Chapter 7 Decision Making Flashcards
Which one is the objective of decision making process?
Make it more rational, to give us consistency in the decision
What is the definition of decision making?
Is what manager’s do.
Steps of the decision making process
- Identify the problem
- Identify criteria
- Allocate weights to the criteri
- Developing alternatives
- Analyzing alternatives
- Selecting an alternative
- Implement the alternative
- Evaluate the decision
Rational decision making
Choices are consistent
Choices are maximizing value
Choices are made within specific constraints
Assumptions of rationality
- Problem is clear an unambiguous
- Single well-defined goal is to be achieved
- All alternatives and consequences are known
- Preferences are clear
- Preferences are constant and stable
- No time or cost constraint exist
- Final choice will maximize pay off
Bounded rationality
More realistic approach to describing how managers make decisions, managers are bounded by their ability to process information
Intuitive decision making
Making decisions on the basis of experience, feelings and accumulated judment.
Problem
Discrepancy between what you have vs what you want
Problem identification
Discrepancy between what you think you have vs what you really have
Structured problems and programmed decisions
Programmed solution : repetitive dcisions that can be handle by a routine approach.( policy, rule, procedure)
Structured problem: clear and easy to define
Unstructured problem
Problems that are new or unusual and for which information is ambiguous or incomplete
Nonprogrammed decisions
Unique and nonrecurring and involve custom-made solutions
Decisions making conditions
Certainty: ideal situation for making decisions
Risk: more common, conditions in which the deciaion maker is able to estimate the likelihood of certain outcomea
Uncertainty: no certain about outcomes and can’t even make reasonable probability estimates.
Decision making styles
Your thinking style reflects two things
1. The source of information you tend to use (external data and facts or internal sources such as feelings and intuition)
- Wheter you process that information in a linear way (rational, logical, and analytical) or nonlinear way (intuitive, creative, and insightful)
Linear thinking style
Preference for using external data and facts and processing this information through rational, logical thinking to guide decisions and actions
Nonlinear thinking style
Preference for internal sources of information (feelings and intuition) and processing this information with internal insights, feelings and hunches to guide decisions and actions
Managerial decision making :
The decision making process is afected by four factors
- The decision making approach
- The type of problem
- Decision making conditions
- Decision making style
Decision making errors nd biases
- Overconfidence bias
- Inmedite gratification bias
- Anchoring effect
- Selctive perception bias
- Confirmation bias
- Framing bias
- Availability bias
- Representation bias
- Randomness bias
- Sunk cost error
- Self-selving bias
- Hindsight bias
An effective decision making process:
- Focuses on what is important
- It is logical and consistent
- Acknowledges both logical and objective thinking and blends analytical with intuitive thinking
- Requires only as much information and analysis as is necessary to resolve a particular dilemma
- Encourages and guides the gathering of relevant information and informed opinion
- It is straightforward, reliable, easy to use and flexible
Desicions
It affects many people
Affects the organizations in the long-term
Why we study decision making in planning?
Because planning is where you make more decisions, because the decisions we make in planning affect the rest of the process
Rational decision making
Consistency, value maximizing, specific constrai ts
Bounded rationality decision making
Consistency
value maximizing
within specific constaints
limited by the individuals capacity to process information
Intuitive decision making
Experience
Feelings
Accumulate judment
