MHR 405 Chapter 7
Decision Making: the conscious process of making choices among alternatives with the intention of
moving toward some desired state of affairs.
Rational Choice Paradigm: the view in decision making that people should – and typically do – use logic
and all available information to choose the alternative with the highest value.
Subjective Expected Utility: the probability (expectation) of satisfaction (utility) resulting from choosing
a specific alternative in a decision.
1. Identify Problem/Opportunity
Symptom vs. Problem
2. Choose Decision Process
3. Discover/Develop Alternatives
Search, Then Develop
4. Choose Best Alternative
Subjective Expected Utility
5. Implement Choice
Figure 7.1 Rational Choice making process 6. Evaluate Choice
Problems and opportunities are constructed from ambiguous information, not “given” to us
Influenced by cognitive and emotional biases
Five problem identification challenges:
1. Stakeholder Framing - Stakeholders often unintentionally filter information to amplify or supress
seriousness of the situation of bad or good news. By framing the situation, they throw a spotlight on
specific causes of symptoms and away from other possible causes.
2. Mental Models –Visual or relational images in our mind of the external world; they fill in the
information that we don’t immediately see, helping us understand and navigate in our surrounding
environment. These mental models also blind us from seeing unique problems or opportunities because
they produce a negative evaluation of things that are dissimilar to the mental model.
3. Decisive Leadership – Being decisive includes quickly forming an opinion of whether an event signals
a problem or opportunity. Consequently, eager to look effective, many leaders quickly announce
problems or opportunities before having a change to logically assess the situation. LEC 6
4. Solution-Focused Problems – Decision makers engage in solution-focused problem identification
because it provides comforting closure to the otherwise ambiguous and uncertain nature of problems.
For example, “Problem is that we need more control over our suppliers” – doesn’t describe the problem,
just a rephrased solution of an ill-defined problem.
5. Perceptual Defence – people block out bad news as a coping mechanism.
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
Bounded Rationality: the view that people are bounded in their decision-making capabilities, including
access to limited information, limited information processing, and tendency toward satisficing rather
than maximizing when making choices
Figure 1.2 Rational Choice assumptions vs. OB findings about alternatives
Problems with Information Processing
Rational choice paradigm makes several assumptions about the human capacity to process
Assumes decision makers can process all info about alternatives and their consequences, which is
impossible in reality. As new alternatives come along, it is compared to an implicit favourite, which
undermines effective decision making.
Implicit Favourite: a preferred alternative that the decision maker uses repeatedly as a comparison with
other choices. LEC 6
Biased Decision Heuristics
People have built-in decision heuristics that bias evaluation of alternatives
Anchoring and Adjustment Heuristic: a natural tendency for people to be influenced by an initial anchor
point such that they do not sufficiently move away from that point as new information is provided.
Availability Heuristic: a natural tendency to assign higher probabilities to objects or events that are
easier to recall from memory, even though ease of recall is also affected by nonprobability factors (e.g.
emotional response, recent events).
Representativeness Heuristic: a natural tendency to evaluate probabilities of events or objects by the
degree to which they resemble (are representative of) other events or objects rather than on objective
probability information. Example: If 1/5 are engineers in your class, the rest business majors, you might
assume someone who acts like a stereotype of an engineer, is in fact an engineer (although really isn’t).
Paralyzed by choice
Decision makers are less likely to make any decision at all as the number of options increases
Occurs even when there are clear benefits of selecting any alternative (such as joining a
company retirement plan).
Evidence of human information processing limitations
Problems with Maximization
Satisficing: selecting an a