Raptor Oil Company: An Exercise

Abstract

The exercise, which adapts a famous experiment by experimental psychologist Thomas Gilovich, is designed to show both the ubiquity of analogy or associative thinking more generally and its potential perils. Students are presented with a scenario in which an oil company is deciding which of two investment options it should pursue. The first focuses on a location that involves technically difficult and costly R&D and production (e.g., Gulf of Mexico). In the second option, these costs are lower and yields are higher, but the firm has to deal with potentially corrupt parties (e.g., Russia). Half the class is presented with a standard, or "neutral" problem. The other half is presented with a problem identical to the standard one except for a few differences that are irrelevant to the problem's structure. These differences involve superficially similar cues that are associated with Enron. For instance, the location of the meeting in the neutral problem is Atlanta, but it is Houston, where Enron was headquartered, in the Enron problem; the name of the oil company is Fleet in the neutral case, and Raptor (named after one of Enron's many special purpose entities) in the Enron case. Students who are given the Enron problem often unconsciously associate the problem they face with the Enron debacle, which causes them to favor the technically challenging option more than do students who are given the neutral problem.

Learning Objective: The exercise is designed to show both the ubiquity of analogy or associative thinking more generally and its potential perils.