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Lecture 11

COMM 222 Lecture 11: chapter 11.docx


Department
Commerce
Course Code
COMM 222
Professor
John Vongas
Lecture
11

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I. What is Decision Making?
Decision making is the process of developing a commitment to some course of action. This is a process that involves making a
choice, and it also involves making a commitment of resources such as time, money or personnel.
A problem exists when a gap is perceived between some existing state and some desired state. Decision making is also a
process of problem solving.
A. Well-Structured Problems
In a well-structured problem, the existing state is clear, the desired state is clear, and how to get from one state to the other
is fairly obvious. Organizations prefer a program or standardized way of solving a problem when dealing with well-structured
problems. Programs short-circuit the decision-making process by enabling the decision-maker to go directly from problem
identification to solution. Many of the problems encountered in organizations are well structured and programmed. Decision making
is a useful means of solving these problems.
B. Ill-Structured Problems
In an ill-structured problem, the existing and desired states are unclear, and the method of getting to the desired state is
unknown. These problems are usually unique, complex, and have not been encountered before. Ill-structured problems cannot be
solved with programmed decisions. In dealing with these problems, organizations use non-programmed decision making which
means that they will gather more information and be more self-consciously analytical in their approach. Ill-structured problems can
entail high risk and stimulate political considerations.
II. The Complete Decision Maker — A Rational Decision-Making Model
When a rational decision maker identifies a problem, he or she is likely to search for information to clarify the problem and suggest
alternatives; evaluate the alternatives and choose the best for implementation. The implemented solution is then monitored over time
to ensure its immediate and continued effectiveness. If difficulties occur at any point in the process, repetition or recycling may be
effected.
A. Perfect versus Bounded Rationality
Perfect rationality involves a decision strategy that is completely informed, perfectly logical, and oriented toward economic gain.
While useful for theoretical purposes, these characteristics do not exist in real decision makers. According to Herbert Simon,
administrators use bounded rationality rather than perfect rationality. While they try to act rationally, they are limited in their
capacity to acquire and process information, and time constraints and political considerations also act as bounds to rationality.
Framing and cognitive biases illustrate the operation of bounded rationality.
Framing refers to aspects of the presentation of information about a problem that are assumed by decision makers. How problems
and decisions are framed can have a powerful impact on resulting decisions.
Cognitive biases are tendencies to acquire and process information in an error-prone way. They involve assumptions and
shortcuts that can improve decision making efficiency but frequently lead to serious errors in judgment.
B. Problem Identification and Framing
The perfectly rational decision maker, infinitely sensitive and completely informed, should be a great problem identifier. Bounded
rationality, however, can lead to several difficulties in problem identification:
Perceptual defense. The perceptual system may act to defend the perceiver against unpleasant perceptions.
Problem defined in terms of functional specialty. Selective perception can cause decision makers to view a
problem as being in the domain of their own specialty.
Problem defined in terms of solution. This form of jumping to conclusions short-circuits the rational decision-
making process.
Problem diagnosed in terms of symptoms. A consideration on surface symptoms will provide the decision
maker with few clues about an adequate solution.
C. Information Search
Once a problem has been identified, a search for information is instigated. The perfectly rational Economic Person has free and
instantaneous access to all information necessary to clarify the problem and develop alternative solutions. Bounded rationality,
however, suggests that information search might be slow and costly.
Too little information. Decision makers may collect insufficient information to make a good decision because people are mentally lazy
and tend to use whatever information is available in memory. Unfortunately, our memory is more selective then representative — we
remember vivid, recent events. Overconfidence in decision making is also a problem and it is reinforced by confirmation bias -
the tendency to seek out information that conforms to one's own definition of or solution to a problem. These biases lead people to
shirk the acquisition of additional information.
Too much information. Information overload is the reception of more information than is necessary to make effective
decisions. Information overload can lead to errors, omissions, delays, and cutting corners. Decision makers often attempt to use all
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of the information and get confused and permit low quality information or irrelevant information to influence their decisions. While
