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Lecture Notes_chapter 11.doc

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Management (MGH)
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Xuefeng Liu

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Organizational Behavior Ted Mock Lecture Notes Chapter Eleven Decision Making Perfect versus Bounded Rationality Perfect Rationality – the assumption that decision making is an entirely rational process and that the decision maker is perfectly informed with all necessary information, is perfectly logical and is not influenced in any way by emotional issues. The soul orientation of the decision maker is economic gain. Bounded Rationality – more closely reflects real world decision making. Decision makers have limited information, limited time and are influenced by emotional and political considerations. Framing – how a problem is viewed eg. Focus on the risks of a bad decision or focus on the rewards of a good decision. When we frame a problem as a choice between losses, we tend to make risky decisions. When we frame alternatives as choices between gains, we tend to make conservative decisions (Kahneman and Tversky) Confirmation bias – the tendency to seek out information that conforms with our own definition of or solution to the problem Information overload – too much information – beyond the cognitive capacity of the decision maker. Often becomes difficult to separate important information from unimportant information Satisficing – accepting an “adequate” level of acceptability for a solution rather than an optimum or maximum solution. To obtain an outcome that is good enough. "Satisficing" means deciding what constitutes a satisfactory outcome and then looking for ways to achieve it. We stop looking when we have "satsficed ." Sunk costs – resources that have been invested and lost due to past decisions. These looses should not affect future decisions (but they often do) Escalation of commitment – the tendency to invest additional resources in an apparently failing project. • Supporters of the Iraq War have used the casualties of the conflict in Iraq since 2003 to justify years of further military commitment, despite worsening conditions and lack of progress towards defined objectives or resolution. This rationale was also used during the sixteen-year Vietnam War, another military example of the logical fallacy Organizational Behavior Ted Mock Group Decision Making Benefits: Groups are more vigilent than individuals – more people scanning the environment Groups can generate more ideas than individuals Groups can evaluate ideas better than inviduals People wish to be involved in decisions that involve them People better understand a decision in which they pariticipated People aare more committed to a decision in which they invested personal time and energy Diffusion of Responsibility – group members share the burden of responsibility for a poor decision. This might lead group members to go along with decisions they personally consider wrong or too risky. Groupthink – a problem associated with high group cohesiveness as well as strong identification with the group, concern for group approval and isolation of the group from other sources of information. The strong promotion of an idea by the group leader is among the strongest causes. Eight Main Symptoms of Group Think 1. Illusion of Invulnerability: Members ignore obvious danger, take extreme risk, and are overly optimistic. 2. Collective Rationalization: Members discredit and explain away warning contrary to group thinking. 3. Illusion of Morality: Members believe their decisions are morally correct, ignoring the ethical consequences of their decisions. 4. Excessive Stereotyping: The group constructs negative stereotypes of
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