MGTS1601 Lecture 12: Decision Making 1
Lecture 12 - Decision Making 1
Dollar Auction
● Is based on a game where there is an auction between 2 people for a $1 bill.
● Both auctioneers will put in their first bid. After this, it seems irrational for them to stop
there and not bid up the price.
○ Ex. if auctioneer ‘B’ bids up to 92 cents from ‘A’’s 90 cent bid, ‘A’ can bid up to
94 cents only losing 2 extra cents or, if ‘A’ drops out of the auction they’ll have
to pay out their 90 cents. After this, if ‘A’ bids up again, ‘B’ is left in a similar
situation.
● The winner receives the $1 bill while the other participant must pay the price of their
last bid. This bidding process would theoretically continue since both players don’t
want to lose.
● The behavior of the auctioneers that seems rational at the time, could lead to an
undesirable consequence.
What Is Decision Making?
● Decision making is the process of developing a commitment to a chosen course of
action.
● Decision making can also be described as a process of problem
● A problem exists when a gap is perceived between some existing state and some
desired state.
● Decisions can be Programmed or Non-Programmed
● Reference – great book: Khaneman (2011) Thinking, Fast and Slow
Well-Structured Problems: Programmed Decisions
● Existing state is clear, the desired state is clear, and how to get from one state to
another is fairly obvious.
● Repetitive and familiar - can be “programmed” - making their solutions arise
controversy.
○ Example situation - Welfare officer: How much assistance should this client
receive?
● A program is a standardized way of solving a problem. - Programs short-circuit the
decision-making process since the decision maker is going directly from the problem
to solution.
○ Other programs are more formal. At UPS, drivers’ routes are programmed to
avoid left-hand turns so that they do not idle waiting for oncoming tra c to
clear. In one year, this saved 3 million gallons of fuel and reduced emissions
by 32,000 tonnes.
● They are also known as rules, routines, standard operating procedures, or rules of
thumb.
● They provide efficient means of solving well structured problems.
● Intuitive decision making relies on this
● Reference – interesting book: Gladwell (2005) Blink: The Power of Thinking Without
Thinking
● “Thin-slicing” - our ability to use limited information from little experience to come
to a conclusion.
Document Summary
Is based on a game where there is an auction between 2 people for a bill. Both auctioneers will put in their first bid. After this, it seems irrational for them to stop there and not bid up the price. Ex. if auctioneer b" bids up to 92 cents from a""s 90 cent bid, a" can bid up to. 94 cents only losing 2 extra cents or, if a" drops out of the auction they"ll have to pay out their 90 cents. After this, if a" bids up again, b" is left in a similar situation. The winner receives the bill while the other participant must pay the price of their last bid. This bidding process would theoretically continue since both players don"t want to lose. The behavior of the auctioneers that seems rational at the time, could lead to an undesirable consequence. Decision making is the process of developing a commitment to a chosen course of action.
