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Chapter 11

CHAPTER 11.docx

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Rotman Commerce
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CHAPTER 11: DECISION MAKING 1. Define decision making and differentiate well-structured and ill-structured problems Decision making: the process of developing a commitment to some course of action Problem: a perceived gap between an existing state and a desired state Well structured problem: exiting state and desired states are clear, how to get from one state to the other is fairly obvious Because decision making is prone to error, organizations attempt to program the decision making Program: a standardized way of solving a problem ill-structured problem: existing and desired states are unclear, and the method of getting to the desired state is unknown 2. Compare and contrast perfectly rational decision making with decision making under bounded rationality Perfect rationality: a decision strategy that is completely informed, perfectly logical, and oriented toward economic gain bounded rationality: trying to act rationally, but are limited in capacity to acquire and process info – time constraints and political considerations Bounded rationality can lead to difficulties in problem identification:  Perceptual defence: perceptual system may act to defend the perceiver against unpleasant perceptions  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  Problem defined in terms of solution: jumping to conclusions short-circuits the decision making process  Problem diagnosed in terms of symptoms: concentration on surface symptoms will provide the decision maker with few clues about an adequate solution. Rational decision makers should try to be very self conscious about how they have framed problems, try out alternative frames, and avoid oversearching. 3. Discuss the impact of framing and cognitive biases on the decision process framing: aspects of the presentation of info about a problem that are assumed by decision makers – assumptions about the boundaries of the problem, possible outcomes of the decision cognitive biases: tendencies to acquire and process info in a particular way that is prone to error confirmation bias: tendency to seek out information that conforms to one’s own definition of or solution to a problem information overload: reception of more information than is necessary to make effective decisions Maximization: choice of the decision alternative with the greatest expected value anchoring effect: decision makers don’t adjust subsequent estimates from an initial that serves as an anchor satsficing: establishing an adequate level of acceptability for a solution to a problem and then screening solutions until one that exceeds this level is found sunk costs: permanent losses of resources incurred as the result of a decision should not be considered for future decisions4. Explain the process of escalation of commitment to an apparently failing course of action escalation of commitment: tendency to invest additional resources in an apparently failing course of action ways to prevent:  encourage continuous experimentation with reframing the problem  set specific goals in advance that must be met if more resources are invested  place more emphasis in evaluating managers on how they make decisions and less on decision outcomes  separate intial and subsequent decision making so that individuals who make the initial decision are assisted or replaced by others who decide if a course of action should be continued hindsight: tendency to review the decision-making process to find what was done right or wrong reflects cognitive bias  tendency to take personal responsibility for successful decision outcomes while denying responsibility for unsuccessful outcomes 5. Consider how emotions and mood affect decision making People in positive mood tend to  remember positive info  evaluate objects, people, and events more positively  overestimate the likelihood that good events will occur and underestimate the occurrence of bad events  adopt simplified, shortcut decision making strategies, violating the rational model  promotes more creative, intuitive decision making SUMMARY STAGE
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