Descision Making Flashcards
Problem
perceived discrepancy between the current state of affairs and a desired state
problem for me is not necessarily a problem for you
problems are organizational bound
oriblem are national culture bound
Decisions
choices made from among alternatives developed from data perceived as relevant
Perception of decision maker leads to outcomes, subjective
Decision making models
rational decision making
bounded rationality
Outcome bias
we place too much weight on outcome and are not critical enough about process
hindsight bias
see events that have occurred as being more predictable than they were before they took place
“I knew it all along” effect
bad decisions that went well are repeated
how decisions are made
Content of decisions
structured or unstructured problems
operational or strategical
Context
urgency
organizational characteristics
decision makers’ attributes
Rational decision making
homo economicus: searching for the best value maximizing choice
define problems, identify criteria and allocate weights to those, develop alternatives, evaluate alternatives, select best one, implement, evaluate
assumptions of Rational Model (not true)
Complete knowledge of the situation
all relevant options are known in an unbiased manner
time is important
clear goal: the decision maker seeks the highest utility
Rational model in Reality?
- Limited search for problem definition, decision criteria and alternatives = we stick to easy alternatives,
- We choose alternatives, similar ones to those already in effect
- satisficing- selecting the first alternative that is good enough (stick effect)
4.Intuition
WHY? Managers are humans
Bounded rationality
Managers are bounded by their ability to process information
Perception: we perceive things differently
We make sense
Emotion: we fall in love, we have stress
Bias: we convince ourselves that
Satisficing: we are quickly satisfied
We have no time
how does brain work?
according to emotions, biases and perceptions
Dual process theory
System 1: The cheater, reptile brain (habit, emotion based)
Default: always on
Fast
Intuitive: impulsive stereotypes, perception and emotion
What You See Is All There Is
System 2: Logical machine, the scientist (fact based)
Lazy, works only when we want it to
Slow
Wants facts, use rules
Looks actively for information: it can overrule system 1 but extrmely lazy
Relation between System 1 & System 2
System 1 is always on and busy
System 2 has two tasks: Controlling System 1
Helping System 1
When system 2 is tired, system 1 gets the say
System 1 and system 2 always fight. System 1 generally wins
Heuristics (information processed shortcut)
simple, efficient rules which people often use to form judgments and make decisions.
They are mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others
Errors that result from these are called Cognitive Biases
Selective perception / attention
directing our awareness to some stimuli while ignoring other» why? there is a limit of info we can process
Applications ( in marketing)
Priming
Nudging
Priming (suggestion)
Familarity Bias: use of selective attention, important for marketing (repeat messages, color, etc)
Putting System 1 in the right mood
Nudging
gentle push toward good direction although all options stay open and person can choose (usually in social marketing)
It make use of all kind of heurisitics
The decoy effect
makes the best option look even better by introducing (eg middle option)