Chapter 6 & 9 : Decision Making

1. Decision Making
1) Management Science (MS / OR; Operation Research)
-Algorithm
2) Management Information System (MIS)
-Expert system
-DDS (Decision Support System)
3) Organizational Behavior (OB)
-Cognitive Theory, Psychology
-perceptual tendency

2. Assumption of Rational Decision making model

1) Rational Decision Making Model
Describes how individuals behave in order to maximize some outcome

2)

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Problem clarity
Known options
Clear preferences
Constant preferences
No time or cost constraints
Maximum payoff

3)
(Define the problem)
(identify the decision criteria)
(Allocate weights to the criteria: price, design, color, function etc.)
(Develop the alternatives)

 (Evaluate the alternatives_

(Select the best alternative)

3. Bounded Rationality
1) Bounded rationality model
Individuals make decisions by constructing simplified models that extract the essential features from all their
complexity
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2) H. Simons Bounded Rationality Model

-limited Rationality
- Best decision, optimal decision potential probability Satisfcing decision making
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-Satisficing: Satisfactory + sacrifice
- Satisfaction level . pre-determined level
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4. How Are Decisions Actually Made in Organizations?

1) Bounded Rationality

2) How/ Why problems are Identified

- Visibility over importance of problem
Attention catching, high profile problems
Desire to solve problems
- Alternative Development
Satisficing (satisfactory & sacrificing): seeking the first alternative that solves problem
Engaging in incremental rather than unique problem solving through success limited comparison of alternatives to
the current alternative in effect.

3) Intuition
Intuitive decision making
- .
- .
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Conditions favoring intuitive decision making
-high level of uncertainty exists
-little precedent to draw on
-variables are less scientifically predictable
-Facts are limited
-facts dont clearly point the way
-Analytic data are of little use
-several plausible alternative solutions exist
-time is limited and pressing for the right decision

5. (Common Biases and errors)

1) (overconfidence Bias)
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2) (Anchoring Bias)
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3) (Confirmation Bias)
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4) (Availability Bias)
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5) (escalation of commitment)
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-when you find yourself in a hole the best way is stop digging

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7) (Hindsight Bias)
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-looking back, once the outcome has occurred, and believing that you accurately predicted the outcome of an event

8) Representative Bias
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-human beings tend to think one event is identical to preexisting category
-Assessing the likelihood of an occurrence by trying to match it with a preexisting category using only the facts that
support our decision
9) Winners curse
-highest bidder pays too much
-likelihood of winners curse increase the number of people in auction
-, bidding
Ex)

10) Randomness error

-creating meaning out of randomness event

6.
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1) (personality)
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-Aspects of conscientiousness and escalation of commitment
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Self Esteem High self-serving bias

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1) (Performance Evaluation0
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-Evaluation criteria influence the choice of actions

2) (Reward System)
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-Decision makers make action choices that are favored by the organization
Ex) 1930 1980 : GM .
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3) (Formal Regulations)
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-Organizational rules and polices limit the alternative choices of decisions makers

4) (System-imposed Time constraints)

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-Organizations requires decisions by specific deadlines

5) (Historical Precedents)
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-past decisions influence current decisions

8. Toward Reducing Bias and Error ( )

1) Focus on goals
-create goals make decision making easier and help to eliminate options inconsistent with your interests.

2) Look for information that disconfirms beliefs

-overtly considering ways we could be wrong challenges our tendencies to think were smarter than we actually are

3) Dont try to create meaning out of random events

-Dont attempt to create meaning out of coincidence

4) Increase your option

-The number and diversity of alternative increases the chance of finding an outstanding one.

9. Group Decision Making

1) Decision making
-Large groups facilitate the pooling of information about complex tasks.
-Smaller groups are better suited to coordinating and facilitating the implementation of complex tasks.
-Simple, routine standardized tasks reduce the requirement that group processes be effective in order for the group to
perform well.

2)
Strengths
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More complete information
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Increased diversity of views

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Higher quality of decisions ( more accuracy)

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Increased acceptance of solutions

* team score > average score

-diversity among members
-free communication
-task should be complex

Weaknesses
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More time consuming
(pressure to conform):


Increased pressure to conform

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Domination by one or a few members
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Ambiguous responsibility

-competent leader
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Best individual score > Team score > Average Individual score
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1) overly risk-taking: diffusion if responsibility: (HAWKISH PARTY WINS!)

2) group polarization: confirmation bias, needs for belonging
3) rationalization & Justification: cuba invasion
4) Illusion of morality: Organizational crime
5) Illusion of unanimity: Conformity pressure

10.

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1) (Group Think)

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1) (Brain storming)
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2) (Nominal group technique)

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3) (Electronic meeting)
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[] []Chapter 6 & 9 : Decision Making |