A firm's decision levels

Question 1

What is the line of decision making in a firm?

Answer 1

1. Board of directors
2. Top management (CEO, CFO etc)
3. Line managers
4. Employees

Question 2

What are routine decicions?

Answer 2

Routine decisions are those decisions that you can take very quickly

Question 3

What are interdependent decisions?

Answer 3

Interdependent decisions are those decions in which you have to take many things into account (that depend on each other)

These decisions are not easy to take because of their uncertainty and dependencies with other decisions

Question 4

What does analysis paralysis reffer to?

Answer 4

Analysis paralysis reffers to the situation in which excessive analysis and evaluation of all details and minor aspects leads to a complete halt in the thinking process.

This problem arises when the emphasis is on the beurocratic and not on the operational side.

Question 5

What does rational ignoragnce reffer to?

Answer 5

Rational ignorance reffers to the situation in which you spend too much time on tasks that require less effort than needed.

Basically focusing on minor aspects and losing the big picture.

Question 6

What are some behavioral biases?

Answer 6

• Gambler’s illusion
• Herding
• Comfort zones
• False projections
• Overconfidence
• Confirmation
• The prospect theory

Question 7

What does the gambler’s illusion reffer to?

Answer 7

It reffers to the situation in which you try to predict the future by observing patterns in the past.

Question 8

What does herding reffer to?

Answer 8

Herding reffers to doing what most people do.

Question 9

What do comfort zones reffer to?

Answer 9

It’s that situation in which you become familliar with certain methods and tools you so much that you choose to stick to them, rather than to change.

Question 10

What do false projections reffer to?

Answer 10

False projections reffer to the situation in which you think that all people think like you do.

This creates a false sentiment of knowledge and confidence that distorts the decision making process.

Question 11

What does overconfidence refer to?

Answer 11

Overconfidence refers to that situation in which you consider yourself performing above average

Question 12

What does confirmation reffer to?

Answer 12

Confirmation reffers to that situation in which once a decision is taken, all other information is interpreted as confirmations to the initial decision.

Or when a manager/person encircles himself with people that share his/her perspectives and opinions, achieving a constant safety sentiment.

Question 13

What does the prospect theory reffer to?

Answer 13

The prospect theory tells that the effect of losing something is harder than to gain something of equal value.

Question 14

What does the normative approach tell when it comes to managerial activities?

Normative = how should an individual behave

Answer 14

• The manager identifies optimal decision in ideal conditions, where the decider is fully rational and has access to all relevant information

Question 15

What does the prescriptive approach tell when it comes to managerial activities?

Prescriptive = han an individual actually behaves

Answer 15

• The manager isn’t strictly based on a set of unique principals and they can reach different decisions for the same problem.

Question 16

When it comes to decision making:

What are the desired qualities a manager should have?

Answer 16

• The ability to react and act fast
• The ability co communicate clear messages
• The ability to be direct/straightforward, efficient