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Chapter

Ch 12 - Decision Making, Creativity & Ethics


Department
Commerce
Course Code
COMM 292
Professor
Leah Sheppard

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How should decisions be made?
Decision the choice made from two or more alternatives
Decision making reaction to a problem or opportunity
Problem discrepancy between some current state of affairs and some desired state
Opportunity when something unplanned happens, giving rise to thoughts about new ways
of proceeding
Top management decisions: org’s goals, what products/services to offer, how to finance
operations
Middle/low management decisions: production schedules, select new employees, decide
how pay raises are to be allocated
The Rational Decision-Making Process
Rational refers to choices that are consistent and value-maximizing within
specified restraints
Rational decision making model a six-step model that describes how individuals
should behave in order to maximize some outcome
Identify the criteria: determine what is relevant in making the decision interests, values,
personal preferences
o Any factors not identified in this step are considered irrelevant by the decision maker
Assumptions of the Model
Problem clarity problem is clear and unambiguous; decision maker has complete info
Known options DM can identify all relevant criteria and can list all possible alternatives;
aware of all consequences of each alternative
Clear preferences criteria/alternatives are ranked and weighted based on perceived
importance
Constant preferences criteria/alternatives and weights assigned are stable over time
Define the problem Identify the criteria Allocate weights to
the criteria Develop
alternatives Evaluate the
alternatives Select best option

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No time or cost constraints
Maximum payoff DM will choose whichever yields highest perceived value

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How do individuals actually make decisions?
Most decisions in the real world do not follow the rational model.
Most significant decisions are made by judgment, rather than by a defined prescriptive model.
Bounded Rationality in Considering Alternatives
Bounded rationality limitations on a person’s ability to interpret, process, and act
on information
o Not being able to discover and consider every alternative
Usually, the list of alternatives will represent familiar criteria and previously tested solutions
o Settle on the alternative that is “good enough” – meets acceptable level of
performance
o First alternative that meets a good enough solution will end the search
Decision makers choose a final solution that satisfices (provide a solution that is
satisfactory and sufficient) rather than optimizes
Intuition
Intuitive decision making subconscious process created out of a person’s many
experiences
o Least rational way
Occurs outside of conscious thought
Relies on holistic associations or links between disparate pieces of information
Affectively charged engages the emotions
Experience allows one to recognize a pattern in a situation and draw on previously learned
information associated with that pattern to arrive at a decision quickly
Judgment Shortcuts
Systematic bias and errors creep into judgments
Attempts to shortcut the decision making process
Minimize effort and avoid difficult tradeoffs rely heavily on experience, impulses, gut
feeling, convenient rules of thumb
Overconfidence Bias
Error in judgment that arises from being far too optimistic about one’s performance
Those individuals whose intellectual and interpersonal abilities are weakest are most likely
to overestimate their performance/ability
The more knowledgeable one becomes, the less likely they display overconfidence
Arises when members are considering issues or problems that are outside area of
expertise
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