Textbook Notes (270,000)
CA (160,000)
UTSC (20,000)
MGH (200)
MGHB02H3 (300)
Chapter 11

Chapter 11 summary


Department
Management (MGH)
Course Code
MGHB02H3
Professor
Julie Mc Carthy
Chapter
11

This preview shows pages 1-2. to view the full 7 pages of the document.
Questions and Exercises prepared by Alan Saks.
I. What is Decision Making?
Decision making is the process of developing a commitment to some course of action. This is a process
that involves making a choice, and it also involves making a commitment of resources such as time,
money or personnel.
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
In a 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. Organizations prefer a program or standardized way of solving a
p
roblem when dealing with well-structured problems. Programs short-circuit the decision-making
p
rocess 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.
B. Ill-Structured Problems
In an ill-structured problem, the existing and desired states are unclear, and the method of getting to
the desired state is unknown. These problems are usually unique, complex, and have not been
encountered before. Ill-structured problems cannot be solved with programmed decisions. In dealing
with these problems, organizations use non-programmed decision making which means that they will
gather more information and be more self-consciously analytical in their approach. Ill-structured
p
roblems can entail high risk and stimulate political considerations.
II. The Complete Decision Maker — A Rational Decision-Making Model
When a rational decision maker identifies a problem, he or she is likely to search for information to
clarify the problem and suggest alternatives; evaluate the alternatives and choose the best for
implementation. The implemented solution is then monitored over time to ensure its immediate and
continued effectiveness. If difficulties occur at any point in the process, repetition or recycling may be
effected.
A. Perfect versus Bounded Rationality
Perfect rationality involves 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. While they try to act rationally, they are limited in their capacity to acquire and
p
rocess information, and time constraints and political considerations also act as bounds to rationality.
Framing 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. How problems and decisions are framed can have a powerful impact on resulting
decisions.
Pa
g
e 1 of 7
25/07/2010htt
p
://media.
p
earsoncm
g
.com/intl/
p
ec/m
y
lab/
j
ohns
_
ob
_
7/ch
_
sum/ch11
_
sum.html
www.notesolution.com

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Co
g
nitive biases are tendencies to acquire and process information in an erro
r
-prone way. They involve
assumptions and shortcuts that can improve decision making efficiency but frequently lead to serious
errors in judgment.
B. Problem Identification and Framing
The perfectly rational decision maker, infinitely sensitive and completely informed, should be a great
p
roblem identifier. Bounded rationality, however, can lead to several difficulties in problem
identification:
zPerceptual defense. The perceptual system may act to defend the perceiver against unpleasant
perceptions.
zProblem 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.
zProblem defined in terms of solution. This form of jumping to conclusions short-circuits the
rational decision-making process.
zProblem diagnosed in terms of symptoms. A consideration on surface symptoms will provide the
decision maker with few clues about an adequate solution.
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.
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 is the reception of more information than is necessary to
make effective decisions. Information overload can lead to errors, omissions, delays, 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.
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. They have trouble with base rates, sample size, probability
estimates of multiple event scenarios, and the revision of estimates. An 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 anchor. This occurs even when subsequent estimates are far more sophisticated than the
Pa
g
e 2 of 7
25/07/2010htt
p
://media.
p
earsoncm
g
.com/intl/
p
ec/m
y
lab/
j
ohns
_
ob
_
7/ch
_
sum/ch11
_
sum.html
www.notesolution.com
You're Reading a Preview

Unlock to view full version