Chapter 7 Flashcards
a choice made from alternatives
decision
the process of identifying and choosing alternative courses of action
decision making
the problem solving process
- intelligence (collect info about problem)
- design (think about courses of action)
- choice (pick most viable course of action)
- implementation (follow through)
- monitoring (see how it worked)
decision making that is analytical but slow to act; managers are logical decision makers who strive to make the optimal decision and always act in organization’s best interests; managers strive for certainty to achieve maximum benefit
rational decision making
emotional decision making that is impulsive and often guided by habits; managers are human beings making decisions in a risky or uncertain environment; they often find it difficult to make optional decisions
nonrational decision making
phenomenon that people with greater knowledge and expertise often find it difficult to see things from a less-informed person’s point of view
curse of knowledge
four steps in the rational decision-making process
- identify the problem or opportunity
- generate alternatives
- evaluate alternatives and pick the one with the maximum benefit
- implement the solution and evaluate it
assumptions of rational decision-making process
- goals are well-established and the problem is well-defined and unambiguous
- decision maker is rational and uses logic
- decision maker does not face time or cost constraints
- decision maker operates in an environment of perfect info
- decision maker knows all criteria
- preferences are clear, constant and stable
- decision maker knows all consequences of alternatives
- final choice maximizes benefits
drawbacks of rational decision making model
- almost impossible in the real world
- most decisions too complex
- organizations face time and money constraints
- managers have diff cognitive capacities, values and skills
- managers often face risk, uncertainty, imperfect info, and info overload
- managers often face conflicting goals
decision-making model that explains how managers actually make decisions; assumes that decision making is nearly always uncertain and risky
nonrational models of decision making
also known as a behavioral model, this model explains that managers seek alternatives until they find one that is satisfactory, not optimal
satisficing model; first proposed by economist Herbert Simon
person who believed that managers’ ability to act logically was bound by many restrictions, such as complexity, time and money constraints, imperfect info, etc.
Herbert Simon
shortcuts or “rules of thumb” often used by managers because of time constraints
judgmental heuristics
making a choice without the use of conscious thought or logical interference
intuition
model used by managers when they make decisions based on “gut feelings”
intuition model
is intuition a substitute for rational-decision making?
no, it is a complement to it
reflects how an individual perceives and responds to info
decision-making style
refers to whether a person focuses on people and social concerns or task and technical concerns when faced with making decisions
value orientations
individual who needs a high degree of structure and control in his or her life and decisions and thus finds ambiguous situations stressful
… has low tolerance for ambiguity
individual who is able to thrive in uncertain situations and is comfortable with ambiguity and lack of control
… has high tolerance for ambiguity
four decision making styles
- analytical
- conceptual
- directive
- behavioral
person who is efficient, practical, systematic, action-oriented and decisive; individual focuses on facts, prefers clear-cut solutions, is concerned about short run, and exercises power of control; generally relies on exisiting rules and makes quick decisions
directive style decision-making
ex: Ken Kutaragi (PlayStation)
person who carefully considers a lot of info and alternatives; takes him or her longer to make a decision; person responds well to new situations and is more willing to be innovative
analytical style decision-making
ex: Warren Buffett
person takes a socially-oriented, humanistic, and artistic approach to problem-solving; considers many options and focuses on long term. person takes risks, develops creative solutions, enjoys new ideas, and relies on intuition
conceptual style decision-making
ex: Steve Jobs
person is people-oriented and works well with others; avoids conflict, shows concern for others, is receptive to suggestions, prefers info to be communicated in person rather than writing
behavioral style decision-making
ex: Herb Kelleher
refers to a situation in which a manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps; importance, credibility, and urgency considered
deciding to decide
a reaction in which a manager decides to take no action in the belief that there will be no great negative consequences; complacency
relaxed avoidance
a reaction in which a manager realizes that complete inaction will have negative consequences and opts for the first available alternative that involves low risk; satisficing
relaxed change
a reaction in which a manager can’t find a good solution and proceeds to procrastinate, pass the buck, or deny the risk of any negative consequences; denial of responsibility
defensive avoidance
a reaction in which a manager is so frantic to get rid of a problem that he or she can’t deal with the situation realistically
panic
occurs when managers use info that is readily available from memory to make judgments
availability bias
tendency to generalize from a small sample or single event
representative bias
when a person seeks info that supports his or her point of view and discounts data that do not
confirmation bias
when a manager adds up all the money already spent on a project and concludes that it would be too costly to simply abandon it
sunk cost bias
the tendency to make decisions based on an initial figure; problems arise when initial info is faulty or not relevant
anchoring adjustment bias
occurs when people have more subjective confidence in their decision making than their objective accuracy
overconfidence bias
occurs when people tend to view past events as more predictable than they really were
hindsight bias
occurs when decision makers are unduly influenced by the way a problem or situation is presented
framing bias
occurs when a decision maker increases his or her commitment to a project despite negative info about it
escalation of commitment bias
