Decision Making

Question 1

Decision Making

Answer 1

Process of developing a commitment (dedication of resources) to some course of action
Involves making a choice among alternatives
Automatic and reflective styles

Question 2

Well-Structured Problems

Answer 2

Existing state is clear, desired state is clear, how to get from one to the other is obvious
Simple problems
Solutions arouse little controversy
Programmed decision making

Question 3

Ill Structured Problems

Answer 3

Existing and desired states are unclear and method to getting to desired state is unknown
Unique, unusual, not encountered before
Complex, uncertain
Frequently arouse controversy and conflict
Non-programmed decision making

Question 4

Perfect Rationality (the perfect thinker / homoeconomicus)

Answer 4

Decision strategy that is completely informed, perfectly logical, and oriented toward economic gain
Useful for theoretical purpose

Question 5

Bounded Rationality (the bounded thinker)

Answer 5

Try to act rationally
Limited in capacity to acquire and process info
Use shortcuts and heuristics to make decisions

Question 6

Framing

Answer 6

Aspects of the presentation of info about a problem that are assumed by decision makers
Gain framing people avoid risk (encourages conservative decisions)
E.g. can save ⅓ plants and 2000 jobs
Loss framing people seek risky option (encourages risk)
E.g. plan will result in loss of ⅔ plants and 4000 jobs

Question 7

Cognitive Biases

Answer 7

Tendencies to acquire and process info in a way prone to error
Shortcuts to improve efficiency but with errors in judgment

Question 8

Anchoring & Adjustment

Answer 8

People start from an anchor and then adjust (any number in your head serves as a starting point)
Once anchor is set, the outcome is biased around the anchor (doesn’t matter where the number comes from)
Awareness and extreme counter anchoring can disrupt an initial anchor
E.g. charities anchor donation amounts, restaurants anchor tip amounts

Question 9

Anchoring & Adjustment Study

Answer 9

Students wrote down last two digits of SS#, then bid on items
Students with higher last two digits, willing to pay more for products

Question 10

Problem Identification & Bounded Rationality

Answer 10

Perceptual defence: defend perceiver against unpleasant perceptions
Problem defined in terms of functional speciality: selective perception can cause viewing a problem as being in domain of own specialty when some other perspective is needed
Problem defined in terms of solution: jumping to conclusions short circuits the rational decision making processes
Problem diagnosed in terms of symptoms: concentrating on surface symptoms provides few clues about good solutions

Question 11

Info Search & Bounded Rationality

Answer 11

Too little info
-Availability bias: mental laziness causing us to use only readily available info
-Confirmation bias: tendency to seek out info that conforms to one’s own definition of or solution to a problem
-Not invented here bias: tendency to ignore or harbour negative attitudes toward ideas from outside one’s organization or team
Too much info
-Information overload: reception of more info than is necessary to make effective decisions
-Can lead to errors, omissions, delays, cutting corners

Question 12

Alternative Development, Evaluation, & Choice

Answer 12

Possible to reduce cognitive biases by making people more accountable for decisions
Satisficing
Maximization

Question 13

Maximization

Answer 13

Choose alternative with greatest expected value

Question 14

Availability

Answer 14

Prediction of how likely something is influenced by how easily it’s recalled or how readily examples come to mind
E.g. people think more words that start with k over ones that have k as third letter

Question 15

Satisficing

Answer 15

Decision maker establishes an adequate level of acceptability for a solution and then screens solutions until one is found that exceeds this level

Question 16

Justification

Answer 16

People tend to be overconfident about their decisions
Dissonance emerges when decision turns out poorly
Sunk costs
Escalation of commitment

Question 17

Sunk Costs

Answer 17

Permanent losses of resources incurred as the result of a decision

Question 18

Escalation of Commitment

Answer 18

Devoting more and more resources to actions implied by the decision
Can occur in both competitive and non competitive situations

