© 2009 Cengage Learning. All rights reserved. Chapter 10 Decision Making by Individuals & Groups Learning Outcomes 1 Identify the steps in the decision-making process. 2 Describe various models of decision making. 3 Discuss the individual influences that affect decision making. 4 Explain how groups make decisions. 5 Describe the role culture plays in decision making. 6 Explain how organizations can improve the quality of decisions through participation.

© 2009 Cengage Learning. All rights reserved. Types of Decisions Programmed Decision a simple, routine matter for which a manager has an established decision rule Nonprogrammed Decision a new, complex decision that requires a creative solution

Recognize the problem and the need for a decision Gather and evaluate data and diagnose the situation Identify the objective of the decision List and evaluate alternatives Decision-Making Process

Select the best course of action Gather feedback Implement the decision Follow up Decision-Making Process

Biz Flix What are the Grinch’s decision alternatives or options? What decision criteria does the Grinch use to choose from the alternatives? Dr. Seuss’ How the Grinch Stole Christmas

© 2009 Cengage Learning. All rights reserved. Rationality a logical, step-by-step approach to decision making, with a thorough analysis of alternatives and their consequences

© 2009 Cengage Learning. All rights reserved. Models of Decision Making Effective Decision a timely decision that meets a desired objective and is acceptable to those individuals affected by it Bounded Rationality Model Rational Model

1. The outcome will be completely rational 2. The decision maker uses a consistent system of preferences to choose the best alternative 3. The decision maker is aware of all alternatives 4. The decision maker can calculate the probability of success for each alternative Rational Model

© 2009 Cengage Learning. All rights reserved. Bounded Rationality a theory that suggests that there are limits upon how rational a decision maker can actually be

1. Managers suggest the first satisfactory alternative Satisfice – to select the first alternative that is “good enough,” because the costs in time and effort are too great to optimize Bounded Rationality Model

1. Managers suggest the first satisfactory alternative 2. Managers recognize that their conception of the world is simple Bounded Rationality Model 3. Managers are comfortable making decisions without determining all the alternatives 4. Managers make decisions by rules of thumb or heuristics Heuristics – shortcuts in decision making that save mental activity

© 2009 Cengage Learning. All rights reserved. Garbage Can Model – a theory that contends that decisions in organizations are random and unsystematic Problems Participants From M.D. Cohen, J.G. March, and J.P. Olsen in Administrative Science Quarterly 17 (March 1972) Reprinted by permission of the Administrative Science Quarterly Garbage Can Model Solutions Choice opportunities Beyond the Book:

Z Problem-Solving Model Look at the facts and details Can it be analyzed objectively? What alternatives do the facts suggest? What impact will it have on those involved? Sensing Intuition Thinking Feeling Figure from Type Talk at Work by Otto Kroeger and Janet M. Thuesen. Copyright © 1992 by Otto Kroeger and Janet M. Thuesen. Used by permission of Dell Publishing, a division of Random House. Inc.

© 2009 Cengage Learning. All rights reserved. Escalation of Commitment The tendency to continue to commit resources to a failing course of action

© 2009 Cengage Learning. All rights reserved. Escalation of Commitment Why it occurs –humans dislike inconsistency –optimism –control –sunk costs How to deal with it –split responsibility for decisions –provide individuals with a graceful exit –have groups make the initial decision

© 2009 Cengage Learning. All rights reserved. Cognitive Style an individual’s preference for gathering information and evaluating alternatives

© 2009 Cengage Learning. All rights reserved. Jung’s Theory Jungian theory offers a way of understanding and appreciating differences among individuals.

© 2009 Cengage Learning. All rights reserved. Risk and the Manager [ Risk takers ] –accept greater potential for loss –tolerate greater uncertainty –more likely to make risky decisions Evidence: Successful Managers Take Risks

© 2009 Cengage Learning. All rights reserved. Risk Aversion the tendency to choose options that entail fewer risks and less uncertainty

Jung’s Cognitive Style Style Sensing/thinking Sensing/feeling Intuiting/thinking Intuiting/feeling Ideal Organization Facts/ Impersonal Analysis Facts & Org. Relationships Broad Issues/ Impersonal & Ideal Serve Humankind/General Values ST SF NT NF

© 2009 Cengage Learning. All rights reserved. Two Brains, Two Cognitive Styles Left HemisphereRight Hemisphere Verbal Sequential, temporal, digital Logical, analytic Rational Western thought Nonverbal, visuospatial Simultaneous, spatial, analogical Gestalt, synthetic Intuitive Eastern thought Ideal = “brain-lateralized” making use of either or both sides, depending on situation From Left Brain, Right Brain by Springer and Deutsch © 1989, 1985, 1981 by Sally Springer and Georg Deutsch. Used with permission by W.H. Freeman and Company

© 2009 Cengage Learning. All rights reserved. Group Decision Making Role of synergy – a positive force that occurs in groups when group members stimulate new solutions to problems through the process of mutual influence and encouragement in the group Role of social decision schemes – simple rules used to determine final group decisions (prediction 80% correct) Majority Wins Truth Wins Two-thirds Majority First-shift

Group Decision Making 1. more knowledge through pooling of group resources 2. increased acceptance and commitment due to voice in decisions 3. greater understanding due to involvement in decision stages Advantages 1. pressure in groups to conform 2. domination by one forceful member or dominant clique 3. amount of time required, because group is slower than individual to make a decision Disadvantages

© 2009 Cengage Learning. All rights reserved. Group Phenomenon Groupthink – a deterioration of mental efficiency, reality testing, and moral judgment resulting from in-group pressures Group Polarization – the tendency for group discussion to produce shifts toward more extreme attitudes among members

© 2009 Cengage Learning. All rights reserved. Preventing Groupthink Ask each group member to act as critical evaluator Have the leader avoid stating his opinion prior to the group decision Create several groups to work simultaneously Appoint a devil’s advocate Evaluate the competition carefully After consensus, encourage rethinking the position From Janis, Irving L., Groupthink: Psychological Studies of Policy Decisions and Fiascoes, Second Edition. Copyright © 1982 by Houghton Mifflin Company.