Chapter 11: RATIONAL AND NON-RATIONAL MODELS OF DECISION MAKING

Four steps in making rational decisions are?

(1) identify the problem (2) generate alternative solutions (3) evaluate alternatives and select a solution (4) implement and evaluate the solution

Satisficing

Choosing an option that is acceptable, although not necessarily the best or perfect. Choosing a solution that meets some minimum qualifications and thus is "good enough."

Simon's Normative Model: "Satisfactory Is Good Enough" Herbert Simon proposed?

Describe the process that managers actually use when making decisions. This process is guided by a decision maker's bounded rationality.

Nonrational models of decision making

Explain how managers make decisions; they assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions.

rational model of decision making

Explains how managers should make decisions; it assumes managers will make logical decisions that will be the optimum in furthering the organization's best interests.

Decision making entails?

Identifying and choosing from among alternate solutions that lead to a desired state of affairs.

decision making is an

Individual and group/team-level process, a host of person and situation factors influence it.

Expertise

Individual's combined explicit knowledge or information that can easily be put into words, and tacit knowledge or information we gain through experience that is difficult to express and formalize.

What Is the Bottom Line on Intuition?

Intuition and rationality are complementary and that managers should attempt to use both when making decisions. We thus encourage you to use intuition when making decisions.

A holistic hunch

Judgment based on the subconscious integration of information stored in memory.

Intuition

Judgments, Insights, or decisions that "come to mind on their own, without explicit awareness of the evoking cues and of course without explicit evaluation of the validity of these cues." The ability to understand something immediately, without the need for conscious reasoning.

System 1—Intuitive and Largely Unconscious Thought:

Our automatic, instinctive, and emotional mode of decision making. It is fast because it relies on mental shortcuts that create intuitive solutions to problems as they come up.

System 2—Analytical and Conscious Thought:

Our slow, logical, deliberate mode of decision making. It helps us identify when our intuition is wrong or when our emotions are clouding our judgment.

Automated Experiences:

Represents a choice based on a familiar situation and a partially subconscious application of learned information related to it.

Optimizing

Solving problems by producing the best possible solution based on a set of highly desirable condition.

The Four Stages in Rational Decision Making:

Stage 1: Identify the Problem or Opportunity—Determining the Actual versus the Desirable Stage 2: Generate Alternative Solutions—Both the Obvious and the Creative Stage 3: Evaluate Alternatives and Select a Solution—Ethics, Feasibility, and Effectiveness Stage 4: Implement and Evaluate the Solution Chosen

Thinking, Fast and Slow, Daniel Kahneman, a professor who received the 2002 Nobel Prize in economics, described two kinds of thinking, which he labeled?

System 1 & System 2

critical thinking

The application of logic and reasoning to problem solving. Here are some tips: *1. Get all available facts:* Decisions made in the absence of facts are often flawed, based on biased thinking or guesswork, or overly reliant on emotional responses to an uncertain situation. Getting reliable factual information from several different sources is an essential first step. *2. Understand your motive:* This means being clear about whether you've sought objective information or merely valida¬ tion of what you already believe. *3. Reconsider the facts:* Look objectively at the facts. If you are basing your decision on some unavoidable as¬ sumptions, for instance, ask yourself how valid they are in light of objective reality. *4. Expect to be wrong:* Realize that no one is right all the time. (Most of us are wrong surprisingly often.) Instead of seeing this as a roadblock, use it to avoid the mis¬ take of overconfidence. *5. Choose your course of action:* If you've collected facts, looked at them objectively, made sure you're not just confirming your own opinion, and listened carefully to input from others, you're ready to make a decision as grounded in critical thinking as possible.

Bounded Rationality Model

The notion that decision makers are "bounded" or restricted by a variety of constraints when making decisions. According to this model, individuals knowingly limit their options to a manageable set and choose the first acceptable alternative without conducting an exhaustive search for alternatives. Lack of information is a prime example of a decision-making constraint. In the long run, the constraints of bounded rationality cause decision makers to fail to evaluate all potential alternatives, thereby causing them to satisfice.

One skill that underlies all good decision making?

critical thinking

There are three benefits of trying to follow a rational process as closely as is realistically possible:

• Quality. The quality of decisions may be enhanced, in the sense that they follow more logically from all available knowledge and expertise. • Transparency. Rationality makes the reasoning behind a decision transparent and available to scrutiny. • Responsibility. The rational model discourages decision makers from acting on suspect considerations (such as personal advancement or avoidance of bureaucratic embarrassment) and therefore encourages more responsible decisions.