1. 1 Decision Making OS 386 October 22, 2002 Fisher

2. 2 Agenda Introductory example Review decision making processes Structured decision making exercise

3. 3 Decision Making Example Review your decision scenario Write your decision on the sheet Will discuss results with whole class

4. 4 Decision Making Example Discussion Half were asked to consider short term scenario Half were asked to consider long term scenario Study results suggest people make riskier choices in the long term scenario Short term group focused on probabilities Long term group focused on potential payoffs Source: Sagristano, Trope & Liberman. Time Dependent Gambling: Odds Now, Money Later. Journal of Experimental Psychology: General, 131 (3), 364-376.

5. 5 Decision Making People make decisions in many different ways We don ’ t always optimize our decisions What prevents us from making good decisions? What biases enter into the process? What can we do to improve our decision making? Part of larger problem solving process

6. 6 Algorithms vs. Heuristics Algorithm: a specific rule or solution procedure that, if followed correctly, will result in the correct answer Heuristic: an informal strategy or approach that works some of the time, but does not always result in the correct answer Most people lean toward using heuristics rather than algorithms

7. 7 Rational Problem Solving and Decision Making Model 3. Develop alternatives 1. Identify problem 2. Choose decisionstyle 4. Choose best solution 5. Implement solution 6. Evaluate decision Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

8. 8 Why don ’ t we use this model? Perceptual biases Poor diagnostic skills Lack of criteria or goals Limited information processing capacity or skills Tendency to satisfice Social pressure

9. 9 Perceptual Biases Screen out important information View the problem in terms of familiar issues or problems Post-decisional justification Similar to cognitive dissonance

10. 10 Escalation of Commitment Have invested so much already, reluctant to change course Causes include Self-justification Gambler ’ s fallacy Perceptual blinders Closing costs

11. 11 Systematic Decision Making Identify relevant factors Assign an importance weighting to each factor Assess each alternative against the factors Compute an overall score for each alternative

12. 12 Systematic DM Exercise Where should I go on vacation? Low Cost Warm Weather Short Distance Friends Live There New Zealand Florida New Jersey 1 4 10 6 8 2 2 5 8 5 8

13. 13 Systematic DM Exercise Select decision making topic Using grid on handout, complete steps of systematic decision making List and weight criteria List and evaluate the alternatives Determine final score for each alternative Your decision is the alternative with the highest score Hand in results

14. 14 Intuitive Decision Making Selecting a course of action without conscious reasoning Not sure why you made that choice Many executives rely on intuitive decision making Tends to work well for experts Have automatic decision making routines Draw on unconscious knowledge, patterns

15. 15 What can we do to improve our DM? Seek to understand the real problem, not just the surface or stated problem Clearly define goals or criteria – know what you are looking for Evaluate decision effectiveness Did it meet the goal? Can you improve your processes?

16. 16 Key learning points People fail to use rational decision making models for many reasons Skills, perceptual issues, social pressures Systematic decision making can help overcome biases Intuitive decision making can be effective for experts

17. 17 For next class Change in schedule! Next class: Communication Read chapter 11 Has technology improved communication? October 29: Team Decision Making Use LDL rooms for DM exercise