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Chapter 12

COMM 292 Chapter Notes - Chapter 12: Hindsight Bias, Bounded Rationality, Knowledge Management


Department
Commerce
Course Code
COMM 292
Professor
Angela Kelleher
Chapter
12

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COMM 292: Organizational Behaviour
Chapter 12
How Should Decisions Be Made?
Decision: the choice made from two or more alternatives
The Rational Decision-Making Process:
Rational: refers to choices that are consistent and value-maximizing within specific
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
2. Identify the criteria
3. Allocate weights to the criteria
4. Develop alternatives
5. Evaluate the alternatives
6. Select the best alternative
Assumptions of the Model:
Problem clarity: the problem is clear and unambiguous
Known options: assumed the decision maker can identify all the relevant criteria and can
list alternatives
Clear preferences: rationality assumes the criteria and alternatives can be ranked and
weighted
Constant preferences: assumed that specific decision criteria are constant and the weights
are constant
No time or cost constraints: decision maker can obtain full info about criteria and
alternatives
Maximum payoff: decision maker will choose the alternative that yields the 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, an act on
information
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
Judgment Shortcuts:
Overconfidence bias: error in judgment that arises from being far too optimistic about one's
own performance
Anchoring bias: a tendency to fixate on initial information, from which one then fails to
adequately adjust for subsequent information
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