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Management and Organizational Studies
Management and Organizational Studies 2181A/B
Victoria Digby

Chapter 11 Notes: Decision Making Decision Making: the process of developing a commitment to some course of action - Involves a choice among several alternatives - The process that involves more than the final decision making process o We want to know how the decisions was reached - Commitment of resources - Problem: a perceived gap between an existing state and a desired state Well-Structured Problem: a problem for which the existing state is clear, the desired state is clear and how to get someone state to the other is fairly obvious - Problems are simple and solutions are of little controversy problems are repetitive and familiar - Decision making process is time consuming and prone to error Program: A standardized way of solving a problem - Rules, routines, standard operating procedures or rule of thumb - Some programs come from experience and exist only in the head others are more FORMAL - Many problems in orgs are well structured and programmed decision making provide a useful means of solving these problems - Programs only as good as decision-making process Ill-Structured Problem: A problem for which the existing and desired states are unclear and the method of getting to the desired state is unknown CANNOT BE SOLVED WITH PROGRAMMED DECISIONS - Generally unique  not encountered before  complex and high degree of uncertainty = controversy & conflict The Compleat Decision Maker – A Rational Decision-Making Model Perfect Rationality: A decision strategy that is completely informed, perfectly logical and oriented toward economic gain - The Economic Man  rational, perfect cool & calculating  ECONOMIC GAIN main focus DOES NOT EXIST Bound Rationality: a decision strategy that relies on limited info and that reflects time constraints & political considerations  MANAGERS USE BOUND RATIONALITY RATHER THAN PERFECT RATIONALITY - Framing: Aspects of the presentation of information about a problem that are assumed by decision makers o Includes: assumptions of the problem, possible outcomes of decision and reference points - Cognitive Biases: Tendencies to acquire information in an error-prone way o Assumptions and short-cuts that can improve decision-making efficiency but leads to errors in judgment Problem Identification and Framing: - Problem arises when a gap between EXISTING and DESIRED conditions occurs - Difficulties of BOUND RATIONALITY o Perceptual Defense – defend perceiver against unpleasant perceptions o Problem Defined in terms of functional specialty - view problems as being in their domain of specialty o Problem Defined in terms of solution – jumping to conclusions short-circuits rational D.M.P. o Problem diagnosed in terms of symptoms – “morale problem” Information Search: - Too Little Info – people being mentally lazy o Confirmation Bias: The tendency to seek out information that conforms to one’s own definition or solution to a problem  incomplete information search (being overconfident in DMP) o Ceremonial info search leads to “decision-based evidence making rather than evidence-based decision making - Too Much Info  like writing an essay with too many references and viewpoints o Information Overload: The reception o more information that is necessary to make effective decisions Alternative Development, Evaluation and Choice: - Maximization: the choice of the decision alternative with the greatest expected value - Anchoring effect: the inadequate adjustment of later estimates from an initial estimate that services as an anchor - It’s possible to reduce some cognitive bias by making people more responsible for their decisions o Reasoned reports, formal presentations on how the decision was reached - 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 o SATISFICE rather than MAXIMIZE Risky Business: - When people view a problem as a choice between losses they make RISKIER DECISIONS - When people make choice between gains they make more CONSERVATIVE DECISIONS  protecting a sure win Solution Implementation - DMs depend on others to implement their decisions  difficult to anticipate their ability or motivation to do so Solution Evaluation - Justification: with people being overconfidence with decision, there might be dissonance when a decisions faulty - Sunk Costs: permanent losses of resources incurred as the result of a decision o PERMANENT these have been lost in pervious decisions so they shouldn’t be entered into future decisions - Escalation of commitment: the tendency to invest additional resources in an apparently failing course of action o Changing one’s mind and reversing previous decisions might be perceived as a sign of weakness o Groups are more prone to escalation than individuals o Not all rogue traders are motivated by personal gain - Hindsight: The tendency to review the decision making process to find out what was done right or wrong o Often reflects cognitive bias o Faulty Hindsight: “knew-it-all-along”  investor who makes risky decisions and it succeeded might revise her memory to assume her decision was the right one  could have been luck o Faulty hindsight: assuming responsibility for successful outcomes while denying responsibility for unsuccessful out comes How Emotion and Mood Affect Decision Making: - People don’t like to be wrong so they often become emotionally attaches to the failing course of action that signals escalation of commitment - Emotionless decision making would be poor decision making - Strong emotions can also hinder decision making  people are often self-focused and distracted from the actual demands of the problem at hand - Mood: low-key state  affects what and how people think when making decisions  ITS CONTAGIOUS o Has the greatest impact on uncertain, ambiguous decisions of the type that are especially crucial for orgs o
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