Chapter 6 - Decision-making Flashcards
Decision-Making
The process of choosing a solution from available alternatives.
Rational Decision-Making
A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions.
Steps to rational decision-making
- Define the problem
- Identify decision criteria
- Weight the criteria
- Generate alternative courses of action
- Evaluate each alternative
- Compute the optimal decision
Define the problem
Identify and define the problem
Problem
A gap between a desired state and an existing state.
Three things must happen for a manager to make decisions to solve problems
- Managers have to be aware of a gap
- Managers must be motivated to reduce the gap
- Managers must have the knowledge, skills, abilities, and resources to fix the problem
Identify decision criteria
General and specific factors that would be important for making a rational decision
Decision Criteria
The standards used to guide judgments and decisions.
Weight the criteria
Requires the decision maker to provide an initial ranking of the decision criteria… Figuring out the order of importance.
Absolute Comparisons
A process in which each criterion is compared to a standard or ranked on its own merits.
Relative Comparisons
A process in which each decision criterion is compared directly to every other criterion.
Generate alternative courses of action
Identify possible courses of action that could solve the problem and generate as many alternatives as possible.
Evaluate each alternative
Systematically evaluate each alternative against each criterion.
Compute the optimal decision
by determining each alternative’s value. (Using the ranking system)
Limits to rational decision-making
Bounded rationality, risk and decision-making under risky conditions and common decision-making mistakes
Bounded Rationality
Decision-making process restricted in the real world by limited resources, incomplete and imperfect information, and managers limited decision-making capabilities.
Information Overload
Situation in which decision makers have too much information to attend to.
Four problems that prevent managers from making rational decisions
- limited resources
- information overload
- memory problems
- expertise problems
Maximizing
Choosing the best alternative.
Satisficing
Choosing a “good enough” alternative.
Condition of Certainty
Conditions in which decision makers have complete information and knowledge of all possible outcomes.
Conditions of Risk
Conditions in which decision makers face a very real possibility of making the wrong decisions.
Positive Frame
Couching a problem in terms of a gain, thus influencing decision makers toward becoming risk-adverse.
Negative Frame
Couching a problem in terms of a loss, thus influencing decision makers toward becoming risk-seeking.
Conditions of Uncertainty
Conditions in which decision makers don’t know the odds of winning or losing.
Risk Propensity
A person’s tendency to take or avoid risk.
Common decision-making mistakes
- Availability Bias
- Representative Bias
- Anchoring and Adjustment Bias
- Over-reliance on intuition
Availability Bias
Unrecognized tendency of decision makers to give preference to recent information, vivid images that evoke emotions, and specific acts and behaviours that they personally observed.
Representative Bias
Unrecognized tendency of decision makers to judge the likelihood of an events occurrence based on its similarity to previous events.
Anchoring and Adjustment Bias
Unrecognized tendency of decision makers to use an initial value or experience as a basis of comparison throughout the decision process.
Over-reliance on intuition
Can lead decision makers to become overconfident, careless, and inconsistent.
Managers can make better decisions by using
Decision rules, multivariable testing, and decision software
Decision Rule
Set of criteria that alternative solutions must meet to be accepted to the decision maker.
The two kinds of decision rules
Dictionary rule and minimum threshold rule.
Dictionary Rule
Decision rule that requires decision makers to rank criteria in order of importance and then test alternative solutions against those criteria in rank order, so that alternatives that meet the most important criterion must then meet the second most important criterion, and so on.
Minimum Threshold Rule
Decision rule that requires alternative solutions to meet all the established minimum decision criteria.
Multivariable Testing (MVT)
A systematic approach of experimentation used to analyze and evaluate potential solutions.
Decision software
Computer software that can make decision making simpler, faster and easier.
Escalation of commitment
The tendency for a person who has already made a decision to more strongly support that original decision despite negative information that clearly indicates it was wrong.
Avoiding escalation of commitment
- make detailed progress reports comparing actual and planned spending and progress
- hiring independent auditors
- replacing managers who made the original decisions with new managers
- be willing to label the failed decision an “experiment” thus making it easier to end support for that decision
Advantages of group decision-making
- group members usually possess different knowledge, skills, abilities, and experiences (can view problems from many different perspectives)
- groups can find and access much more information than individuals can
- the increased knowledge and information available to groups make it easier for them to generate more alternative solutions
- if groups are involved in the decision-making process, group members will be more committed to making chosen solutions work.
