Decision making

Question 1

Define Bounded rationality

Answer 1

The idea that when individuals make a decision their rationality is limited as a consequence of the information that they hold, cognitive limitations in their minds, and the time available to them.

Question 2

Explain System 1 and system 2 thinking

Answer 2

System 1: Intuitive system - typically fast, automatic, effortless, implicit and emotional. E.g. reading simple sentences, determining which object is bigger than another etc.
System 2: Reasoning - slower, conscious, effortful, explicit and logical.

Question 3

Name and explain four types in decision making

Answer 3

Programmed decision is one that is routine, non-complex, and with outcomes that are predictable.
Non-programmed decision: a decision that is unique to the situation and that requires a unique solution.
Structured
Unstructured

Question 4

Name and explain four types of conditions in decision making

Answer 4

Certainty is rare but can occur in situations where variables are measurable and a quantitative calculation provides information that informs the best decision.

Risk entailed managers making judgement about the likely outcome of alternatives. Is strongly associated with uncertainty.

Ambiguity refers to situations where goals are not clear or well understood or the means by which they are to be achieved are uncertain.

Uncertainty involves an element of risk as managers make decisions without having all the information when assessing alternatives.

Question 5

Name and explain four types of decision styles

Answer 5

Directive style: is based on rules, procedures, and regulations.
Analytical style: is characterised by careful consideration of information in unique situations.
Conceptual style: maintains a broad outlook and considers many alternatives in making decisions. There is a high level of tolerance for ambiguity.
Behavioural style: relies on being receptive to suggestions from others who have access to information and knowledge.

Question 6

Name three choices of actions

Answer 6

Best alternative: maximizing satisficing
Implementation
Evaluation

Question 7

Explain four types of biases

Answer 7

Heuristics: using “rule of thumb” to simplify decision making
Overconfidence bias: unrealistically positive views of performance or capability
Gratification bias: choosing an alternative that delivers immediate reward
Anchoring effect: concentrating mostly on initial information
Selective-perception bias: decision based on the decision maker’s biased perception
Confirmation bias: seeking information that reaffirms past choices
Framing bias: focusing undue attention on certain aspects of a situation
Availability bias: compromising objectivity by focusing on recent events
Randomness bias: excessive influence of random events in the environment
Representation bias: adopting inappropriate analogies
Sunk cost bias: failure to see that current actions cannot change past events
Self-serving bias: taking credit for success but not responsibility for failure.
Hindsight bias: thinks an event could have been predicted after the fact

Question 8

Define and explain the garbage can model

Answer 8

A model of decision making based on the assumption that the environment is characterized by extreme uncertainty and that responses to that environment are neither rational nor predicable. Four key streams that coalesce to inform decision making in a highly ambiguous environment:

Choice opportunities: pre-set times when decisions have to be made (for example a promotion round)

Participants: the people who have the influence to present opportunities (for example marketing managers who present challenges to production staff for adapting an existing product)

Problems: problems that concern people (for example a service delivery expectation)

Solutions: problems that require solutions (for example new ideas)

Question 9

Define the Political model

Answer 9

a decision making model that recognises the influence of groups with different interests, aims, and beliefs within an organisation.

Question 10

Define the Intuitional model

Answer 10

instinctive knowledge or insight without conscious reasoning.

Question 11

Define the Administrative model of decision making

Answer 11

A model that recognises the limitations of decision making in ambiguous and unclear situations when information is incomplete

Question 12

Explain the Rational decision model

Answer 12

Decisions based on consistent choices designed to maximise economic returns. Contains seven steps:

1. Identify the problem
2. Information gathering
3. Analysis of the situation
4. Develop options
5. Evaluate the options
6. Select a decision
7. Implement the decision

Question 13

Name the six steps in the decision making process

Answer 13

1. Approach
2. Error and biases
3. Choice and action
4. Style
5. Conditions
6. Types

Question 14

Define decision

Answer 14

Decision making is a position or judgment reached after due consideration and a choice has been made between alternative courses of action. Decisions are reached using cognitive process, memory, thinking, intelligence, analysis and evaluation.