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MGMT (10)
Chapter 7

MGMT 1000 Chapter Notes - Chapter 7: Bounded Rationality, Design Thinking, Randomness


Department
Management
Course Code
MGMT 1000
Professor
David Stuewe
Chapter
7

This preview shows pages 1-2. to view the full 7 pages of the document.
The$Decision-Making$Progress
Step%1:%Identify%a%Problem
Must%be%careful%not%to%confuse%problem%with%symptom%of%
problems
Don’t%act%on%something%too%early
o
if%it%isn’t%broke,%don’t%fix%it”
o
-
recognition%of%a%problem%can%be%subjective
-
Step%2:%Identify%Decision%Criteria
criteria%that%defines%what%is%relevant%in%making%a%decision
-
e.g.%new%computer%=%screen%quality,%battery,%software,%design,%
etc.
-
if%relevant%criteria%aren’t%equally%important%than%weights%must%be%
given%to%the%items%to%correctly%prioritize%criteria
usually%good%to% weight%the%most%important% as%10%and%the%
rest%accordingly
o
-
Step%4:%Develop%Alternatives
list%viable%alternatives%that%could%resolve%the%problem
-
(be%creative%in%this%step)
-
Step%5:%Analyze%Alternatives
use%criteria%from%steps%2-3
-
data%represents%an%assessment%of%the% 8%alternatives%using%the%
decision%criteria,%but%Not%the%weighting
multiply%each%alternative%by%its%assigned%weight%and%you%
will%get%the% weighted%alternatives
o
-
Step%6:%Select%an%Alternative
choose%the%best%option%or%the%one%which%generated%the%highest%
total%score%in%step% 5
-
review%the%criteria%and%weighting%if%gut%feeling%or%intuition%tells%
you%something%different
-
Step%7:%Implement%an%Alternative
putting% decision%to%action
-
convey%it%to%those%affected%and%ensure%their%commitment%to%it
‘buy-in
o
-
Step%8:%Evaluate%Decision%Effectiveness
was%the%problem%resolved?
Was%the%problem%incorrectly%defined?
o
Was%the%right%alternative%selected%but%poorly%
implemented?
o
Review%and%find%the%problem%if%“yes”%to%any%of%the%above%
questions
o
-
The$Manager$as$a$Decision$Maker
Making%Decisions:%Rationality
!"#$%&"'()*+$,$%&(-".$&/0
Making%decisions%that%are%consistent%and%value-maximizing%
within% specific%constraints
-
Assumptions$of$rationality:
Decision%maker%is%fully%objective%and%logical
-
Problem%is%clear%and%unambiguous
-
Decision%maker%will%have%clear%and%specific%goals%and%know%all%
possible% alternatives%&%consequences
-
Selecting%alternative%that%leads%to%maximization%of%achieving%a%
goal
-
Keeps%in%mind,%what’s%best%for%organization?
-
Making%Decisions:%Bounded%Rationality
1%2&)*)(3"#$%&"'$#40
Limitations%on%a%person’s%ability%to%interpret,%process%and%act%on%
information
Cannot%possibly%analyze%ALL%information%on%ALL%
alternatives
o
Managers%then%satisfice rather%than%maximize
o
-
5"#$,6$+*0
To%accept%solutions% that%are%good%enough
-
7,+"'"#$%&(%6(+%--$#-*&#0
An%increased%commitment%to%a%previous%decision%despite% the%
evidence%that%it%might%have%been%wrong
Why?
o
Not%wanting%to%admit%that%the%initial%decision%was%flawed
o
-
Making%Decisions:%The%Role%of%Intuition
8&#2$#$9*()*+$,$%&:-".$&/0
Making%decisions%on%the%basis%of%experience,%feelings%and/or%
accumulated%judgment
Evidence-based%decisions
o
Affect-initiated%decisions
o
Cognitive-based%decisions
o
Subconscious% mental%processing
o
Values-of-ethics-based% decisions
o
-
Making%Decisions:%The%Role%of%Evidence-Based%
Management
79$)*&+*:;",*)(-"&"/*-*&#(<71-/#=0
The%systematic%use%of%the%best%available%evidence%to%improve%
management%practice
-
essential$elements$to$EBmgt$include:
decision%makers%expertise%and%judgement
-
external%evidence%that’s%been%evaluated
-
opinions,%preferences%and%values%of%those% with%stake%in%the%
decision
-
relevant%internal%factors
-
Type$of$Decisions$&$Decision-Making$
Conditions
Types%of%Conditions
5#32+#23*)(>3%;'*-,(?(>3%/3"-()*+$,$%&,
problems%that%are%very%straightforward
-
repetitive%decisions%that%can%be%handled%by%a%routine%approach
-
Consider (procedure,%rules,%policies)
@&,#32+#23*)(>3%;'*-,(?(&%&>3%/3"--*3()*+$,$%&,
New%or%unfamiliar%problems%for%which%info%is%incomplete
-
Requires%custom-made%solutions%that%may%be%non-recurring
-
Decision-Making$Styles
Linear-Nonlinear%Thinking%Style
A$&*"3(#B$&.$&/(,#4'*0
Decision%style%characterized%by%a%person’s%preference%for%using%
external%data and%facts%and%processing%this%information%through%
rational,%logical%thinking
-
C%&'$&*"3(#B$&.$&/(,#4'*0
Decisions%style%characterized%by%a%person’s%preference for%
internal%sources%of%information%and%processing%this%information%
with%internal%insights,%feelings%and%hunches
-
Decision-Making%Biases%and%Errors
D*23$,#$+,0
Rules%of%thumb%that%managers%use%to%simplify%decisions%making
-
Not%always%reliable%as%they%can%lead%to% errors%and%biases%in%
processing%and%evaluating%information
-
12$Common$decision-making$biases$and$errors:
E9*3+%&6$)*&+*(1$",
Think%they%know%more%than%they%doa.
