Chapter 11: Decision Making Flashcards
Decision Making
The process of developing
a commitment to some
course of action.
3 things about decision-making definition…
1) decision
making involves making a choice among several action alternatives
2) decision making is a process that involves more than simply the final choice
among alternatives
3) “commitment” refers to the dedication of resources such as
time, money, or personnel
Problem
A perceived gap
between an existing state
and a desired state
Well-structured problem
A problem for
which the existing state is
clear, the desired state is
clear, and how to get from
one state to the other is
fairly obvious.
What is a program?
A standardized
way of solving a problem.
ill structured problems
A
problem for which the
existing and desired states
are unclear and the method
of getting to the desired
state is unknown.
ill problems are often unique. That is, they are…
unusual and have not been
encountered before. In addition, they tend to be complex and involve a high degree of
uncertainty.
Perfect rationality
A
decision strategy that
is completely informed,
perfectly logical, and
oriented toward
economic gain.
Traits of a perfect rationality person…
- Can gather information about problems and solutions without cost and is thus
completely informed. - Is perfectly logical: If solution A is preferred over solution B, and B is preferred over
C, then A is necessarily preferable to C. - Has only one criterion for decision making: economic gain
Bounded rationality
A
decision strategy that relies
on limited information and
that reflects time constraints
and political considerations
Framing and cognitive biases both illustrate…
the operation of bounded rationality, as
does the impact of emotions and mood on decisions
Framing
Aspects of the
presentation of information
about a problem that are
assumed by decision makers.
Cognitive Biases
Tendencies
to acquire and process
information in an error-prone
way.
Bounded rationality can lead to the following difficulties in problem identification…
- Perceptual defence
- Problem defined in terms of functional specialty
- Problem defined in terms of solution
- Problems diagnosed in terms of symptoms
Once a problem is identified, a…
search for information is instigated
Problem in information search
1) Too little information
2) Too much information
Too little information - Availability bias
The
tendency to favour
information that can be
accessed quickly and easily
Too little information - Confirmation bias
The
tendency to seek out
information that conforms
to one’s own definition of or
solution to a problem.
Too little information - Not-invented-here-bias
The tendency to
ignore or harbour negative
attitudes toward ideas
from outside one’s own
organization or project
team.
Too much information - Information overload
The
reception of more information
than is necessary to make
effective decisions.
Too much information can lead to…
errors, omissions, delays, and cutting
corners. In addition, decision makers facing overload often attempt to use all the information at
hand, then get confused and permit low-quality information or irrelevant
information to influence
their decisions.
Despite the setbacks, decision makers seem to think that more information is better, why?
1) even if decisions do not improve with additional information, confidence in the decisions
will increase
2) decision makers may fear being “kept in the dark” and associate the
possession of information with power.
Research reveals that people have a cognitive bias to value advice for which…
they have paid over free advice of equal quality.
Maximization
The choice of the decision alternative with the greatest expected value.
four frequently violated standard statistical principles
1) People avoid incorporating existing data about the likelihood of events (“base
rates”) into their decisions.
2) Large samples warrant more confidence than small samples. Despite this, data from
a couple of (vivid) focus groups might be given more weight than data from a large
(but anonymous) national survey.
3) Decision makers often overestimate the odds of complex chains of events
occurring—
the scenario sounds sensible despite being less likely with every
added link in the chain.
4) People are poor at revising estimates of probabilities and values as they acquire
additional
information.
Anchoring effect
The
inadequate adjustment
of subsequent estimates
from an initial estimate that
serves as an anchor.
Satisficing
Establishing an adequate level of acceptability for a solution to a problem and then screening solutions until one that exceeds this level is found
When people view a problem as a choice between losses, they tend to make…
risky decisions
When people frame the alternatives as a choice between
gains, they tend to make…
conservative decisions, protecting the sure win.
Problems in Solution Evaluation
1) Justification
2) Hindsight
Justification
substantial dissonance can be aroused when a decision turns out to
be faulty. One way to prevent such dissonance is to avoid careful tests of the adequacy of the
decision.
Sunk costs
Permanent
losses of resources incurred
as the result of a decision.
