2. Explain the step-by-step process of rational decision making
Describe how time constraints, lack of information, and complexity influence the rational decision-making process
Describe the various biases that can influence an individual’s perspective and how these biases impact decision making
Articulate how emotions, intuition, and social situations impact decision making
Compare and contrast the different ways in which decisions are made in an organization
Describe the ways in which managers can improve their decision- making abilities
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3. Decision Making
The process of identifying issues and making choices from alternative courses of action
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4. Rational Decision Making
The theory that individuals make decisions based on a rational thought process that optimizes self-interest
Theory of rational choice
When confronted with a choice, people try to make the best possible decision; one that maximizes their expected utility
Expected utility
Individuals assign a numerical value to each alternative and select the one that offers the highest payoff or profit
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5. Factors that Impact Decision Making
Incomplete, imperfect, or misleading information
Limited ability or background to process information i.e. lack of experience
Limited time to make a decision
Conflicting preferences, incentives, or goals of various organizational players
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6. How Managers Make Decisions
A set of boundaries or constraints that tend to complicate the rational decision-making process
Bounded rationality
The act of choosing a solution that is good enough
Satisficing
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7. Decision-Making Conditions
Conditions in which individuals have all of the information they need to make the best possible decision
Conditions of certainty
Situations that are characterized by uncertainty and risk and where the optimal decision is not clear or obvious
Ambiguity
Conditions in which individuals have information about an organization’s goals, objectives, priorities, and potential courses of action, but they do not have complete information about the possible outcomes for each course of action
Conditions of risk
Conditions in which individuals have information related to an organization’s objectives and priorities, but they do not have complete information about alternative course of action or about the possible outcomes for each one
Conditions of uncertainty
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8. How Biases Impact Decision Making
Rules of thumb or short-cuts that individuals use to save time when making complex decisions
Cognitive heuristics
Contends that individuals assess the frequency, probability, or likely cause of an event by the degree to which instances or occurrences of that event are readily available in memory
Availability heuristic
Contends that individuals tend to look for traits in another person or situation that corresponds with previously formed stereotypes
Representative-ness heuristic
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9. How Biases Impact Decision Making
Contends that individuals make estimates or choices based on a certain starting point
Adjustment heuristic
Alternative wordings for same information that significantly alters a decision
Framing
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10. Escalation of commitment
Emotional Commitment
The tendency to favor the “here and now” and to reject potential change
Status quo bias
A type of bias in which decision makers commit themselves to a particular course of action beyond the level suggested by rationality as a means of justifying previous commitments
Escalation of commitment
A bias in which people tend to seek information that confirms a decision before seeking information that disconfirms a decision, even if the disconfirming information is more powerful and important
Confirmation bias
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11. Intuitive Decision Making
Insights that are tapped through intuition and are not always fully understood by the decision maker
Referred to as gut feel or hunches
Can emerge as a form of automated expertise if it is drawn from connections to past experiences
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12. Social Influence on Decisions
Solomon Asch’s experiment indicated that:
Individuals tend to conform to majority when they rely less on their experience and insight
Dominance of conformity can cause people to make decisions that go against their values
Social decisions involving norms are shaped by:
Appropriateness framework: The process of making decisions based on societal norms or expectations
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13. Decision Making in Organizations
Programmed decisions
Nonprogrammed decisions
Decisions that are made in response to recurring organizational problems that require individuals to follow established rules and procedures
Decisions that are made in response to novel, poorly defined, or unstructured situations that require managers to use their best judgments
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14. Models of Organizational Decision Making
Seeks to maximize economic or other outcomes using a rational choice process
Classical model
Acknowledges that managers may be unable to make economically rational decisions because they lack sufficient information on which to base their decisions
Administrative model
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15. Models of Organizational Decision Making
Acknowledges that most organizational decisions involve many managers who have different goals and who have to share information to reach an agreement
Political model
A model of decision making whereby, problems, solutions, participants, and choices flow throughout an organization. A decision process is not viewed as a sequence of steps that begins with a problem and ends with a solution
Garbage can model
Playfulness: The deliberate , temporary relaxation of rules to explore many possible alternatives
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16. Improving Decision-Making Skills: Managing Your Biases
Acquire experience and expertise
Take an outsider’s view
Actions can help to “de-bias” your judgments
Reduce bias in your judgment
Implement statistical models
Engage in analogical reasoning
Understand biases in others
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17. SCRIPTS Process Helps managers prepare for high-stake decisions
Involves following steps
Search for signals of threats and opportunities
Find the causes
Evaluate the risks
Apply intuition and emotion
Take different perspectives
Consider the time frame
Solve the problem
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18. KEY TERMS
Adjustment heuristic Administrative model Ambiguity Anchoring Appropriateness framework Availability heuristic Bounded rationality Classical model Conditions of certainty Conditions of risk Conditions of uncertainty Confirmation bias Decision making
Escalation of commitment Framing Garbage can model Heuristics Intuitive decision making Nonprogrammed decisions Playfulness Political model Programmed decisions Representativeness heuristic Satisficing Status quo bias Theory of rational choice
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