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Doug Brown (22)
Chapter 11

Chapter 11

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Doug Brown

Chapter 11 – Decision Making Learning Objectives: 1. Define decision-making and differentiate well-structured and ill-structured problems a. Decision-making: process of developing commitment to some course of action i. Choice ii. Process iii. Resources iv. Problem solving  Problem: perceived gap between an existing state and desired state b. Well-structured problem: problem for which the existing state is clear, the desired state is clear, and how to get from one state to the other is fairly obvious i. Simple, Repetitive, Familiar, little controversy ii. Program: standardized way of solving a problem iii. Programmed decision making c. Ill-structured problem: problem for which existing and desired states are unclear and the method of getting to the desired state is unknown i. Unique, Complex, High degree of uncertainty, frequent controversy ii. High risk, strong political considerations 2. Compare and contrast perfectly rational decision making under bounded rationality a. Rational decision-making model i. Identify problem ii. Search for relevant information iii. Develop alternative solutions to the problem iv. Evaluate alternative solutions v. Choose best solution vi. Implement chosen solution vii. Monitor and evaluate chosen solution b. Perfect rationality: decision strategy that is completely informed, perfectly logical, and oriented toward economic gain c. Bounded rationality: decision strategy that relies on limited information and that reflects time constraints and political considerations i. Framing: aspects of the presentation of information about a problem that are assumed by decision makers ii. Cognitive biases: tendencies to acquire and process information in an error- prone way 3. Discuss the impact of framing and cognitive biases on the decision process a. Problems in Framing: i. Perceptual defense ii. Problem defined in terms of functional specialty iii. Problem defined in terms of solution iv. Problem diagnosed in terms of symptoms b. Solutions in Framing: i. Self-conscious about how problems are framed ii. Try alternative frames iii. Avoid overarching universal frames c. Problems in cognitive biases i. Too little information: mentally lazy, use info most readily available (i.e. vivid, recent events) ii. Confirmation bias: tendency to seek out info that conforms to one’s own definition of or solution to a problem (i.e. decision-based evidence making iii. Too much information  information overload: reception of more information than is necessary to make effective decisions 1. Errors, omissions, delays, and cutting corners 2. Low quality, irrelevant information 3. Increases confidence in decision, and associate possession of information as power iv. Maximization: choice of decision alternative with greatest expected value 1. Avoid incorporating known existing data 2. Large samples warrant more confidence than small samples 3. Decision makers overestimate odds of complex chain of events occurring 4. People poor at revising estimates of probabilities and values as they acquire additional information  anchoring effect: inadequate adjustment of subsequent estimates from an initial estimate that serves as an anchor d. Solutions in cognitive biases i. Make people more accountable for decisions  be in place before decision is reached ii. Evaluate alternative solutions against single criterion – economic gain iii. 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 4. Explain the process of escalation of commitment to an apparently failing course of action a. Justification  dissonance reduction and appearance of consistency i. Sunk costs: permanent losses of resources incurred as the result of a decision ii. Escalation of commitment: tendency to invest additional resources in an apparently failing course of action 1. Even when current decision maker is not responsible for previous sunk costs  to not appear wasteful, framing  less often in high neurotics and negative affectivity 2. Both competitive and non-competitive situations iii. Solutions: 1. Reframe problem 2. Set specific project goals in advance 3. Place emphasis on how a decision is made, and less on outcomes 4. Separate initial and subsequent decision making iv. Groups are more prone to escalate commitment v. Hindsight: tendency to review the decision-making process to find what was done right or wrong 5. Consider how emotions and mood affect decision making a. Affects what and how people think b. Greatest impact in uncertain, ambiguous decisions that are crucial to organizations i. + mood = remember + information, vice versa ii. + mood = more + evaluations, vice versa iii. + mood = overestimate likelihood of good events, vice versa iv. + mood = simplified, shortcut decision-making strategies, violating rational model, - mood = deliberate, systematic, detailed way v. + mood = more creative, intuitive decision-making 6. Summarize the pros and cons of using groups to make decisions, with attention to the groupthink phenomenon and risk assessment a. Pros of using group decision making: i. Decision quality  groups makes higher quality decisions than individuals 1. More vigilant  important for problem identification and information search stages 2. Generate more ideas  developing alternative solutions (different backgrounds/perspectives) 3. Evaluate ideas better  advantage of checks and balances ii. Decision acceptance and commitment 1. People wish to be involved in decisions that will affect them 2. People will better understand a decision in which they participated 3. People will be more committed to a decision in which they invested personal time/energy iii. Diffusion of responsibility: ability of group members to share the burden of the
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