Chapter 11 NOTES.docx

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Western University
Management and Organizational Studies
Management and Organizational Studies 2181A/B
Milford Green

Chapter 10- Decision Making - Decision making: the process of developing a commitment to some course of action 3 steps-  First, Making a choice (carry more or less inventory)  Second, Process of how (why choose this offer)  Third, Commitment of resources (time, money…)  It is a process of problem solving o Problem: A perceived gap between an existing state and a desired state.  Involves the perception of the existing state, the conception of the desired state and the steps to get from one to the other. - Well-structured problems: A problem for which the existing state is clear, the desired state is clear and how to get from one state to the other is fairly obvious. o Problems are repetitive and familiar o Programs implemented to make decision o Program: A standardized way of solving a problem  Enables the decision maker to go directly from problem identification to solution  Go under labels as rules, routines, procedures  EX. UPS - Ill structured problems: A problem for which the existing and desired states are unclear and the method of getting to the desired state is unknown o Problems are unique and have not been encountered o Arose controversy or conflict / Complex and involve uncertainty - The Complete Decision Maker - Stages o Problem identification o Information search o Development of alternative solutions o Evaluation of alternative solutions o Solution choice o Solution Implementation o Solution evaluation - Perfect Rationality: A decision strategy that is completely informed, perfectly logical and oriented toward economic gain. (Economic Person) - Bounded Rationality: A decision strategy that relies on limited information and that reflects time constraints and political considerations o Framing: Aspects of the presentation of information that are assumed by decision makers.  Assumptions of boundaries, outcomes, determining success o Cognitive Biases: Tendencies to acquire and process information in a particular way that is prone to error. o Shortcuts leading to errors in judgment - Bounded rationality can lead to the following problems: o Perceptual Defense: Perpetual system, defends against unpleasant perceptions o Problem defined in terms of functional specialty: Selective perception can cause decision makers to view a problem as being the domain of their specialty (marketing for poor sales vs. design) o Problem defined in terms of solution: Jumping to conclusions short circuits decision making process (New Coke) o Problem Diagnosed in terms of symptoms: Different causes can require different solutions (Morale= low pay or boring work) - Information search o Too little information:  People are lazy, use info that is available  Remember vivid recent events, even when irrelevant.  People often over confident in decision making  Confirmation bias: The tendency to seek out information that conforms to ones own definition of, or solution to a problem.  (Decision based evidence making/ Evidence based decision making) o Too much Information  Information overload: The reception of more information than is necessary to make effective decisions  Use all the information at hand and get confused= low quality decision  Confidence that decision will improve with more information  Decision makers fear being left in the dark associating information with power  People have a cognitive bias to value paid information over free info of the same quality - Alternative development, evaluation and choice o Perfectly rational it is easy, exhibits;  Maximization: The choice of the decision with the greatest expected value (100,000 x .8 success=…) o Bounded rational may not know all alternative solutions, may ignore values of the probability of success.  People avoid incorporating data about the likelihood of events into decisions. (Novelty food products)  Large samples warrant more confidence than small samples  Decision makers often overestimate the odds of complex chains of events occurring.  People are poor at revising estimates of probability once new information is acquired  Anchoring Effect: The inadequate adjustment of subsequent estimates from an initial estimate that serves as an anchor o (Asking price influences professional evaluation)  Reduce by making people more responsible/ accountable  Critical to be done BEFORE decision reached, as after the fact increases probability of biases as people try to protect their identity as good decision makers.  Paul Nutt- Firms often invest little money in searching alternatives.  Satisficing: Establishing an adequate level of acceptability for a solution to a problem and then screening solutions until one that exceeds this level is found. - 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 problem as alternatives between gains, they make more conservative decisions protecting the sure win. (50 mill law suit) o Learning history can modify these preferences. - Decision makers are often dependent on others and it is difficult to anticipate their ability to implement. (Engineers implement decision made by designers) - Solution Evaluation o Effectively examining the possibility that a new problem has occurred. o Justification  Prevent dissonance by avoiding careful testing of the adequacy of the decision.  If cannot be avoided, energy d
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