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COMMERCE 1BA3 Final: CHAPTER 11.docx

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Decision making - process of developing a commitment to some
course of action o Involves choice among several action
alternativeso Is a processo Involves commitment of resources
Can also be described as a process of problem solving
Problem exists when gap is perceived between some existing
state and some desired state
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 another is fairly obvious
o Repetitive and familiar and can be programmedo Program –
standardized way of solving a problem – also known as rules,
routines, standard operating procedures, or rules of thumbIll-
Structured problem - A problem for which the existing and
desired states are unclear,
and the method of getting to the desired state is unknowno
Unique and unusual problems not encountered beforeo Complex
and involve high degree of uncertaintyo Frequently arouse
controversy and conflicto Can’t be solved with programmed
decisions (non-programmed decision making)
Can entail high risk and stimulate strong political considerations
Rational Decision Making Model – Identify problem o Search for
relevant infoo Develop alternative solutions to problem
Evaluate alternative solutionso Choose best solution
Implement chose solutiono Monitor and evaluate chosen solution
Perfect rationality - decision strategy that is completely informed,
perfectly logical, and oriented toward economic gain ?Economic
Person who is the perfect, cool, calculating decision maker
Bounded rationality - a decision strategy that relies on limited
information and that reflects time constraints and political
considerations. Framing and cognitive biases illustrate the
operation of bounded rationality as does the impact of emotions
and mood on decisions o Framing - aspects of the presentation
of information about a problem that are assumed by decision
Satisficing – decision maker establishes adequate level of
acceptability for a solution to a problem and then screens
solutions until he or she finds one that exceeds this level
- When this occurs, evaluation of alternatives ceases, and the
solution is chosen for implementation
Cognitive biases - are tendencies to acquire and process
information in a particular way that is prone to error
o constitute assumptions and shortcuts that can improve
decision-making efficiency but frequently lead to serious errors in
judgment Problem identification and framing
o Bounded rationality can lead to the following difficulties in
problem identification:
Perceptual defense.Problem defined in terms of functional
specialty.Problem defined in terms of solution.Problem
diagnosed in terms of symptomsRational decision makers should
be very self-conscious about how they frame problems and
should try out alternative frames
Confirmation bias – tendency to seek out information that
conforms to one’s own definition of or solution to a problem (part
of ‘too little info’)
When people view a problem as a choice between losses, they
tend to make risky decisions.o Framing a problem as a choice
between losses can contribute to a foolish level of risk taking
When people frame the alternatives as a choice between gains,
they tend to make conservative decisions.
Escalation of Commitment – tendency to invest additional
resources in an apparently failing course of action – groups more
prone that individuals to escalate commitment
Reasons for escalation of commitment:
Dissonance reduction
oSocial norm for consistent behavior.
oMotivation to not appear wasteful.
oThe way the problem is framed.
oPersonality, moods, and emotions.