Decision Making

Question 1

Decision Making

Answer 1

The process of developing a commitment to some course of action
- process - commitment - course of action

Question 2

Problem

Answer 2

a perceived gap between an existing state and a desired state

Question 3

Well structured problem

Answer 3

a problem for which the existing state is clear, the desired state is clear, and how to get from one state to the other is fairly obvious

Question 4

Program

Answer 4

a standardized way of solving a problem

Question 5

Ill-structured problem

Answer 5

• a problem for which the existing and desired states are unclear and the method of getting the desired state is unknown

Question 6

Assumptions of the Rational Model

Answer 6

-Problem is clear and unambiguous
- We know all options
- We have clear preferences (for weighting)
- Preferences are constant (weights are stable over time)
- No time or cost constraints
- Maximum payoff
- Rational Model relies on rational thinking

Question 7

Perfect Rationality:

Answer 7

A decision strategy that is completely informed, perfectly logical, and oriented toward economic gain

Question 8

Bounded Rationality:

Answer 8

A decision strategy that relies on limited information and that reflects time constraints and political considerations

Question 9

Time constraints

Answer 9

Reliance on flawed memory; Obtain too little or irrelevant information; Potential ignorance of or miscalculation of values and probabilities; etc.

Question 10

Self-interest

Answer 10

Criteria for solution evaluation involve political factors to please others and factors that protect self-image

Question 11

How are Decisions Actually Made?

Answer 11

• We often rely on automatic thinking
• Full of Bias and Heuristics
• We tend to only focus on visible problems
• We satisfice - identify a solution that is good enough
• use intutition

Question 12

Impact of Bounded Rationality on the Model

Answer 12

Problem Identification: Confusing symptoms with problem

• Selective perception/perceptual defense: we don’t see things that are unpleasant.

Seeking Information: inadequate/overload info gathering due to availability bias

Confirmation bias: ‘decision-based evidence making’!

Not invented here bias:. Impact on innovation

Information overload: lead to errors, omission, lack of clarity

Question 13

Evaluating Alternatives:

Answer 13

maximisation is followed: Expected value of alternatives

Question 14

Solution Implementaiton

Answer 14

implementation depends on others whose ability and motivation vary.

Solution Evaluation
Justification
Escalation of Commitment
Hindsight bias

Question 15

Problem Framing

Answer 15

Framing refers to the manner in which objectively equivalent alternatives are presented

• If information is framed positively (gain frame), it encourage conservative decisions. We take the sure thing over a chance at gaining more.
• If information is framed negatively (loss frame), it encourages risk. We take a chance at losing less rather than accept a sure loss.

Question 16

Groupthink

Answer 16

The capacity for group pressure to damage the mental efficiency, reality testing, and moral judgment of decision- making groups

Question 17

why group think happens

Answer 17

Strong identification with the group
Concern for group’s approval
Isolation of the group from other sources of information

Question 18

some groupthink symptoms

Answer 18

• Illusion of invulnerability
• Rationalization
• Illusion of morality
• Stereotypes of outsiders
• Pressure to conform
• Self-censorship
• Illusion of unanimity
• Mindguards

Question 19

Illusion of invulnerability

Answer 19

(members overconfident – ignore danger signals)

Question 20

Rationalization

Answer 20

(problems are rationalized away)

Question 21

Illusion of morality

Answer 21

(decisions are perceived as morally correct)

Question 22

Stereotypes of outsiders

Answer 22

unfavorable stereotypes of those outside the group)

Question 23

Pressure to conform

Answer 23

(members pressure each other to conform with group’s views)

Question 24

Self-censorship

Answer 24

(members convince themselves to avoid voicing opinions contrary to group)

Question 25

Illusion of unanimity

Answer 25

(members perceive unanimous support)

Question 26

Mindguards

Answer 26

(some members “protect” the group from information that goes against decisions)

Question 27

Judgmennt Shortcuts/ Heuristics

Answer 27

Decision makers allow systematic bias and errors to creep into judgements to minimize effort and avoid trade offs

Question 28

Overconfidence Bias

Answer 28

Believing too much in our own ability to make good decisions - especially when outside of own experience

Question 29

Anchoring bias

Answer 29

Using early, first received information as the basis for making subsequent judgement

Question 30

Devils Adovcate Rule

Answer 30

A person appointed to identify and challenge the weaknesses of a proposed plan or strategy - Introduces controversy - Brings in extra information - Illuminates full pros and cons of decision Can be used to challenge groupthink

Question 31

Risks and Groups - risky shift

Answer 31

the tendency for groups to make riskier decisions than the average risk initially advocated by individual team members

Question 32

Conservative Shift:

Answer 32

the tendency for groups to make less risky decisions than the average risk initially advocated by their individual members.

Question 33

Escalation of Commitment

Answer 33

- Ecscalation of commitment refers to the tendency to invest additional resources in an apparently failing course of action. - Throw good resources after bad, acting as if one can recoup sunk costs (Sunk costs are permanent losses of resources incurred as the result of a decision. Since these resources have been lost due to a past decision, they should not enter into future decisions.)

Question 34

Escalation of Commitment Why?

Answer 34

- People want to reduce dissonance by recouping the “sunk cost” (Self- Justification Theory) - Overconfidence (Confirmation Bias) Irrational belief that the additional investment will succeed - Problem framing after a sunk cost (Loss Aversion based on Prospect Theory) A decision between a sure loss of x dollars and an uncertain loss of x+y dollars - Social norms favor consistent behavior (Impression Management)

Question 35

Escalation of Commitment: What can we do?

Answer 35

- Actively seek disconfirming information about a chosen alternative - Reframe losses as gains to prevent risk-seeking behavior - Structure incentives so that decision makers are not punished for inconsistency - Hand off decisions about whether to commit more resources to an investment to new decision makers - Be careful not to consider expended resources when making decisions - Make sure decision makers are frequently reminded of the goals of the investment

Question 36

Emotions & Decision Making - good mood

Answer 36

- tend to overestimate the likelihood that good events will occur and underestimate the occurrence of bad events. People in a bad mood do the opposite. - tend to adopt simplified, shortcut decision-making strategies, more likely violating the rational model.

Question 37

People in a negative mood.

Answer 37

prone to approach decisions in a more deliberate, systematic, detailed way.

Question 38

Information search - Too little information

Answer 38

Availability bias - the tendency to favour information that can be accessed quickly and easily Conformation bias - the tendency to seek out information that conforms to one’s own definition of or solution to a problem Not-invented-here bias - the tendency to ignore or harbour negative attitudes toward ideas from outside one’s organization or project team

Question 39

Too much information - Information overload

Answer 39

the reception of more information than is necessary to make effective decisions

Question 40

Why use groups

Answer 40

- Decision quality - Decision acceptance and commitment - Diffusion of responsibility

Question 41

Decision quality

Answer 41

groups are more vigilant than individuals, groups can generate more ideas, groups can evaluate ideas better than individuals can

Question 42

Decision acceptance and commitment -

Answer 42

people wish to be involved in decisions that will affect them, people will better understand a decision in which they participated, people will be more committed to a decision in which they invested personal time and energy

Question 43

Diffusion of responsibility

Answer 43

the ability of group members to share the burden of the negative consequences of a poor decision