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Chapter 11

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Ping Zhang

Chapter 11: Decision Making 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 – A problem for which the existing state is clear, the desired state is clear, and how to get from one state to the other is fairly obvious Program – A standardized way of solving a problem - some programs come from experience and occur “in the head” and others are more formal such as courier routes being programmed to avoid left-hand turns 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 - “should we implement a risky attempt to rescue hostages?” - cannot be solved with programs Perfect Rationality – A decision strategy that is completely informed, perfectly logical, and oriented toward economic gain Rational Decision Making Process: 1. Identify problem 2. Search for relevant information 3. Develop alternative solutions to the problem 4. Evaluate alternative solutions 5. Choose best solution 6. Implement chosen solution 7. Monitor and evaluate chosen solution Bounded Rationality – A decision strategy that relies on limited information and that reflects time constraints and political considerations Framing – Aspects of the presentation of information about a problem that are assumed by decision makers - could include assumptions about the boundaries of a problem, the possible outcomes of a decision, or the reference points used to decide if a decision is successful Cognitive Biases – Tendencies to acquire and process information in an error-prone way - these biases constitute assumptions and shortcuts that can improve decision-making efficiency, but they frequently lead to serious errors in judgement Confirmation Bias – The tendency to seek out information that conforms to one’s own definition of or solution to a problem Information Overload – The reception of more information than is necessary to make effective decisions - can lead to errors, omissions, delays and cutting corners - writing a term paper and trying to incorporate too many references and viewpoints into a short paper Maximization – The choice of the decision alternative with the greatest expected value Anchoring Effect – The 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 The decision maker working under bounded rationality frequently “satisfices” rather than maximizes. - ex. determines an acceptable level of absenteeism rather than trying to maximize attendance Sunk Costs – Permanent losses of resources incurred as the result of a decision - these resources should not enter into future decisions Escalation of Commitment- The tendency to invest additional resources in an apparently failing course of action - buying more faulty computers to prove that they were a good idea Hindsight – The tendency to review the decision-making process to find what was done right or wrong - knew-it-all-along effect; tendency to assume, after the fact, that we knew all along what the outcome of a decision would be - decision makers in a good mood can overestimate the likelihood of good events and use shortcut decision strategies - people in a positive mood tend to rem
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