lose the
money they already had rather than taking the chances to win a greater amount of money. This
is an example of risk aversion where the expectation of losing a certain amount of money is
more harmful than winning a greater amount. Furthermore, the team agreed in the fact that a
type 1 error (false positive) would be more harmful that a type 2 error. This means that it is
preferable to not race even if the team would have won the race that taking the risk of racing
when the car was not ready to race.

While making the decision, we also considered that we should avoid to fall into the availability
heuristic. It was tempting to consider that since in the last races the team had won, the
probabilities of winning were higher despite the fact that there may be a serious problem with
the engine. It would have also been easy to be overconfident regarding the chances to win and
as a consequence ignore the high expected cost of racing. These arguments were compelling to
everyone in the team and the final decision was not to race.

From this exercise, we learned that there are several behavioral biases that can lead us to take
incorrect decisions. We also got a chance to understand how the procedure in which a decision
is taken within a group can actually change the outcome. In particular, we got to prove that the
order in which voters disclose information can change the decision of other voters.