Case Analysis Questions
1. Based on the information presented in the minicase, how would you characterize PSINet CEO William Schrader’s susceptibility to psychological phenomena? 2. Discuss the extent to which PSINet’s financing and investment decisions conform to the BPV framework presented in the chapter. 3. In your view, how similar is the personality of Cogent Communications CEO Dave Schaeffer to the personality of PSINet CEO William Schrader? 4. Discuss the extent to which Cogent’s financing and investment decisions conform to the BPV framework presented in the chapter. 5. Analyze the ratio that Cogent Communication uses to measure leverage, and compare it to common textbook ratios measuring leverage.
Here is an answer to the case analysis questions:
1. Based on the information presented in the minicase, how would you characterize PSINet CEO William Schrader's susceptibility to psychological phenomena?
William Schrader appears to be susceptible to several psychological phenomena, including:
Overconfidence: Schrader had a strong belief in PSINet's success, even in the face of mounting evidence that the company was in financial trouble. This overconfidence led him to make poor decisions, such as issuing large amounts of junk debt and making expensive investments in new headquarters and a corporate jet.
Herd mentality: Schrader was also influenced by the herd mentality, which is the tendency to follow the crowd even when the crowd is wrong. In the late 1990s, many telecommunications companies were investing heavily in new infrastructure, and Schrader was eager to follow suit. However, this investment spree led to a glut of capacity in the telecommunications industry, which ultimately contributed to PSINet's downfall.
Anchoring bias: Schrader may also have been influenced
#overconfidence excessive optimism