Hold%unrealistic%positive%views%of%themselves%and%their%
performance
b.
1.
8--*)$"#*(F3"#$6$+"#$%&(1$",
Want%immediate%rewards%and%to%avoid%immediate%costsa.
Quick%payoffs%are%more%appealing%than%those%with%future%
payoffs
b.
2.
G&+B%3$&/(*66*+#
Fixation%on%initial%information%as%a%starting%point%and%then,%
once%set,%fail%to%adequately%adjust%for%subsequent%
information
a.
3.
5*'*+#$9*(>*3+*>#$%&
Selectively%organize%and%interpret%events%based% on%their%
biased%perceptions
a.
4.
H%&6$3-"#$%&
Seek%information%that%reaffirms%their%past%choicesa.
Discount%information%that%contradicts%past%judgementsb.
Accept%at%face-value%information%that%confirms%their%
preconceived%views%and%are%critical%and%skeptical%of%
information%that%challenges%these%views
c.
5.
I3"-$&/(;$",
Select%and%highlight%certain%aspects%of%a%situation%while%
excluding%others
a.
6.
G9"$'";$'$#4(;$",
Remember%events%that%are%the%most%recent%and%vivid%in%
their%memory
a.
7.
!*>3*,*&#"#$%&(;$",
Assessing%the%likelihood%of%an%event%based%on%how%closely%
it%resembles%other%events%or%sets%of%events
a.
8.
!"&)%-&*,,(;$",
Try%to%create%meaning%out%of%random%eventsa.
9.
52&.(+%,#,(*33%3
Forgetting%that%current%choices%can’t%correct%the%pasta.
They%incorrectly%fixate%on%past%expenditures%of%time,%
money%or%effort%in%assessing%choices%rather%than%on%future%
consequences
b.
10.
5*'6:,*39$&/(;$",
J2$+.(#%(#".*(+3*)$#(6%3(#B*$3(,2++*,,("&)(;'"-*(6"$'23*(%&(
%2#,$)*(6"+#%3,
a.
11.
D$&),$/B#(;$",
Tendency%for%decision%makers%to%falsely%believe%that%they%
would% have%accurately%predicted%the%outcome% of%an%event%
once%that% outcome%is%actually%known
a.
12.
Effective$Decision$Making$for$Today’s$
World
Guidelines%for%Effective%Decision%Making
Understand$cultural$differences
Best%way%to%make%decisions%is%based%on%the%values,%beliefs,%
attitudes%and%behavioral%patterns%of%the%people%involved
o
-
Create$standards$for$good$decision$making
Good%decisions%are%forward-looking,%use%available%
information,%consider%all%available%and%viable%options% and%
do%not% create%conflicts%of%interest
o
-
Know$when$it’s$time$to$call$it$quits
Cannot%be%arrogant%about%your%decision
o
Must%be%willing%to%accept%a%decisions%failure%and%react%
productively
o
-
Use$an$effective$decision-making$process
Focuses%on%what’s%important
o
Logical%and%consistent
o
Acknowledges%both%subjective%and%objective%thinking%and%
blends% analytical%with%intuitive%thinking
o
Requires%only%as%much%information%and%analysis%as%
necessary
o
Encourages%and%guides%the%gathering%of%relevant%
information%and%informed%opinion
o
Straightforward,%reliable,%easy%to%use%and%flexible
o
-
Build$an$organization$that$can$spot$the$unexpected$and$quickly$
adapt$to$the$changed$environment
-
K*,$/&(LB$&.$&/
Approaching%management%problems%as%designers%approach%
design%problems
-
Ch.7%-Decision%Making
Tuesday,% October%3,%2017
5:19%PM

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

The$Decision-Making$Progress
Step%1:%Identify%a%Problem
Must%be%careful%not%to%confuse%problem%with%symptom%of%
problems
Don’t%act%on%something%too%early
o
if%it%isn’t%broke,%don’t%fix%it”
o
-
recognition%of%a%problem%can%be%subjective
-
Step%2:%Identify%Decision%Criteria
criteria%that%defines%what%is%relevant%in%making%a%decision
-
e.g.%new%computer%=%screen%quality,%battery,%software,%design,%
etc.
