Chapter 7

Question 1

Define decision making, rational choice decisions and explain how rational choice decisions are made.

Answer 1

1. Decision making is the conscious process of choosing between alternatives to reach a desired state of affairs.
2. Rational choice decision making involves calculating the probability that various outcomes will occur from the choices and the expected satisfaction from each of those outcomes.
   * Rational choice: probability outcome occurs x valence of outcome

Question 2

List the 6 steps in the rational choice decision-making process.

Answer 2

Rational choice decision-making process:

1. Identify problem or opportunity:

• Problem: difference between the current situation and the desired situation (goals).
• Opportunity: deviation between current expectations and potentially better situation that was not previously expected.

2. Choose the best decision process
3. Discover or develop possible solutions
   * Ready made solution or custom made solution tailored to situation
4. Select the choice with the highest value
   * Applying rational choice calculation
5. Implement the selected choice
   * Assuming nothing goes wrong
6. Evaluate the selected choice
   * Determine if the problem gap has narrowed.

Question 3

List 5 problems that may occur with problem identification.

Answer 3

Problems with problem identification

1. Solution-focussed problems:
   * Phrasing a problem in terms of a solution (eg. we need more control over our suppliers) fails to adequately describe the underlying problem.
2. Decisive Leadership

• Leaders are evaluated on how quickly they decide whether a situation is a problem and what they problem is.
• The pressure creates hasty decisions that result in misguided effort to solve ill-defined problems or work on poorly identified opportunities.

3. Stakeholder framing

• Employees, suppliers, customers and other stakeholders manipulate information to frame how decision makers view the situation.
• The complexity, amount and ambiguity of information makes it hard for decision makers to see the truth.

4. Perceptual defense
   * People block out bad news as a coping mechanism and this is more common when decision makers have limited options to solve the problem.
5. Mental models

• Mental models are internal prototypes of how things should be.
• We may be blind to unqiue problems or opportunities because we are quick to dismiss things which disagree with our mental model.

Question 4

List 3 ways to better identify problems and opportunities.

Answer 4

1. Be aware of the five problem identification biases.
2. “divine discontent”: never be satisfied with current conditions and always actively search for problems and opportunities.
3. Get input from colleagues and clients about the situation

Question 5

Define bounded rationality.

Answer 5

1. Bounded rationality: people are bounded in their decision making capabilities, including limited information, limited information processing, and favouring satisficing rather than maximising.
   * Not possible to apply rational decision making because goals are ambiguous, information processing is flawed, maximisation is impossible.

Question 6

List 3 problems with information processing.

(1, 2-3, 3-4)

Answer 6

1. Decision makers only evaluate a few alternatives and only some of the main outcomes of those alternatives.
2. Decision makers have an implicit favourite and alternatives are compared sequentionally with this favourite because alternatives are rarely available all at once.

• Humans prefer to compare two choices than to systematically evaluate.
• Conserves cognitive effort by quickly forming an initial favourite and finding evidence to support this choice (confirmation bias).
• To avoid cognitive dissonance we will distort information to ensure it supports our implicit favorite

3. Biased decision heuristics:

• Anchoring and adjustment heuristic: we are attached to our initial anchor points and don’t sufficiently stray from them despite reason.
• Availability heuristic: tendency to estimate the probability of something occuring by how easily we can recall those events.
• Representativeness heuristic: we pay more attention to whether something resembles something else than to more precise statistics about its probability. (prototyping, mistaking similarity with cause and effect)

Question 7

Define satisificing and explain why people do it over maximising.

(1-1, 2-2)

Answer 7

1. Satisficing refers to selecting an alternative that is “good enough” rather than the alternative with the highest value.
   * A way to conserve cognitive effort.
2. Necessary because there is usually insufficient time, information and information processing capacity to choose the best choice.

• Too mmany alternatives with numerous features and the qualities of these features are ambiguous
• Alternatives are not always available at the same time.

Question 8

Explain why decision makers may not evaluate opportunities accurately.

Answer 8

1. Opportunities are exciting and rare and decision makers may be emotionally attached to them.
   * This motivates them to pursue the opportunitiy without critically evaluating the details.

Question 9

State the 3 ways that emotions affect the decision making process.

