You Make the Call - Situation 2

question 30

Essay

You Make the Call - Situation 2
Software piracy is a serious problem in Ukraine. While the latest version of Microsoft's Windows normally sells for more than $100 when purchased through a legitimate vendor, the same package can be picked up on the black market in Kiev for around $2, and it is usually bundled with additional software as a bonus! Brad, a project manager working in the Ukrainian office of an American consulting services firm, ponders the question of whether or not to buy 325 copies of pirated software through a local source for $1.85 per copy, versus purchasing them through an authorized vendor. The cost saving from this one decision would be nearly $32,000, and Brad knows that annual bonuses are tied to any cost savings. To complicate matters further, Brad's office is up against strong rivals in the same market, and they usually purchase pirated software to control costs. The competition is so fierce and margins are so thin that Brad's company is thinking about pulling out of the market. Having to pay full price for legitimate software might be "the straw that broke the camel's back"-that is, it might be all it takes to convince management in the U.S. to close the office down. The movie to Ukraine was hard on Brad's wife and their twin daughters. After 14 months of settling in, everyone is finally getting comfortable with their new life in Kiev. Brad really doesn't want to move them again, at least not now. And furthermore, it is well known that social standards in Ukraine do not emphasize proprietary property rights anyway. Microsoft is so big that one lost order would hardly be noticed, and it won't even get the order if the company decides to close the Kiev office down.

Discuss the consequences of various cognitive errors in investment and financial planning.

Identify strategies to mitigate the impact of behavioral biases in financial decisions.

Understand the concept of myopic loss aversion and its implications in decision-making.

Comprehend the nature and effects of recency bias on judgements and decisions.

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Definitions:

Sales

A process involving the transaction of goods or services for payment between a buyer and a seller.

Profits

The net financial gain remaining after subtracting all costs, taxes, and expenses from revenue.

Simple Linear Regression

A technique in statistics that fits a linear equation to data points to model how a dependent variable changes with one independent variable.

Explanatory Variable

An explanatory variable, also known as an independent variable, is a variable in statistical modeling that is manipulated to assess its effects on a dependent variable.