-
Step%3:%Allocate%Weights%to%Criteria
if%relevant%criteria%aren’t%equally%important%than%weights%must%be%
given%to%the%items%to%correctly%prioritize%criteria
usually%good%to% weight%the%most%important% as%10%and%the%
rest%accordingly
o
-
Step%4:%Develop%Alternatives
list%viable%alternatives%that%could%resolve%the%problem
-
(be%creative%in%this%step)
-
Step%5:%Analyze%Alternatives
use%criteria%from%steps%2-3
-
data%represents%an%assessment%of%the% 8%alternatives%using%the%
decision%criteria,%but%Not%the%weighting
multiply%each%alternative%by%its%assigned%weight%and%you%
will%get%the% weighted%alternatives
o
-
Step%6:%Select%an%Alternative
choose%the%best%option%or%the%one%which%generated%the%highest%
total%score%in%step% 5
-
review%the%criteria%and%weighting%if%gut%feeling%or%intuition%tells%
you%something%different
-
Step%7:%Implement%an%Alternative
putting% decision%to%action
-
convey%it%to%those%affected%and%ensure%their%commitment%to%it
‘buy-in
o
-
Step%8:%Evaluate%Decision%Effectiveness
was%the%problem%resolved?
Was%the%problem%incorrectly%defined?
o
Was%the%right%alternative%selected%but%poorly%
implemented?
o
Review%and%find%the%problem%if%“yes”%to%any%of%the%above%
questions
o
-
The$Manager$as$a$Decision$Maker
Making%Decisions:%Rationality
!"#$%&"'()*+$,$%&(-".$&/0
Making%decisions%that%are%consistent%and%value-maximizing%
within% specific%constraints
-
Assumptions$of$rationality:
Decision%maker%is%fully%objective%and%logical
-
Problem%is%clear%and%unambiguous
-
Decision%maker%will%have%clear%and%specific%goals%and%know%all%
possible% alternatives%&%consequences
-
Selecting%alternative%that%leads%to%maximization%of%achieving%a%
goal
-
Keeps%in%mind,%what’s%best%for%organization?
-
Making%Decisions:%Bounded%Rationality
1%2&)*)(3"#$%&"'$#40
Limitations%on%a%person’s%ability%to%interpret,%process%and%act%on%
information
Cannot%possibly%analyze%ALL%information%on%ALL%
alternatives
o
Managers%then%satisfice rather%than%maximize
o
-
5"#$,6$+*0
To%accept%solutions% that%are%good%enough
-
7,+"'"#$%&(%6(+%--$#-*&#0
An%increased%commitment%to%a%previous%decision%despite% the%
evidence%that%it%might%have%been%wrong
Why?
o
Not%wanting%to%admit%that%the%initial%decision%was%flawed
o
-
Making%Decisions:%The%Role%of%Intuition
8&#2$#$9*()*+$,$%&:-".$&/0
Making%decisions%on%the%basis%of%experience,%feelings%and/or%
accumulated%judgment
Evidence-based%decisions
o
Affect-initiated%decisions
o
Cognitive-based%decisions
o
Subconscious% mental%processing
o
Values-of-ethics-based% decisions
o
-
Making%Decisions:%The%Role%of%Evidence-Based%
Management
79$)*&+*:;",*)(-"&"/*-*&#(<71-/#=0
The%systematic%use%of%the%best%available%evidence%to%improve%
management%practice
-
essential$elements$to$EBmgt$include:
decision%makers%expertise%and%judgement
-
external%evidence%that’s%been%evaluated
-
opinions,%preferences%and%values%of%those% with%stake%in%the%
decision
-
relevant%internal%factors
-
Type$of$Decisions$&$Decision-Making$
Conditions
Types%of%Conditions
5#32+#23*)(>3%;'*-,(?(>3%/3"-()*+$,$%&,
problems%that%are%very%straightforward
-
repetitive%decisions%that%can%be%handled%by%a%routine%approach
-
Consider (procedure,%rules,%policies)
@&,#32+#23*)(>3%;'*-,(?(&%&>3%/3"--*3()*+$,$%&,
New%or%unfamiliar%problems%for%which%info%is%incomplete
-
Requires%custom-made%solutions%that%may%be%non-recurring
-
Decision-Making$Styles
Linear-Nonlinear%Thinking%Style
A$&*"3(#B$&.$&/(,#4'*0
Decision%style%characterized%by%a%person’s%preference%for%using%
external%data and%facts%and%processing%this%information%through%
rational,%logical%thinking
-
C%&'$&*"3(#B$&.$&/(,#4'*0
Decisions%style%characterized%by%a%person’s%preference for%
internal%sources%of%information%and%processing%this%information%
with%internal%insights,%feelings%and%hunches
-
Decision-Making%Biases%and%Errors
D*23$,#$+,0
Rules%of%thumb%that%managers%use%to%simplify%decisions%making
-
Not%always%reliable%as%they%can%lead%to% errors%and%biases%in%
processing%and%evaluating%information
-
12$Common$decision-making$biases$and$errors:
E9*3+%&6$)*&+*(1$",
Think%they%know%more%than%they%doa.
