Lecture 6 Flashcards
Define “decision-making”
The act or process of choosing a preferred option or course of action from a set of alternatives. It precedes and underpins almost all deliberate or voluntary behaviour and can occur unconsciously.
Explain how decision are made across the organisation
‘Strategic’ decisions to shape the future and performance of an organisation
Tactical’ decisions’ regarding the organisation of work
Operational’ decisions made under pressure
Give 3 models of decision-making
Prescriptive models: Recommend how individuals should behave in order to achieve a desired outcome.
Descriptive model: reveal how individuals actually make (made) decisions.
Explanatory models: look at what decisions were made and aim to provide an explanation of how they occurred.
Why are the PDCA and DMAIC models limited?
Because they are limited to describing planning
What is PDCA?
What is DMAIC?
Explain the rational decision-making model
Describes how individuals should behave in order to maximize some outcome.
• Another prescriptive decision-making model
Rational choice vs Bounded rationality
Classic decision theory: Decision-makers are rational agents
Formal rationality: Quantitative calculations that are possible and applied
Substantive rationality: Calculations of value (of whatever kind)
What is the link between perceptions and decision making
What is the attribution theory
When we observe an individual’s behaviour, we attempt to determine whether it was internally or externally caused
What 3 factors does attribution depend on?
Distinctiveness: showing different behaviours in different situations
Consensus: responding the same as others in similar situation.
Consistency: acting the same way over time.
What are 2 fundamental attribution errors
Underestimating the influence of external factors
Overestimating the influence of internal/personal factors
How is attribution an example of bounded rationality
How do heuristics relate to biases?
Heuristics enable biases
Heuristics can come at a cost of accuracy
Errors in decision-making due to heuristics
What are heuristics
“Rules of thumb” strategies
Reduce effort (information processing)
Often sub-conscious + implicit
Name the 13 biases and their description
What do Busenitz and Barnez (1997) say about individual differences in decision-making
Heuristics + biases impact strategic decision-making
Heuristics + biases can lead to effective + efficient decision-making (if environment = uncertain / complex)
Heuristics may + useful for entrepreneurs than managers of stable companies
Other indiv. diff. also impact decision-making (ex: sensation seeking)
Explain the 3 environmental condition that Busenitz & Barney (1997) describe
Stable equilibrium
Bounded instability (or chaos)
Explosive instability
Why are biases important for organizational decision-making?
“reduction in gain” effect amongst bankers & traders
“break even” effect amongst bankers & traders
Explain the “reduction in gain” effect
- Trader’s risk aversion lessens as their financial performance (profit)
- Subsides as returns diminishes (and not to pre-profit level)
Explain the “break even” effect
- Reduces risk aversion
- Lost money becomes increasingly attractive to win back (uncertain loss) rather than to fold (certain loss)
- Investment account closure research shows similar trend
