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Chapter 7 on Decision Making and Creativity.docx

7 Pages

Business Administration
Course Code
BUS 272
Graeme Coetzer

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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 Identify the operating procedures; they problem or have been resolved in the past opportunity Choose the o Nonprogrammed: the Evaluate best problems are new, complex, outcomesn decision process or ill-defined. 3. Discover/develop alternatives o Search, then develop Implement 4. Choose best alternative the alternative selected solutions o Subjective expected utility alternative 5. Implement choice Choose the best 6. Evaluate choice alternative 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 us” - 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 closure)  The familiarity of past solutions makes the current problem less ambiguous or uncertain o Perceptual defence  People’s brains refuse to see information that threatens their self- concept  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 Making Choices - Bounded rationality: people process limited and imperfect information and rarely select the best choices Rational Choice Paradigm Assumptions Observations from Organizational Behavior Goals are clear, compatible, and agreed upon Goals are ambiguous, conflicting, and lack agreement People are able to calculate all alternatives People have limited information processing and their outcomes abilities Evaluate all alternatives simultaneously Evaluate alternatives sequentially - As a new alternative comes along, it is compared to the implicit favourite (a preferred alternative that the decision maker uses repeatedly as a comparison with other choices) Use absolute standards to evaluate Evaluate alternatives against an implicit alternatives favourite Make choices using factual information Make choices using perceptually distorted information Choose the alternative with the highest payoff Choose the alternative that is good enough (SEU) (satisfice) Biased Decision Heuristics - People have built-in decision heuristics that bias evaluation alternatives o Anchoring and adjustment heuristic  Initial anchor point (first information) influences evaluation of subsequent information o Availability heuristic  We estimate probabilities by how easy we can recall the event, even though other factors influences ease of recall
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