information overload causes decision quality to deteriorate, decision makers become more confident of their decisions.
D. Alternative Development, Evaluation, and Choice
At times a decision maker may exhibit maximization which is the choice of a decision alternative with the greatest expected
value. Unfortunately, the decision maker operating under bounded rationality may not know all alternative solutions and may be
ignorant of the ultimate values and probabilities of success for known alternatives.
People are weak intuitive statisticians. They have trouble with base rates, sample size, probability estimates of multiple event
scenarios, and the revision of estimates. An example of this last problem is the anchoring effect which is the inadequate
adjustment of subsequent estimates from an initial estimate that serves as an anchor. This occurs even when subsequent estimates
are far more sophisticated than the original, naive estimate.
The perfectly rational decision maker can evaluate alternative solutions against a single criterion – economic gain. The decision
maker who is bounded by reality might have to factor in other criteria as well, such as the political acceptability of the solution to
other organizational members. This increases the complexity of the decision-making task.
As a consequence of the overwhelming complexity of rational decision making, the decision maker operating under bounded
rationality frequently “satisfices” rather than maximizes. Satisficing means that the decision maker establishes an adequate level
of acceptability for a solution to a problem and then screens solutions until one that exceeds this level is found.
E. Risky Business
The role of risk in decision making is also fertile ground for the issue of framing. Research by Kahneman and Tversky shows that
when people view a problem as a choice between losses, they tend to make risky decisions, rolling the dice in the face of a sure
loss. When people frame the alternatives as a choice between gains, they tend to make conservative decisions, protecting the sure
win.
F. Solution Implementation
Once a decision is reached, the solution must be implemented. Decision makers are often dependent on others to implement
decisions, and it might be difficult to anticipate their ability or motivation to do so.
G. Solution Evaluation
The perfectly rational decision maker should be able to evaluate the effectiveness of decisions with calm, objective detachment.
However, the bounded decision maker might encounter problems at this stage of the process.
Justification. People tend to be overconfident about the adequacy of their decisions. Many organizations are lax when it comes to
evaluating the effectiveness of expensive programs. If bad news cannot be avoided, erring decision makers might devote energy to
trying to justify a faulty decision. The justification of faulty decisions is best seen in the irrational treatment of sunk costs. Sunk
costs are permanent losses of resources incurred as the result of a decision. The key word here is “permanent.” Since these
resources have been lost (sunk) due to a past decision, they should not enter into future decisions. However, people often do “throw
good resources after bad,” acting as if they can recoup sunk costs. This process is escalation of commitment to an
apparently failing course of action, in which the escalation involves devoting more and more resources to actions implied by the
decision. One reason for this is dissonance reduction. As well, because changing one's mind is often perceived as a weakness,
many wrong decisions continue to be endorsed in the name of consistency. Escalation of commitment might also be due to the way
in which decision makers frame the problem once some resources have been sunk. Attempts to prevent the escalation of
commitment might include the following:
Reframe the problem from one of spending to one of saving.
Set specific goals that must be met before additional resources are invested.
Evaluate managers on how decisions are made instead of outcomes.
Separate initial and subsequent decision making.
Hindsight. The careful evaluation of decisions is also inhibited by faulty hindsight. Hindsight refers to the tendency to review a
decision-making process to find out what was done right or wrong. People practicing hindsight are exhibiting the knew-it-all-along
effect which assumes after the fact that we knew all along what the outcome of a decision would be. Another form of faulty hindsight
is the tendency to take personal responsibility for successful decision outcomes while denying responsibility for unsuccessful
outcomes.
H. How Emotion and Mood Affect Decision Making
Emotions also play a role in decision making. Strong emotions frequently figure in the decision-making process that corrects ethical
errors (Chapter 12) and strong (positive) emotion has also been implicated in creative decision making and the proper use of
intuition to solve problems. Such intuition (Chapter 1) can lead to the successful short-circuiting of the steps in the rational model
when speed is of the essence. There are also many cases in which strong emotions are a hindrance such as when people
experiencing strong emotions are often self-focused and distracted from the actual demands of the problem at hand.
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