Chapter Seven Individual & Group Decision Making

How Managers Make Things Happen

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, All Rights Reserved.

The Nature of Decision Making

Decision
choice made from among available alternatives

Decision making
process of identifying and choosing alternative courses of action

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Decision-Making Styles

Figure 7.1
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Rational Decision Making

Rational model of decision making
explains how managers should make decisions assumes managers will make logical decisions that will be optimum in furthering the organizations interest also called the classical model

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Nonrational Decision Making

Nonrational models of decision making
assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions

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Bounded Rationality
Bounded Rationality
suggests that the ability of decision makers to be rational is limited by numerous constraints

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Satisficing and Incremental Models

Satisficing Model
managers seek alternatives until they find one that is satisfactory, not optimal

Incremental Model
managers take small, short-term steps to alleviate a problem

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Intuition Model
Intuition
making a choice without the use of conscious thought or logical inference

Sources of intuition are expertise and feelings

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Analytics
Analytics
sophisticated forms of business data analysis Portfolio analysis, time-series forecast also called business analytics

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Advantages of Group Decision Making

Greater pool of knowledge Different perspectives Intellectual stimulation Better understanding of decision rationale Deeper commitment to the decision

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Disadvantages of Group Decision Making

A few people dominate or intimidate Groupthink Satisficing Goal displacement

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Groupthink
Groupthink
occurs when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situation

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Participative Management
Participative Management
process of involving employees in setting goals, making decisions, solving problems, and making changes in the organization

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Group Problem-Solving Techniques

Consensus
occurs when members are able to express their opinions and reach agreement to support the final decision

Brainstorming
technique used to help groups generate multiple ideas and alternatives for solving problems

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Common Decision-Making Biases

1. 2. 3. 4. 5. 6. Availability bias Confirmation bias Representativeness bias Sunk cost bias Anchoring and adjustment bias Escalation of commitment bias

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REVISION
1. (p. 205) The rational model of decision making assumes that managers will make decisions that will optimize their organizations' interests.
TRUE OR FALSE

TRUE
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2. (p. 207) The rational model is descriptive.

TRUE OR FALSE
FALSE The rational model is prescriptive, describing how managers ought to make decisions.

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3. (p. 211) Intuitive skills are as important as rational analysis in many decisions. TRUE OR FALSE

TRUE Intuition has at least two benefits: (1) It can speed up decision making, useful when deadlines are tight. (2) It can be helpful to managers when resources are limited.
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4. (p. 220) Shakil, a manager, has to make a decision about a new procedure to be used by workers in the department. There is no great urgency in the situation. Shakil should make the decision by himself. TRUE OR FALSE FALSE Since group decisions are generally better decisions than most individual's action alone and since there is no time constraint, Shakil should likely make the decision with the department workers. This has the added benefit of allowing the workers to contribute to the decision and thus be more likely to abide by it.
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5. (p. 215) Capital One uses responsive modeling by conducting more than 30,000 experiments a year.

TRUE OR FALSE
FALSE Predictive modeling is a data mining technique used to predict future behavior and anticipate the consequences of change. Capital One conducts predictive modeling.
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