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Chapter 12

OB Chapter 12 - Decision Making, Creativity, and Ethics.docx

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Simon Fraser University
Business Administration
BUS 272
Christopher Zatzick

Chp 12: Decision Making, Creativity, and Ethics How Should Decisions Be Made? Decision - The choice made from two or more alternatives Decision making is a reaction to a problem or an opportunity o Problem - A discrepancy between 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 describes how individuals should behave in order to maximize some outcome 1. Define the Problem: Poor decisions caused by overlooking problem or defining wrong problem 2. Identify the Criteria: Determining what is relevant in making the decision, bringing interests, values and preferences into the process 3. Allocate Weights to the Criteria: Prioritizing importance of criteria 4. Develop Alternatives: List ways to resolve problem 5. Evaluate the Alternatives: Strengths and weaknesses 6. Select the Best Alternative Assumptions: 1. Problem Clarity: Problem is clear and unambiguous 2. Known Options: Relevant criteria identifiable and can list workable alternatives 3. Clear Preferences: Criteria and alternatives can be ranked 4. Constant Preferences: Decision criteria are constant 5. No Time or Cost Constraints 6. Maximum Payoffs: Choose alternative that yields highest perceived value How Do Individuals Actually Make Decisions? Bounded Rationality in Considering Alternatives Bounded Rationality - Limitations on a person's ability to interpret, process, and act on information o List will represent familiar criteria and tested solutions o Individuals settle for alternative that is "good enough" o Satisfice - To provide a solution that is both satisfactory and sufficient Intuition Intuitive Decision Making - A subconscious process created out of a person's many experiences o Not rational, but not wrong o Does not operation against rational analysis, but rather complements it o Best applied when:  time is short  policies do not give clear-cut advice  there is a great uncertainty  quantitative analysis needs check and balance Judgment Shortcuts Overconfidence Bias - Error in judgment that arises from being far too optimistic about one's own performance o Individuals whose intellectual and interpersonal abilities are weakest most likely have overconfidence bias Anchoring Bias - A tendency to fixate on initial information, from which one then fails to adequately adjust for subsequent information o Takes place most often during negotiations Confirmation Bias - The tendency to seek out information that reaffirms past choices and to discount information that contradicts past judgments o Information we gather is typically biased toward supporting our views, influencing where we look for information Availability Bias - The tendency for people to base their judgments on information that is readily available to them rather than complete data o Tend to overestimate unlikely events (plane crashes) than likely events (car crashes) o Managers tend to give more weight to recent behaviours than previous behaviours Escalation of Commitment - An increased commitment to a previous decision despite negative information o Demonstrate initial decision was not wrong and avoid having to admit mistakes Randomness Error - The tendency of individuals to believe that they can predict the outcome of random events o Decisions are impaired when we try to create meaning from random events Winner's Curse - The tendency for the winning participants in an auction to pay too much for the item won o The more bidders there are, the more likely some will have greatly overestimated the value Hindsight Bias - The tendency to believe falsely after an outcome of an event is actually known, that one could have accurately predicted that outcome o Reduces our ability to learn from the past Improving Decision Making Through Knowledge Management Knowledge Management (KM) - 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 Increasingly important for three reasons: 1. Organizations that can quickly and efficiently tap into employee's collective experience more likely to have competitive edge 2. Capture Baby Boomer's knowledge before they leave workforce 3. Reduces redundancy and makes organization more efficient How do organizations implement knowledge and expertise? 1. Develop computer databases of pertinent information that employees can access 2. Create a culture that promotes sharing knowledge 3. Develop mechanisms that allow employees who built expertise to share them with others Group Decision Making Group vs. Individual Strengths o Groups generate more complete information and knowledge o Groups bring an increased diversity of views o Groups generate higher-quality and more accurate decisions o Groups tend to be more creative o Groups lead to increased acceptance of a solution Weaknesses o Groups are time-consuming and not always efficient o There are conformity pressures o Groups can be dominated by one or a few members o Groups suffer from ambiguous responsibility Groupthink - A phenomenon in which group pressures for conformity prevent the group from critically appraising unusual minority, or unpopular views  Symptoms of Groupthink: o Illusion of Invulnerability: Members become overconfident and take huge risks o Assumption of Morality: Members believe highly in moral rightness of group objectives and do not need to debate ethics of their actions o Rationalized Resistance: Members rationalize resistance to assumptions made o Peer Pressure: Members apply pressure to those who express doubts on shared views o Minimized Doubts: Members who have doubts avoid deviating from the majority o Illusion of Unanimity: Assumption that silence is compliance  Minimizing Groupthink: o Monitor group size o Encourage group leaders to play an impartial role
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