Answer 9

1. Emotions Form Early Preferences
   * Emotions shape our initial preference for each alternative before we consciously evaluate them and this exerts a strong influence on which we prefer.
2. Emotions Change the Decision Evaluation Process

• Moods and specific emotions influence the process of evaluating alternatives.
• Negative mood: pay more attention to details
• Positive mood: pay less attention to details and rely on programmed decision routines.

3. Emotions Serve as Information When we Evaluate Alternatives

• When relevant, how we feel about different alternatives serves as guidance when making choices.
• Eg. we may choose the car we feel best about when we imagine ourselves driving it, rather than the technically best car.

Question 10

Define intuition and explain how it works. State what influences an intuitions accuracy and how it speeds up the decision making process.

(1-3, 2, 3)

Answer 10

1. Intuition is the ability to know when a problem or opportunity exists and to select the best course of action without conscious reasoning.

• Intuition involves rapidly comparing our observations with deeply held patterns learned through experience.
• “templates of the mind” represent tacit knowledge that has been implicitly acquired over time.
• Depending on how a situation fits with our mental model, our intuition will signal to us emotions that indicate whether a problem or opportunity exists before we are consciously aware of it.

2. Our level of experience with the situation determines whether our emotions represent true intuitions or not.
3. Intuition shortens the decision-making process by jumping from problem identification to selection of a solution using action scripts: programmed decision routines that speed up our response to pattern matches or mismatches.

Question 11

State 3 ways to make choices more effectively.

Answer 11

1. Decisions are worse when leaders are decisive rather than contemplative about the available options.
   * Longer decision times help decision makers minimise the implicit favourite and satisficing problems that occur when relying on subjective hasty judgements.
2. Decision makers should wait till their initial emotions subside before evaluating the information.
3. Scenario planning: thinking about future possiblities and what the organisation should do to anticipate and react to those environments.
   * Plans solutions in advance to avoid decision making under presure and emotions.

Question 12

Define escalation of commitment, self-justification effect, self-enhancement effect, prospect theory effect, sunk-cost effect and how to evaluate decision outcomes more effectively.

(1, 2-2, 3-3, 4-2, 5-1, 6-4)

Answer 12

1. Escalation of commitment is the tendecy to repeat a bad decision or allocate more resources to a failing course of action.
2. Self-justification effect:

• People want to convey a positive public image by appearing rational and competent.
• DMs are therefore motivated to prove that their choices will be successful by continuing to support a decision even if it is failing.

3. Self-enhancement effect

• People have a natural tendency to feel good about themselves regarding things that are important to them. (More confident)
• Makes DMs intepret negative information as a temporary aberrations from an otherwise positive trend line.
• Different from self-justification in that it operates nonconsciusly, distorting information so we do not recognise problems sooner.

4. Prospect Theory effect

• Prospect theory effect is the tendency to experience stronger negative emotions when losing something of value than the positive emotions of gaining something of equal value.
• Stopping a project is a certain loss, so it evokes more negative emotions that the uncertainty of success associated with continuing to fund the project.

5. Sunk-cost effect
   * The greater the amount of resources invested into a project, the more decision makers are motivated to continue investing in that project.
6. Evaluating decision outcomes more effectively

• Ensure the people who make the original decision are not the same people evaluating it.
• Publicly establish a preset level at which the decision is abandoned or reevaluated
• Find a source of systematic and clear feedback
• Include several people in the evaluation process.

Question 13

Define creativity and its 4 stages.

Answer 13

1. Creativity is the development of orignal ideas that make a socially recognised contribution.
2. Stage 1: Preparation
   * Developing a clear understanding of what you are trying to achieve through a novel solution and actively studying related information and skills.
3. Stage 2: Incubation

• Not consciously thinking about a problem but still maintaining a low-level awareness by frequently revisiting the problem .
• Assists divergent thinking - reframing the problem in a unique way and generating different approaches to the issue.

3. Stage 3: llumination

• Refers to the experience of suddenly becoming aware of a unique idea
• Ideas at this point are vauge and roughly drawn.

4. Stage 4: verification
   * Illuminated ideas and fleshed out and subjected to detailed logical evaluation and experimentation.

Question 14

List and elaborate on 4 individual characteristics that influence creativity.

