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Chapter 7

Chapter 7 - Decision Making

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Ryerson University
Human Resources
MHR 405
David Chalmers

Chapter 7: Decision Making and Creativity Decision Making: the conscious process of making choices among alternatives with the intention of moving toward some desired state of affairs. Rational Choice Paradigm of Decision Making 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. Rational Choice Decision Making Process 1. Identify problem or opportunity  Problem: deviation between the current and the desired situation.  Opportunity: deviation between current expectations and a potentially better situation. 2. Choose the best decision process  Programmed Decisions: follow standard operating procedures, optimal solution already been identified and documented based on previous events.  Non-programmed Decisions: requires all steps in the model because the problems are new or complex. 3. Discover/develop alternative solutions 4. Choose the best alternative 5. Implement the selected alternative 6. Evaluate decision outcomes Problems with the Rational Choice Paradigm - it’s logical, yet it is impossible to apply in reality. - focuses on logical thinking and completely ignores the fact that emotions also influence the decision making process. Identifying with Problem Identification 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. 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. 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. 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. Perceptual Defence – people block out bad news as a coping mechanism. Searching For, Evaluating, and Choosing Alternatives 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. • Rational Choice Paradigm is based on a system of beliefs and assumptions (paradigm) that people make rational decisions. • This diagram helps up distinguish between rational choice paradigm's assumptions and what OB researchers have observed in the "real world”. Problems with Information Processing  • Rational choice paradigm makes several assumptions about the human capacity to process information. • 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. Biased Decision Heuristics • 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). Problems with Maximization • Rational choice paradigm assumes people want to choose the alternative with the highest payoff (maximizing), although people engage in satisficing with a satisfactory option because alternatives present themselves over time. • Satisficing: selecting an alternative that is satisfactory or “good enough,” rather than the alternati
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