Individual Decision Making Chapter 4 Lawrence Erlbaum Associates, Publisher, Copyright

Chapter Overview Creativity Lawrence Erlbaum Associates, Publisher, Copyright 2002 Making Decisions Fairness as a Component of Decision Making 4.2

Making Decisions Lawrence Erlbaum Associates, Publisher, Copyright Rational Model Six Steps of Decision Making Bounded Rationality Model Intuitive Model Decision Making Under Uncertainty Types of Decisions

Rational Model Decisions are based on rationality or a careful and calculated choice to maximize value given in assessment of alternatives and their consequences Lawrence Erlbaum Associates, Publisher, Copyright

Recognition and Definition of the Problem Identify and Weight the Criteria Information Search Compute the Optimal Decision Alternative Generation Six Steps of Decision Making Implementation and Assessment Lawrence Erlbaum Associates, Publisher, Copyright

Bounded Rationality Model Lawrence Erlbaum Associates, Publisher, Copyright Describes how a decision should be made, rather than how managers actually make decisions. (Simon, 1957) Limited Perspective Sequential Alternative Evaluation Satisficing Judgmental Heuristics and Biases

Intuitive Model A function of experience from having made many similar decisions Lawrence Erlbaum Associates, Publisher, Copyright (Behling & Eckel, 1991) Intuition has been conceptually defined as: A personality trait An unconscious process, as opposed to analysis, which is assumed to occur separately on the conscious level A set of actions that the decision maker chooses to employ

Decision Making Under Uncertainty Chances of being dealt different poker hands... Straight Flush1 in 64,974 Four of a kind1 in 4,165 Full House1 in 694 Flush1 in 509 Straight1 in 256 Three of a kind1 in 48 Two pairs1 in 21 One pair1 in 2.5 No pairs1 in 2 Lawrence Erlbaum Associates, Publisher, Copyright

Types of Decisions The perception of the outcome as positive Lawrence Erlbaum Associates, Publisher, Copyright The amount of time and resources spent on any decision-making process will be dependent on… The significance of the problem The irreversibility of the solution The accountability of the decision maker The familiarity of a decision

Fairness as a Component of Decision Making Lawrence Erlbaum Associates, Publisher, Copyright

Egocentrism Defined When perceptions of fairness are biased in a self- serving manner ME Lawrence Erlbaum Associates, Publisher, Copyright (Bazerman, 2002)

Distributive Justice Procedural Justice Interactional Justice Lawrence Erlbaum Associates, Publisher, Copyright

Ethical Decision Making: A common grazing area is used freely by a town’s dairy farmers. Increasing the number of cattle grazed in the area is obviously in the best interest of any particular farmer. However, if all the farmers keep increasing their herds, they will eventually overgraze the commons. Ultimately, they will kill the grass and diminish the collective interest; that is, they will reduce the value of the commons to the group as a whole as well as to themselves as individuals. (Hardin, 1968) Lawrence Erlbaum Associates, Publisher, Copyright What should the individual farmers do? Tragedy of the Commons

Managing Organizational Ethics Corporate ethics overseas Lawrence Erlbaum Associates, Publisher, Copyright Formal ethical structures

Institutionalizing Ethics …making sure that ethical concerns are considered in the same routine manner as legal, financial, and marketing matters Ethics training programs How? Lawrence Erlbaum Associates, Publisher, Copyright “Social responsibility” or “Public policy” committees Company code of ethics

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Make sure you thoroughly understand the problem you are trying to solve. Relax. Think in terms of analogies or metaphors. Pay attention to daydreams. Developing Creativity Lawrence Erlbaum Associates, Publisher, Copyright