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Lecture 12

BUS 272 Lecture Notes - Lecture 12: Subculture, Bounded Rationality, Confirmation Bias

Business Administration
Course Code
BUS 272
Christopher Zatzick

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Rational Decision-Making Model
1. Define the problem
2. Identify the criteria
Relevant to making the decision
Brigs the deisio aker’s iterests, alues, siilar persoal preferees ito the proess
o Not all individuals will consider the same factors
3. Allocate weights to the criteria
4. Develop alternatives
5. Evaluate the alternative
6. Select the best alternative
Why rational decision making is hard to do:
o Bounded rationality
o Judgement shortcuts in the decision-making process
o Use of intuition to make some decisions
Bounded rationality
Individuals make decisions by constructing simplified models that extract the essential features from problems
w/o capturing all their complexity
o Limited by ability to interpret, process, act on information
Sometimes we satisfice
o idetif a solutio that is good eough
Judgement Shortcuts
Overconfidence bias = too optimistic
Anchoring bias = tendency to fixate on initial information and fail to adequately adjust for subsequent
Confirmation bias = specific case of selective perception
o Seek out information that reaffirms our past choices, discount information that contradicts them
Availability bias =tendency for people to base their judgements on information that is readily available
o Events that evoke vivid emotions or have occurred more recently
Esalatio of oitet = staig ith a deisio ee he there is lear eidee that it’s rog / ie
themselves as responsible for the failure
Intuitive Decision Making
Non-conscious process created from distilled experience
Occurs outside conscious thought, usually engages emotions
Used he it’s hard to ake a kid of ratioal aalsis of the iforatio or he there is tie pressure
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