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Chapter 11

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Department
Management (MGH)
Course
MGHB02H3
Professor
Anna Nagy
Semester
Summer

Description
MGTB27 Chapter 11: Decision Making Decision making: process of developing a commitment to some course of action Well-structured Problem: existing state is clear, the desired state is clear, and how to get from one state to the other is fairly obvious Programs  rules, routines, standard operating procedures, rule of thumb Ill-structured Problem: existing and desired states are unclear and the method of getting to the desired state is unknown  Cannot be solved with programmed decisions  High risk and stimulate strong political consideration The Compleat Decision Maker – A Rational Decision-Making Model Perfect VS Bounded Rationality  Perfect rationality: completely informed, perfectly logical, and oriented toward economic gain  Bounded rationality: relies on limited info and that reflects time constraints and political considerations  Framing: aspects of the presentation of info about a problem that are assumed by decision makers  Cognitive biases: tendencies to acquire and process info in an error-prone way Problem Identification and Framing  Perceptual defence o Perceptual system may act to defend the perceiver against unpleasant perception  Problem defined in terms of functional specialty o Selective perception can cause decision makers to view a problem as being in the domain of their own specialty  Problem defined in terms of solution o Jumping to conclusions effectively short-circuits the rational decision-making process  Problem diagnosed in terms of symptoms o Concentration on surface symptoms will provide the decision maker with few clues about an adequate solution  Rational decision makers should be very self-conscious about how they have framed problems  Avoid overarching, universal frames Information search  Too little info o Lazy  tend to remember vivid, recent events o Confirmation bias: seek out info that conforms to one’s own definition of or solution to a problem  Too much info o Info overload: reception of more info than is necessary to make effective decisions o Lead to errors, omissions, delays, and cutting corners Alternative Development, Evaluation, and Choice  Maximization: the choice of the decision alternative with the greatest expected value  Anchoring effect: inadequate adjustment of subsequent estimates from an initial estimate that serves as an anchor  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 MGTB27 Solution Implementation  Bounded decision maker will attempt to factor one choice of solutions when estimating probabilities of success Solution Evaluation  Justification o Sunk costs: permanent losses of resources incurred as the result of a decision o Escalation of commitment: tendency to invest additional resources in an apparently failing course of action  Hindsight o Review the decision making process to find what was done right or wrong How Emotion and Mood Affect Decision Making  positive mood  positive info  positive mood evaluate objects, people, events more positively  good mood  overestimate good events will occur and underestimate bad events  good mood  simplified, shortcut decision making strategies, more likely violating the rational model  good mood  creative, intuitive decision making Stage Perfect Rationality Bounded Rationality Problem Identification Easy, accurate perception of Perceptual defence; jump to gaps that constitute problems solutions, attention to symptoms rather than problems; mood affects memory Information search Free; fast; right amount obtained Slow; costly; reliance on flawed memory; obtai
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