Decision Making Flashcards
Decision Making
Process of developing a commitment (dedication of resources) to some course of action
Involves making a choice among alternatives
Automatic and reflective styles
Well-Structured Problems
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
Ill Structured Problems
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
Perfect Rationality (the perfect thinker / homoeconomicus)
Decision strategy that is completely informed, perfectly logical, and oriented toward economic gain
Useful for theoretical purpose
Bounded Rationality (the bounded thinker)
Try to act rationally
Limited in capacity to acquire and process info
Use shortcuts and heuristics to make decisions
Framing
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
Cognitive Biases
Tendencies to acquire and process info in a way prone to error
Shortcuts to improve efficiency but with errors in judgment
Anchoring & Adjustment
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
Anchoring & Adjustment Study
Students wrote down last two digits of SS#, then bid on items
Students with higher last two digits, willing to pay more for products
Problem Identification & Bounded Rationality
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
Info Search & Bounded Rationality
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
Alternative Development, Evaluation, & Choice
Possible to reduce cognitive biases by making people more accountable for decisions
Satisficing
Maximization
Maximization
Choose alternative with greatest expected value
Availability
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
Satisficing
Decision maker establishes an adequate level of acceptability for a solution and then screens solutions until one is found that exceeds this level
Justification
People tend to be overconfident about their decisions
Dissonance emerges when decision turns out poorly
Sunk costs
Escalation of commitment
Sunk Costs
Permanent losses of resources incurred as the result of a decision
Escalation of Commitment
Devoting more and more resources to actions implied by the decision
Can occur in both competitive and non competitive situations
Avoiding Escalation of Commitment
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
Representativeness
People respond based on people’s similarities or stereotypes
E.g. where does Linda work if she has philosophy degree, outspoken, etc
Hindsight
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
Emotions/Mood & Decision Making
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
Group Decision Making Advantages
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
Diffusion of Responsibility
Each member of the group shares part burden for negative consequences
Subjective Value Function
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
When Do Groups Make Better Decisions
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
Disadvantages of Group Decision Making
Conflict
Time (time increases with group size, groups don’t work efficiently)
Domination (if dominate by single person/coalition benefits not realized)
Groupthink
Groupthink
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
Stimulating & Managing Controversy
Assign devil’s advocate
-Challenges existing plans/strategies
-find weaknesses and explain them
Groups & Risk
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
Evidence Based Management
Making decisions through the conscientious, explicit, and judicious use of best available evidence from multiple sources
Crowdsourcing
Outsourcing aspects of a decision process to a large collection of people
Capitalize on merits of group decision making on a large scale
Analytics
Finding meaningful patterns in large datasets using conventional stats, mathematical modeling, and techniques to represent data visually
Big Data
Copious amounts of info often collected in real time and coming from variety of sources
Issues With Analytics & Big Data
Privacy issues, unintended consequences, overfitting, creating overly complex models
Prospect Theory
We’re more impacted by losses compared to gain
Loss of X hurts twice as much as a gain of X pleases
Judge-Advisor Paradigm
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
Egocentric Advice Discounting
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