Answer 14

1. Cognitive and practical intelligence

• Creative people have above-average intelligence to synthesize information, analyse ideas, and apply their ideas.
• Recognise small but significant bits of information and connect them in unique ways
• Skilled in evaluating the potential usefulness of their ideas. (practical intelligence)

2. Persistence

• Creative people have higher persistence stemming from a higher need for achievement, intrinsic motivation or high self-esteem.
• Vital to continue working and thinking about the project despite failures

3. Knowledge and experience

• Creative people require a foundation of knowledge and experience to generate new knowledge.
• However, more knowledge about the topic may lead to more rigid thinking

4. Independent imagination

• Creative people possess a cluster of personality traits and values that support independent imagination:
  
  • high openness to experience
  • moderately low need for affiliation
  • strong values around self-direction and stimulation

Question 15

List 6 organisational conditions that support creativity.

Answer 15

Organisational conditions supporting creativity

1. Learning orientation: where a workplace tolerates resonable mistakes and expects them as part of the discovery process.
2. Task significance and autonomy
3. Open communication and sufficient resources
4. A comfortable degree of job security
5. Nontraditional workspaces such as unique building designs or unconventional office areas.
6. Support and encouragement from coworkers and leaders.

Question 16

List 3 activities that contribute to creativity and explain how they do so.

Answer 16

Activities that encourage creativity:

1. Redefining the problem

• Revisit projects that have been set aside
• Ask for different perspectives from coworkers unfamilar with the issue

2. Associative play

• Creative thinking emerges naturally from playful activities, and then carries over to work-related problem solving
• eg. morphological analysis involving systematically ingestigating all combinations of characteristics of a product, event, or other target.

3. Cross-pollination

• Cross-pollination occurs when people from different areas of the organisation exchange ideas or when new people are brought into an existing team.
• Highlights that creativity rarely occurs alone.

Question 17

Define design thinking and list and explain the 4 rules of design thinking.

Answer 17

1. Design thinking is a human-centered, solution-focused creative process that applies both intuition and analytical thinking to clarify problems and generate innovative solutions.
2. The Human Rule

• Design thinking is a collaborative team activity integrating numerous perspectives
• Human-centered because designers need to empathise with clients and end users and involve them in the design process.

3. Ambiguity Rule

• Creativity and experimentation are possible only when there is ambiguity in the problem.
• Design thinkers preserve ambiguity and do not assume a client’s original problem statement is accurate
• Continue to search for possible solutions even if a likely one is found or make more than one solution.

4. Re-design rule
   * Designers should review past solutions to understand their flaws and limitations and use foresight tools to imagine better solutions.
5. Tangible rule
   * Build many actual prototypes rather than analyse ideas at a conceptual level

Question 18

Define employee involvement and give 3 examples of different levels of employee involvement.

Answer 18

1. Employee involvement is the extent to which employees influence how their work is organised and carried out.

• Low level: Employees are asked for specific information but the problem is not described
• Higher level: Employees are described the problem and given responsibility to develop recommendations
• Highest: Employees are fully responsible for deciding how to solve the problem.

Question 19

State the benefits of employee involvement.

(1-3)

Answer 19

1. Employee involvement potentially improves decision-making quality and commitment.

• Improves the identification of problems and opportunities
• Potentially improves the number and quality of solutions generated because employees contribute more ideas, perspectives and valuable knowledge.
• Strengthens employee commitment to the decision because they feel personally responsible for its success and reduces the likelihood of resistance to changes.

Question 20

List and explain 4 factors influencing the extent of employee involvement.

Answer 20

1. There is an optimal level of employee involvement depending on the situation.
2. Decision structure

• Programmed decisions require less employee involvement because solutions already exist.
• Benefits of employee involvement increase with the novelty and complexity of the problem or opportunity.

3. Source of decision knowledge
   * Subordinates should be involved in decision making if leaders lacks sufficient knowledge and subordinates are closer to the problem.
4. Decision commitment
   * Participation tends to improve employee commitment to the decision so some level of involvement is usually necessary.
5. Risk of conflict

• If employee goals and norms conflict with the organisation’s goals, only a low level of employee involvement is advisable.
• Degree of involvement also depends on the extent that employees are likely to agree with each other on the solution. If agreement is low, conflict is likely to occur and involvement should be minimised.