GroupThink
A barrier to good decision making caused by pressure within the group of member to agree with each other.
GroupThink is likely to occur under these conditions
- The group is insulated from others with different perspectives
- The group leader begins by expressing strong preference for a particular decision
- There is no established procedure for systematically defining problems and exploring alternatives
- Group members have similar backgrounds and experiences.
Pitfalls of group decision-making
- GroupThink
- It takes considerable time
- Sometimes just one or two people dominate group discussions
- Group members often don’t feel accountable for the decisions made and actions taken by the group
C-Type Conflict (Cognitive)
Disagreement that focuses on problem and issue related differences of opinion.
A-Type Conflict (affective)
Disagreement that focuses on individual or personal oriented issues.
Types of structured conflict
- Devil’s advocacy
- Dialectical inquiry
- Nominal group technique
- Delphi technique
- Stepladder technique
Devil’s Advocacy
A decision making method in which an individual or a subgroup is assigned the role of a critic.
Dialectical Inquiry
A decision-making method in which decision maker state the assumptions of a purposed solution (thesis) and generate a solution that is opposite (antithesis) of that solution.
Nominal Group Technique
Decision-making method that begins and ends by having group members quietly write down and evaluate ideas to be shared with the group.
Delphi Technique
A decision-making method in which a panel of experts responds to questions and to each other until reaching agreement on an issue.
StepLadder Technique
When group members are added to a group discussion one at a time (i.e. like a stepladder), the existing first take the time to listen to each new members thoughts, ideas, and recommendations, and then the group. in tern, shares the ideas and suggestions that it already considered, discusses the new and old ideas, and then makes a decision.
5 steps to establishing a devil’s advocacy program:
- Generate a potential solution
- Assign a devil’s advocate to criticize and question the solution
- Present the critique of the potential solution to key decision makers
- Gather additional relevant information
- Decide whether to use, change, or not use the originally proposed solution
5 steps of the dialectical inquiry process:
- Generate a potential solution
- Identify the assumptions underlying the potential solution
- Generate a conflicting counter-proposal based on the opposite assumptions
- Have advocates of each position present their arguments and engage in a debate in front of key decision makers
- Decide whether to use, change, or not use the originally proposed solution
3 steps of the Delphi technique:
- Assemble a panel of experts
- Create a questionnaire consisting of a series of open-ended questions for the experts
- Panel members’ written responses are analyzed, summarized, and fed back to the panel for reactions until panel members reach an agreement
Brainstorming
A decision-making method in which group members build on each other’s ideas to generate as many alternative solutions as possible.
Brainstorming’s four rules:
- The more ideas, the better
- All ideas are acceptable, no matter how wild or crazy they might be
- Other group members’ ideas should be used to come up with even more ideas
- Criticism or evaluation of ideas is not allowed
Electronic Brainstorming
A decision-making method in which group members use computers to build on each others ideas and generate many alternative solutions.
Electronic Brainstorming overcomes these disadvantages associated with face-to-face brainstorming
Production blocking, and evaluation apprehension
Production Blocking
A disadvantage of face-to-face brainstorming in which a group member must wait to share an idea because another member is presenting an idea.
Evaluation Apprehension
Fear of what others will think of your ideas
4 steps in electronic brainstorming
- Anonymously generate as many ideas as possible
- Edit the generated ideas, categorize them, and eliminate redundancies
- Rank-order the categorized ideas based on their quality
- Generate a series of action steps, decide the best order for accomplishing these steps, and identify who is responsible for each step
Disadvantages of electronic brainstorming
- Expense of computers, networks, software, and so on
- Anonymity of ideas may bother people who are used to having their ideas accepted by virtue of their position
- outgoing individuals who are more comfortable expressing themselves verbally may find it difficult to express themselves in writing
- Participants must be able to type
Multivariable testing improves decision making by
- encouraging managers to conduct small-scale tests and let the data decide
- saves time and money by using mathematical shortcuts so that just a few quick tests get 70% of the information that is needed
