Chapter 12.docx

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Business Administration
BUS 272
Christopher Zatzick

Chapter 12: Decision making, Creativity, and ethics Decision: the choice made from two or more alternatives o Problems: a discrepancy b/w some current state of affairs and some desired state, requiring consideration of alternative courses of action o Opportunity: occurs when something unplanned happens, giving rise to thoughts about new ways of proceeding The Rational Decision-Making Process Rational: refers to choices that are consistent and value-maximizing within specified constraints Rational decision-making model: A six-step decision-making model that escribes how individuals should behave in order to maximize some outcome 1. Define the problem 4. Develop alternatives 2. Identify the criteria 5. Evaluate the alternatives 3. Allocate weights to the criteria 6. Select the best alternative Assumptions of the model o Problem clarity: decision maker is assumed to have complete information regarding the decision situation o Known options: assumed the decision maker can identify all the relevant criteria and possible alternatives o Clear preferences: assumes that the criteria nad alternatives can be ranked and weighted to reflect their importance o Constant preferences: assumed that the specific decision criteria are constant o No time or cost constraints: decision maker can obtain full info o Maximum payoff: choose the alternative that yields the highest perceived value How Do Individuals actually make decisions? Bounded rationality: limitations on a person’s ability to interpret, process, and act on information Decision makers choose a final solution that satisfices rather than optimizes Satisfice: to provide a solution that is both satisfactory and sufficient Intuitive decision making: a subconscious process created out of a person’s many experiences fast, affectively charged, usually engages the emotions Judgment shortcuts:  Overconfidence bias: error in judgment that arises from being far too optimistic about one’s own performance  Anchoring Bias: A tendency to fixate on initial information, from which one then fails to adequately adjust for subsequent information.  Confirmation bias: the tendency to seek out information that reaffirms past choices and to discount information that contradicts past judgments  Availability bias: the tendency for people to base their judgments on information that is readily available to them rather than complete data  Escalation of commitment: An increased commitment to a previous decision despite negative information  Randomness Error: the tendency of individuals to believe that they can predict the outcome of random events  Winner’s curse: The tendency for the winning participants in an auction to pay too much for the item won  Hindsight Bias: The tendency to believe falsely, after an outcome of an event is actually known, that one could have accurately predicted that outcome Improving decision making through knowledge management Knowledge management: the process of organizing and distributing an organization’s collective wisdom so that the right information gets to the right people at the right time.  Can quickly and efficiently tap into their employees’ collective experience and wisdom are more likely to “outsmart” their competition  Baby boomers begin to leave the workforce, a wealth of knowledge that will be lost if they are no attempts to capture it  A well-designed KM system reduces redundancy and makes the organization more efficient Group decision making; Not really efficiency b/c too time consuming  Strengths: o More complete information o Diversity of views  Weaknesses o Decision quality o Time-consuming o Accuracy o Conformity pressures o Creativity o Dominated by one or a few members o Degree of acceptance o Ambiguous responsibility Effectiveness: accuracy; speed; creativity; acceptance; Groupthink: a phenomenon in which group pressures for conformity prevent the group from critically appraising
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