Hold%unrealistic%positive%views%of%themselves%and%their%
performance
b.
1.
8--*)$"#*(F3"#$6$+"#$%&(1$",
Want%immediate%rewards%and%to%avoid%immediate%costsa.
Quick%payoffs%are%more%appealing%than%those%with%future%
payoffs
b.
2.
G&+B%3$&/(*66*+#
Fixation%on%initial%information%as%a%starting%point%and%then,%
once%set,%fail%to%adequately%adjust%for%subsequent%
information
a.
3.
5*'*+#$9*(>*3+*>#$%&
Selectively%organize%and%interpret%events%based% on%their%
biased%perceptions
a.
4.
H%&6$3-"#$%&
Seek%information%that%reaffirms%their%past%choicesa.
Discount%information%that%contradicts%past%judgementsb.
Accept%at%face-value%information%that%confirms%their%
preconceived%views%and%are%critical%and%skeptical%of%
information%that%challenges%these%views
c.
5.
I3"-$&/(;$",
Select%and%highlight%certain%aspects%of%a%situation%while%
excluding%others
a.
6.
G9"$'";$'$#4(;$",
Remember%events%that%are%the%most%recent%and%vivid%in%
their%memory
a.
7.
!*>3*,*&#"#$%&(;$",
Assessing%the%likelihood%of%an%event%based%on%how%closely%
it%resembles%other%events%or%sets%of%events
a.
8.
!"&)%-&*,,(;$",
Try%to%create%meaning%out%of%random%eventsa.
9.
52&.(+%,#,(*33%3
Forgetting%that%current%choices%can’t%correct%the%pasta.
They%incorrectly%fixate%on%past%expenditures%of%time,%
money%or%effort%in%assessing%choices%rather%than%on%future%
consequences
b.
10.
5*'6:,*39$&/(;$",
J2$+.(#%(#".*(+3*)$#(6%3(#B*$3(,2++*,,("&)(;'"-*(6"$'23*(%&(
%2#,$)*(6"+#%3,
a.
11.
D$&),$/B#(;$",
Tendency%for%decision%makers%to%falsely%believe%that%they%
would% have%accurately%predicted%the%outcome% of%an%event%
once%that% outcome%is%actually%known
a.
12.
Effective$Decision$Making$for$Today’s$
World
Guidelines%for%Effective%Decision%Making
Understand$cultural$differences
Best%way%to%make%decisions%is%based%on%the%values,%beliefs,%
attitudes%and%behavioral%patterns%of%the%people%involved
o
-
Create$standards$for$good$decision$making
Good%decisions%are%forward-looking,%use%available%
information,%consider%all%available%and%viable%options% and%
do%not% create%conflicts%of%interest
o
-
Know$when$it’s$time$to$call$it$quits
Cannot%be%arrogant%about%your%decision
o
Must%be%willing%to%accept%a%decisions%failure%and%react%
productively
o
-
Use$an$effective$decision-making$process
Focuses%on%what’s%important
o
Logical%and%consistent
o
Acknowledges%both%subjective%and%objective%thinking%and%
blends% analytical%with%intuitive%thinking
o
Requires%only%as%much%information%and%analysis%as%
necessary
o
Encourages%and%guides%the%gathering%of%relevant%
information%and%informed%opinion
o
Straightforward,%reliable,%easy%to%use%and%flexible
o
-
Build$an$organization$that$can$spot$the$unexpected$and$quickly$
adapt$to$the$changed$environment
-
K*,$/&(LB$&.$&/
Approaching%management%problems%as%designers%approach%
design%problems
-
Ch.7%-Decision%Making
Tuesday,% October%3,%2017 5:19%PM
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