Escalation of Commitment
The
tendency to invest
additional resources in an
apparently failing course of
action.
Reasons that escalation of commitment occurs:
1) Dissonance reduction
2) A social norm that favours consistent behaviour by managers
3) Decision maker motivation to not appear wasteful
4) Decision makers may see the problem as a decision between a sure loss of x dollars (which have been sunk) and
an uncertain loss of x + y dollars (maybe the additional investment will succeed).
Ways to prevent tendency to escalate commitment to a failing course of action…
- Be alert for excessive optimism
- Shift the frame to saving rather than spending
- Set specific goals for the project in advance that must be met if more resources are
to be invested. This prevents escalation when early results are “unclear.” - Place more emphasis when evaluating managers on how they made decisions and
less on decision outcomes. - Separate initial and subsequent decision making so that individuals who make
the initial decision to embark on a course of action are assisted or replaced by
others who decide if a course of action should be continued.
Hindsight
The tendency
to review the decisionmaking
process to find what
was done right or wrong.
People in a positive mood tend to..
remember positive information
People in a negative mood tend to remember..
negative information
People in a positive mood tend to evaluate
objects, people, and events more
positively
People in a positive mood tend to provide…
more negative evaluations.
People in a good mood tend to overestimate…
the likelihood that good events will
occur and underestimate the occurrence of bad events. People in a bad mood do the opposite
People in a good mood adopt..
simplified, shortcut decision-making strategies, more
likely violating the rational model.
People in a negative mood are prone to approach
decisions in a more…
deliberate, systematic, detailed way.
Positive mood promotes more…
creative, intuitive decision making.
Stages of decision making
1) Problem identification
2) information search
3) Development of alternative solutions
4) Evaluation of alternative solutions
5) Solutions choice
6) Solution Implementation
7) Solution evaluation
Why use groups decision making?
1) Decision Quality
2) Decision Acceptance and Commitment
3) Diffusion of Responsibility
Group decision making - Decision Quality
- Groups are more vigilant than individuals.
- Groups can generate more ideas than individuals can.
- Groups can evaluate ideas better than individuals can.
Group decision making - Decision Acceptance and Commitment
- People wish to be involved in decisions that will affect them.
- People
will better understand a decision in which they participated. - People will be more committed to a decision in which they invested personal time
and energy.
Group decision making - Diffusion of Responsibility
The ability of group members
to share the burden of the
negative consequences of a
poor decision.
Groupds should perform better than individuals when the following are true…
- The group member differ in relevant skills and abilities, as long as they do not differ so much that conflict occurs
- Some division of labour can occur
- Memory for facts is an important issue
- Individual judgments can be combined by weighting them to reflect the expertise of the various members
Disadvantages of Group Decision Making
1) Time
2) Conflict
3) Domination
4) Groupthink
Groupthink
The capacity
for group pressure to
damage the mental
efficiency, reality testing,
and moral judgment of
decision-making groups.
Devil’s advocate
A person appointed to
identify and challenge the
weaknesses of a proposed
plan or strategy.
Risky shift - Groups decision
The tendency
for groups to make riskier
decisions than the average
risk initially advocated by
their individual members.
Conservative shifts - Group Decision
The
tendency for groups to
make less risky decisions
than the average risk
initially advocated by their
individual members.
Why do risky and conservative shifts occur when groups make decisions?
1) Group
discussion generates ideas and arguments that individual members have not
considered before.
2) Group members try to present themselves as similar to others but
“even better.” Thus, they try to one-up others in the discussion by adopting a slightly
more extreme version of the group’s initial stance
Contemporary Approaches to Improving Decision Making
1) Evidence-based management
2) Crowdsourcing
3) Analytics and Big Data
Evidence-based management
Making
decisions through the
conscientious, explicit, and
judicious use of the best
available evidence from
multiple sources.
Crowdsourcing
Outsourcing aspects of a
decision process to a large
collection of people.
Analytics
Finding meaningful patterns in large datasets
Big Data
Copious
amounts of information that
are often collected in real
time and can come from
a wide variety of sources,
particularly digital.
