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Chapter 11

Chapter_11


Department
Management (MGH)
Course Code
MGHB02H3
Professor
Samantha Montes
Chapter
11

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Chapter11 Decision Making
I. What is Decision Making?
Decision making -the process of developing a commitment to some course of action
process that involves making a choice, a process and it also involves making a commitment of
resources such as time, money or personnel
Decision making involves making a choice between alternatives; a process; how the decision
is reached, and the commitment of resources
A problem exists when a gap is perceived between some existing state and some desired
state
Decision making is also a process of problem solving
A. Well-Structured Problems
Well-structured problem-the existing state is clear, the desired state is clear, and how to
get from one state to the other is fairly obvious
oUsually problems are repetitive and familiar
Program- a standardized way of solving a problem when dealing with well-structured
problems
oPrograms short-circuit the decision-making process by enabling the decision-maker to
go directly from problem identification to solution
Many of the problems encountered in organizations are well structured and programmed
Decision making is a useful means of solving these problems
Programs are only as good as the decision making process that led to the adoption of the
program in the first place
CONS: decision program si has tendency to persist even when problem conditions change
oSeen in ineffective hiring: filling out forms
B. Ill-Structured Problems
Ill-structured problem-A problem for which the existing and desired states are unclear,
and the method of getting to the desired state is unknown
oie: marketing manager suspects that sales are going down, but does not have a exact
figure; want to know where the competitors stand, but not sure of the figure, and have
no plan of increasing sales
These problems are usually unique, complex, and have not been encountered before
Cannot be solved with programmed decisions
organizations use non-programmed decision making which means that they will gather more
information and be more self-consciously analytical in their approach
can entail high risk and stimulate political considerations
problems tend to be complex and involve a high degree of uncertainty arose controversy,
and conflicts among the ppl who a are interested in the decision
II. The Complete Decision Maker A Rational Decision-Making Model
when problem is id, search for info begins, info clarifies the nature of the problem and
suggests alternative solutions, solutions are evaluated and solution chosen, implementation
monitored over time to ensure effectiveness
oif difficulties result, repetition or recycling
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A. Perfect versus Bounded Rationality
Perfect rationality- a decision strategy that is completely informed, perfectly logical, and
oriented toward economic gain
While useful for theoretical purposes, these characteristics do not exist in real decision
makers.
According to Herbert Simon, administrators use bounded rationality rather than perfect
rationality
Bounded rationality- a decision strategy that relies on limited info and that reflects time
constraints and political considerations
o While they try to act rationally, they are limited in their capacity to acquire and
process information, and time constraints and political considerations also act as
bounds to rationality
oFraming and cognitive biases illustrate the operation of bounded rationality.
Framing- refers to aspects of the presentation of information about a problem that are
assumed by decision makers
oHow problems and decisions are framed can have a powerful impact on resulting
decisions
Cognitive biases- are tendencies to acquire and process information in an error-prone
way
although more effective, higher chance for error
They involve assumptions and shortcuts that can improve decision making efficiency but
frequently lead to serious errors in judgment.
B. Problem Identification and Framing
Problem exists when a gap occurs b/t existing and desired conditions
The perfectly rational decision maker, infinitely sensitive and completely informed, should be
a great problem identifier
Bounded rationality, however, can lead to several difficulties in problem identification:
1. Perceptual defense-The perceptual system may act to defend the perceiver against unpleasant
perceptions.
2. Problem defined in terms of functional specialty-Selective perception can cause decision
makers to view a problem as being in the domain of their own specialty
3. Problem defined in terms of solution- This form of jumping to conclusions short-circuits the
rational decision-making process.
4. Problem diagnosed in terms of symptoms- A consideration on surface symptoms will provide
the decision maker with few clues about an adequate solution.
When problems are id, need FRAMING
oEven if the facts of the matter might be the same, different decision frames lead to
very different decision
Rational decision makers self conscious about how they frame problems, but do no
overarching and over framing
C. Information Search
Once a problem has been identified, a search for information is instigated
The perfectly rational Economic Person has free and instantaneous access to all information
necessary to clarify the problem and develop alternative solutions
Bounded rationality, however, suggests that information search might be slow and costly.
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Too little information
Decision makers may collect insufficient information to make a good decision because people
are mentally lazy and tend to use whatever information is available in memory
Unfortunately, our memory is more selective then representative we remember vivid,
recent events
Overconfidence in decision making is also a problem and it is reinforced by confirmation
bias - the tendency to seek out information that conforms to one's own definition of or
solution to a problem
These biases lead people to shirk the acquisition of additional information
Too much information
Information overload- the reception of more information than is necessary to make
effective decisions
Information overload can lead to errors, omissions, delays, stress, and cutting corners
Decision makers often attempt to use all of the information and get confused and permit low
quality information or irrelevant information to influence their decisions
While information overload causes decision quality to deteriorate, decision makers become
more confident of their decisions
Decision makers are more satisfied than those who did not experience overload increase in
confidence
Also decision makers fear of being kept in the dark and associate info with power
D. Alternative Development, Evaluation, and Choice
At times a decision maker may exhibit maximization which is the choice of a decision
alternative with the greatest expected value
Unfortunately, the decision maker operating under bounded rationality may not know all
alternative solutions and may be ignorant of the ultimate values and probabilities of success
for known alternatives
People are weak intuitive statisticians have trouble with base rates, sample size,
probability estimates of multiple event scenarios, and the revision of estimates
oAn example of this last problem is the anchoring effect which is the inadequate
adjustment of subsequent estimates from an initial estimate that serves as an
anchorThis occurs even when subsequent estimates are far more sophisticated than
the original, naive estimate
The perfectly rational decision maker can evaluate alternative solutions against a single
criterion economic gain
The decision maker who is bounded by reality might have to factor in other criteria as well,
such as the political acceptability of the solution to other organizational membersincreases
the complexity of the decision-making task
as a consequence of the overwhelming complexity of rational decision making, the decision
maker operating under bounded rationality frequently satisfices rather than maximizes
Satisficing the decision maker establishes an adequate level of acceptability for a solution
to a problem and then screens solutions until one that exceeds this level is found, does not
achieve maximization
E. Risky Business (choose best solution)
1. The role of risk in decision making is also fertile ground for the issue of framing
2. Research by Kahneman and Tversky shows that
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