6. Now, read Suzanne’s four options and then move on to make your decision! Decision time

How can Suzanne reduce her overdraft?

Paired comparisons

Here is a technique which helps you to compare all four different options with each other. Begin by comparing the advantages and disadvantages of options 1 and 2, and then write your preferred option in the box. Then do the same with options 1 and 3. Continue until you’ve filled all six empty boxes with your preferences. Then see which option has been chosen most often.

	1. Slash costs	2. Pay in installments	3. Demand full payment	4. Another source?
1. Slash costs
2. Pay in installments
3. Demand full payment

Are there any alternatives?

7. When you’ve done the paired comparison exercise, discuss:

1. Are there any other options that Suzanne hasn’t thought of?

2. Is there a compromise that she should consider?

8. Now decide! What action should Suzanne take?

Case 2. Wall Street Blues

Before you read

The story in this chapter is set in New York’s financial centre, Wall Street. Two of the most important financial items bought and sold on Wall Street are stocks and bonds. When you buy stock in a company it means that you have bought a share in its ownership. When you own a company’s bonds, it means that you have lent it money. To find out more about bonds, read this background box:

Background: Bonds

One of the ways in which big companies borrow money is to sell bonds. If you buy a bond from a company, you get a contract which tells you that the company will pay you a fixed rate of interest at regular intervals and that you’ll be able to get your money back at a fixed date in the future — if the company still exists, of course (if the company goes bankrupt before this date, you normally get nothing!). But what happens if you want your money back before this fixed date? No problem — you simply sell the bond to someone else.

But if you do this, you probably won’t get the same price for the bond as you paid for it. The prices of bonds are always changing, for many reasons: for example, if people think that a company is going to go bankrupt, its bond prices will fall dramatically. This means that the bond market is a very risky place to invest money and the people who work there are normally under enormous pressure to take the right decisions.

Way in

People who work in financial markets like the bond market should try to assess the risks in these markets logically. But, most people agree that prices in these markets are really driven by two of the most basic human emotions – greed and fear.

1. So, how do you assess risk? Discuss these two alternatives:

a) Would you prefer to have $85,000 or to have an 85% chance of winning $100,000?

b) Would you prefer to lose $85,000 or to have an 85% chance of losing $100,000?

2. Discuss whether your choices are based on logic or emotion.