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BUS 272 Lecture Notes - Scenario Planning, Representativeness Heuristic, Mental Model

Business Administration
Course Code
BUS 272
Graeme Coetzer

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Identify the
problem or
Choose the
Choose the
Chapter 7
Decision Making and Creativity
Decision Making
- Reports blame bad decision making by BP and its contractors for the disaster on the
Deepwater Horizon drilling platform in the Gulf of Mexico
- A conscious process of making choices among one or more alternatives with the
intention of moving toward some desired state of affairs
Rational Choice Paradigm
- Effective decision makers identify, select, and apply the best possible alternatives
- Use logic and all available information to choose the alternative with the highest value
- Two key elements of rational choice
o Subjective expected utility probability (expectation) of satisfaction (utility) for
each specific alternative in a decision.
Determines choice with highest value (maximization), such as, highest
returns for stockholders and highest satisfaction or customers,
employees, government, and other stakeholders.
o Decision making process systematic application of stages of decision making
- All decisions rely to some degree on:
o The expected value of the outcomes (utility)
o The probability of those good or bad outcomes occurring (expectancy)
- Rational choice decision process
1. Identify problem/opportunity
o Problem: a deviation between the current and the desired situation
o Opportunity: a deviation between current expectations and a potentially better
situation that was not previously expected.
2. Choose decision process
o Programmed: follow standard
operating procedures; they
have been resolved in the past
o Nonprogrammed: the
problems are new, complex,
or ill-defined.
3. Discover/develop alternatives
o Search, then develop
4. Choose best alternative
o Subjective expected utility
5. Implement choice
6. Evaluate choice

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Problems with the Rational Choice Paradigm
- It seems logical, but it is impossible to apply in reality.
- In reality, people have difficulty recognizing problems
- Focuses on logical thinking and ignores the fact that emotions also influence the process
Problem Identification Challenges
- Problems and opportunities are constructed from ambiguous information, not given to
- Influenced by cognitive and emotional biases
- Five problem identification challenges
o Stakeholder framing
filter information to amplify or suppresses the seriousness of the
situation to earn profit
Stakeholders throw a spotlight on specific causes of the symptoms and
away from other possible causes
Frame problems in ways that raise the value of resources they can
provide to help the organization solve those problems
o Mental models
Visual and relational images in our mind of the external world
Prototypes represent models of how things should be
Blind us from seeing unique problems or opportunities
Produce a negative evaluation of things that are dissimilar to
the mental model
o Decisive leadership
Quickly forming an opinion of whether an event signals a problem or
opportunity (which is bad)
o Solution-focused problems
Provides comforting closure to the otherwise ambiguous and uncertain
nature of problems (esp. for people with a strong need for cognitive
The familiarity of past solutions makes the current problem less
ambiguous or uncertain
o Perceptual defence
Peoples brains refuse to see information that threatens their self-
Recent studies report that people are more likely to disregard danger
signals when they have limited control over the situation
Identifying Problems Effectively
- Be aware of perceptual and diagnostic limitations
- Fight against pressure to look decisive
- Maintain divine discontent (aversion to complacency)
- Discuss the situation with colleagues see different perspectives
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