Decision Making Flashcards
Decision Making
The process of developing a commitment to some course of action
- process - commitment - course of action
Problem
a perceived gap between an existing state and a desired state
Well structured problem
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
Program
a standardized way of solving a problem
Ill-structured problem
- a problem for which the existing and desired states are unclear and the method of getting the desired state is unknown
Assumptions of the Rational Model
-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
Perfect Rationality:
A decision strategy that is completely informed, perfectly logical, and oriented toward economic gain
Bounded Rationality:
A decision strategy that relies on limited information and that reflects time constraints and political considerations
Time constraints
Reliance on flawed memory; Obtain too little or irrelevant information; Potential ignorance of or miscalculation of values and probabilities; etc.
Self-interest
Criteria for solution evaluation involve political factors to please others and factors that protect self-image
How are Decisions Actually Made?
- 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
Impact of Bounded Rationality on the Model
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
Evaluating Alternatives:
maximisation is followed: Expected value of alternatives
Solution Implementaiton
implementation depends on others whose ability and motivation vary.
Solution Evaluation
Justification
Escalation of Commitment
Hindsight bias
Problem Framing
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.
Groupthink
The capacity for group pressure to damage the mental efficiency, reality testing, and moral judgment of decision- making groups
why group think happens
Strong identification with the group
Concern for group’s approval
Isolation of the group from other sources of information
some groupthink symptoms
- Illusion of invulnerability
- Rationalization
- Illusion of morality
- Stereotypes of outsiders
- Pressure to conform
- Self-censorship
- Illusion of unanimity
- Mindguards
Illusion of invulnerability
(members overconfident – ignore danger signals)
Rationalization
(problems are rationalized away)
Illusion of morality
(decisions are perceived as morally correct)
Stereotypes of outsiders
unfavorable stereotypes of those outside the group)
Pressure to conform
(members pressure each other to conform with group’s views)
Self-censorship
(members convince themselves to avoid voicing opinions contrary to group)
Illusion of unanimity
(members perceive unanimous support)
Mindguards
(some members “protect” the group from information that goes against decisions)
Judgmennt Shortcuts/ Heuristics
Decision makers allow systematic bias and errors to creep into judgements to minimize effort and avoid trade offs
Overconfidence Bias
Believing too much in our own ability to make good decisions - especially when outside of own experience
Anchoring bias
Using early, first received information as the basis for making subsequent judgement
Devils Adovcate Rule
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
Risks and Groups - risky shift
the tendency for groups to make riskier decisions than the average risk initially advocated by individual team members
Conservative Shift:
the tendency for groups to make less risky decisions than the average risk initially advocated by their individual members.
Escalation of Commitment
- 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.)
Escalation of Commitment Why?
- 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)
Escalation of Commitment: What can we do?
- 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
Emotions & Decision Making
- good mood
- 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.
People in a negative mood.
prone to approach decisions in a more deliberate, systematic, detailed way.
Information search - Too little information
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
Too much information - Information overload
the reception of more information than is necessary to make effective decisions
Why use groups
- Decision quality
- Decision acceptance and commitment
- Diffusion of responsibility
Decision quality
groups are more vigilant than individuals, groups can generate more ideas, groups can evaluate ideas better than individuals can
Decision acceptance and commitment -
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
Diffusion of responsibility
the ability of group members to share the burden of the negative consequences of a poor decision
