MGHB02H3 Chapter Notes - Chapter 11: Bounded Rationality, Brainstorming, Nominal Group Technique

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19 Jul 2010
Decision Making is the process of developing a commitment to some course of action
o Involves making a choice among several action alternatives
o Is a process that involves more than simply the final choice
o Know how the decision was reached
o Involves some commitment of resources
Problem is a perceived gap between an existing state and a desired state
Well-Structured Problems
Well-Structured Problem is a problem for which the existing state is clear, the desired state
is clear, and how to get from on state to the other is fairly obvious
o Example: Truck Driver How much weight should I carry?
Program is a standardized way of solving a problem
o Enables the decision maker to go directly from problem identification to solution
o Are usually rules, routines, procedures, or rule of thumbs
Ill- Structured Problems
ill structured problem is a problem for which the existing and desired states are unclear, and
the method of getting to the desired state is unknown
o example: Should we vaccinate the population against new flu strain when the
vaccination have some bad side effects
o are usually unusual and never been encountered before
o complex and involve high degree of certainty
o cannot be solved with programmed decisions
identify problem
search for relevant information
develop alternative solutions to the problem
evaluate alternative solutions
chose best solution
implement chosen solution
monitor and evaluate chosen solution
Perfect vs. Bounded Rationality
Perfect Rationality is a decision strategy that is completely informed, perfectly logical, and
oriented toward economic gain
Bounded Rationality is a decision strategy that relies on limited information and that reflects
time constraints and political considerations
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o Framing are aspects of the presentation of information about a problem that are
assumed by decision makers
! Assume boundaries of problem, possible outcomes of a decision or reference
points used to decide a decision
o Cognitive biases are tendencies to acquire and process information in an error-prone
! Constitute assumptions and shortcuts that can improve the decision making
efficiency, lead to serious errors in judgement
Problem Identification and Framing
The perfectly rational decision maker should be a great problem identifier
Bounded rationality, can lead to the following difficulties in problem identification
o Perceptual defence
! Defends the perceiver against unpleasant perceptions
! Example: downplaying of recurring problems during shuttle launches when
making a decision to launch a shuttle
o 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 even when some other perspective might be
o Problem defined in terms of solution
! Jumping to conclusions effectively short-circuits the rational decision-making
o Problem diagnosed in terms of symptoms
! The problem here involves the cause of the morale problem
! A concentration on surface symptoms will provide the decision maker with
few clues about an adequate solution
When a problem is identified, it is necessarily framed in some way
o Example: 10000 expenditure as cost, or investment
Rational decision makers should try to be very self-conscious about how they have framed
Information Search
Information search may clarify the extent of the problem
Can be slow and costly
Too Little Information
Cognitive Biases
o People tend to be mentally lazy and use whatever information is most readily available
to them
o Tendency for people to be overconfident in their decision making
Confirmation Bias is the tendency to seek out information that conforms to one`s own
definition of or solution to a problem
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Too Much Information
Information overload is the reception of more information that is necessary to make
effective decisions
o Can lead to errors, omissions, delays, and cutting corners
o Use all information at hand, and get confused and permit low-quality information or
irrelevant information to influence their decisions
o Decisions makers who were overloaded with information were more satisfied than
does who did not experience overload
Although good information improves decisions, organizational members often obtain more or
less information than is necessary for adequate decisions
Alternative Development, Evaluation, and Choice
Maximization is the choice of the decision alternative with the greatest expected value
o Perfectly rational decision maker would choose to implement the alternative with
higher expected value
Under bounded rationality, cognitive biases comes into play, because they might not know all
alternative solutions or be ignorant of the ultimate values and probabilities of success of those
solutions that he knows
o People avoid incorporating known existing data about the likelihood of events in their
own decisions
o Large samples warrant more confidence than small samples
! However focus groups might be given more weight than data from large
o People are poor at revising estimates of probabilities and values as they acquire
additional information
! Anchoring effect is the inadequate adjustment of subsequent estimates from
an initial estimate that serves as an anchor
Reduce cognitive biases before a decision is reached, because after-the-fact accountability
often increases the probability of biases, as people try to protect their identity as good
decision makers
Perfectly rational decision maker can evaluate alternative solutions against economic gain
Bounded decision maker might have to factor in political acceptability
Satisficing is establishing an adequate level of acceptability for a solution to a problem and
then screening solutions until one that exceeds this level is found
o Instead of maximizing, decision makers under bounded rationality satisfice
Risky Business
Choosing between decision alternatives often involves an element of risk
When people view a problem as a choice between losses, they tend to make risky decisions
When people frame the alternatives as a choice between gains they tend to make conservative
decisions, protecting the sure win
Learning history can modify these general preferences for or against risk
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