Question 19

Avoiding Escalation of Commitment

Answer 19

Be alert for excessive optimism early in project cycle
Encourage continuous experimentation
Set specific goals for project
Place more emphasis on how decisions are made and less on outcomes
Separate initial and subsequent decisions

Question 20

Representativeness

Answer 20

People respond based on people’s similarities or stereotypes
E.g. where does Linda work if she has philosophy degree, outspoken, etc

Question 21

Hindsight

Answer 21

Tendency to review the decision making process to find out what was done right or wrong
Can be useful but also reflects cognitive bias
E.g. take personal responsibility for successful decision outcomes while denying responsibility for poor outcomes

Question 22

Emotions/Mood & Decision Making

Answer 22

People often become emotionally attached to failing course of action
Mood affects how and what people think when making decisions (most impact in ambiguous situations)
Negative mood = remember more negative info and vice versa

Question 23

Group Decision Making Advantages

Answer 23

Decision quality
-groups more vigilant
-generate more ideas
-evaluate ideas better
Decision acceptance and commitment
-people want to be involved in decisions that affect them
-understand & commit to decisions you participate in
Diffusion of responsibility

Question 24

Diffusion of Responsibility

Answer 24

Each member of the group shares part burden for negative consequences

Question 25

Subjective Value Function

Answer 25

Objective value: actual value
Subjective value: what something is worth to you
More we get of something, the less we value increments of that thing
E.g. would prefer winning $30 over $10, but when is $1010 vs $1030 don’t have as strong of preference
E.g. at beginning of relationship more willing to drive 2 hours to see them for 15mins

Question 26

When Do Groups Make Better Decisions

Answer 26

Group members differ in relevant skills and abilities
Some division of labour can occur
Memory for facts is an important issue
Individual judgments can be combined by weighting them to reflect the expertise of the members

Question 27

Disadvantages of Group Decision Making

Answer 27

Conflict
Time (time increases with group size, groups don’t work efficiently)
Domination (if dominate by single person/coalition benefits not realized)
Groupthink

Question 28

Groupthink

Answer 28

When group pressures lead to reduced mental efficiency, poor testing of reality, lax moral judgment
Strong group identification, concern for approval, isolation of group from outside sources of info promote groupthink
Promotion of single idea by group leader plays a big role

Question 29

Stimulating & Managing Controversy

Answer 29

Assign devil’s advocate
-Challenges existing plans/strategies
-find weaknesses and explain them

Question 30

Groups & Risk

Answer 30

Risky shift: groups advise riskier decisions than individuals
Conservative shifts: groups advise less risky decisions than when they made decisions individually
If members are conservative before interaction more likely to become more conservative and vice versa

Question 31

Evidence Based Management

Answer 31

Making decisions through the conscientious, explicit, and judicious use of best available evidence from multiple sources

Question 32

Crowdsourcing

Answer 32

Outsourcing aspects of a decision process to a large collection of people
Capitalize on merits of group decision making on a large scale

Question 33

Analytics

Answer 33

Finding meaningful patterns in large datasets using conventional stats, mathematical modeling, and techniques to represent data visually

Question 34

Big Data

Answer 34

Copious amounts of info often collected in real time and coming from variety of sources

Question 35

Issues With Analytics & Big Data

Answer 35

Privacy issues, unintended consequences, overfitting, creating overly complex models

Question 36

Prospect Theory

Answer 36

We’re more impacted by losses compared to gain
Loss of X hurts twice as much as a gain of X pleases

Question 37

Judge-Advisor Paradigm

Answer 37

Judge makes final decisions, advisor provides advice
Read background info, judge makes initial decision, advisor makes recommendation, judge weighs initial decision and advice, makes final choice

Question 38

Egocentric Advice Discounting

Answer 38

People underweight advice from others and overweight their own opinions
Particularly true when decision makers perceive their own opinions as superior

People on average lean toward their initial opinion
High power people discount advice even more than control
Low power people weigh advice of others more than their own