Chapter 7: Individual and Group Decision Making (7.1, 7.2, 7.3, 7.5, 7.6 pgs 221-223)
3 key attributes among analytics competitors
1. Use of modeling: going beyond simple descriptive statistics 2. Multiple applications, not just one 3. Support from the top
Benefits of Intuition
-Expedites decision making -can be helpful to managers when resources are limited -good for start-ups, but deceives CEOs when businesses become more complex
Some Hindrances to Perfectly Rational Decision Making
-complexity -time and money constraints -different cognitive capacity, values, skills, habits, and unconscious reflexes -imperfect information -information overload -different priorities -conflicting goals
what's wrong with the rational model?
-prescriptive -doesn't describe how managers actually make decisions, but rather how they "should"
9 common decision making biases: Rules of thumb, or "heuristics"
1. Availability Bias: Using only the information available -managers use information readily available from memory to make judgments 2. Representativeness Bias: Faulty Generalizing from a Small Sample or a Single Event -the tendency to generalize from a small sample or a single event 3. Confirmation Bias: Seeking information to support one's point of view -when people seek information to support their point of view and discount data that do not support 4. Sunk-Cost Bias: Money already spent seems to justify continuing -when managers add up all the money already spent on a project and conclude it is too costly to simply abandon it 5. Anchoring & Adjustment Bias: Being Influenced by an Initial Figure -tendency to make decisions based on an initial figure 6. Overconfidence Bias: Blind to One's Own Blindness -the bias in which people's subjective confidence in their decision making is greater than their objective accuracy 7. Hindsight Bias: The I-Knew-It-All-Along Effect -the tendency of people to view events as being more predictable than they really are 8. Framing Bias: Shaping How a Problem is Presented -the tendency of decision makers to be influenced by the way a situation or problem is presented to them 9. Escalation of Commitment Bias: Feeling Overly Invested in a Decision -decision makers increase their commitment to a project despite negative information about it
3 effective reactions: deciding to decide
1. Importance: "How high priority is this situation?" -is it a threat or opportunity 2. Credibility: "How believable is the information about the situation?" -how much is known about the threat or opportunity 3. Urgency: "How quickly must I act on the information about the situation?" -is the threat immediate?
When confronted with a proposed action, mangers must answer these questions
1. Is the proposed action legal? 2. If "yes" does the proposed action maximize shareholder value? 3. If "yes" is the proposed action ethical? 4. If "no" would it be ethical NOT to take the proposed action?
guidelines for developing intuitive awareness
1. Open up the closet. 2. Don't mix up your I's. 3. Elicit good feedback. 4. Get a feel for your batting average. 5. Use imagery. 6. Play devil's advocate. 7. Capture and validate your intuitions.
4 ineffective reactions to responding to a decision situation
1. Relaxed Avoidance -- "There's no point in doing anything; nothing bad's going to happen" -a manager decides to take no action in the belief that there will be no great negative consequences (inaction) 2. Relaxed change -- "why not just take the easiest way out?" -a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk (first alternative) 3. Defensive Avoidance -- "There's No Reason for Me to Explore Other Solution Alternatives" -a manager can't find a good solution and follows by a) procrastinating, b) passing the buck c) denying the risk of any negative consequences (avoiding action) -denial of responsibility -occurs in firms with high turnover 4. Panic -- "This is so stressful, I've got to do something -- anything -- to get rid of the problem!" (impulsive action) -manager is so frantic to get rid of the problem that he or she can't deal with the situation realistically -occurs in crisis situations
What makes it hard to be evidence based?
1. There's too much evidence 2. There's not enough good evidence 3. The evidence doesn't quite apply 4. People are trying to mislead you 5. You are trying to mislead you 6. The side effects outweigh the cure 7. Stories are more persuasive anyway
Seven Implementation Principles (pfeffer and sutton)
1. Treat your organization as an unfinished prototype 2. No brag, just facts 3. See yourself and your organization as outsiders do 4. Evidence-based management is not just for senior executives 5. Like everything else, you still need to sell it 6. If all else fails, slow the spread of bad practice 7. The best diagnostic question: What happens when people fail?
Disadvantages of Group Decision Making
1. a few people dominate or intimidate 2. groupthink -when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situation 3. Satisficing -seeking a decision that's "good enough" 4. goal displacement -occurs when the primary goal is subsumed by a secondary goal
group problem-solving techniques to aid in problem solving
1. brainstorming -a technique used to help groups generate multiple ideas and alternatives for problem solving -electronic brainstorming(brainwriting) in which members of a group come together over a computer network to generate ideas and alternatives 2. the Delphi technique -a group process that uses physically dispersed experts who fill out questionnaires to anonymously generate ideas; the judgments are combined and in effect averaged to achieve a consensus of expert opinion -useful when face-to-face discussions are impractical 3. computer-aided decision making -decision support system = a computer-based information system that provides a flexible tool for analysis and helps managers focus on the future -business intelligence
How to make a tough decision easier
1. decide in a timely fashion -waiting doesn't improve decision quality, and delay can cause loss of money and time 2. don't agonize over minor decisions -postponing decisions about smaller problems can turn into larger ones 3. separate outcome from process -a bad outcome doesn't necessarily mean a bad decision; go through a well-reasoned process of choosing among alternatives to increase success 4. learn when to stop gathering facts -gather enough info to make a sound decision, but not all the info possible; taking extra time might mean missing a window of opportunity 5. when overwhelmed, narrow your choices -sometimes there are many good alternatives, but you need to simplify decision making by eliminating some options
Advantages of Group Decision Making
1. greater pool of knowledge -when several people are making a decision 2. different perspectives -problem seen from different angles 3. intellectual stimulation -groups can brainstorm 4. better understanding of decision rationale -if you participate, you understand the reasoning more 5. deeper commitment to the decision -if you buy into the final decision, you're more committed to seeing the course of action
4 steps in rational decision making
1. identify the problem or opportunity 2. think up alternative solutions 3. evaluate alternatives and select a solution 4. implement and evaluate the solution chosen
What managers need to now about groups & decision making
1. they are less efficient 2. their size affects decision quality -larger the group, lower the decision quality 3. They may be too confident 4. knowledge counts
Step 3: Evaluate Alternative & Select a Solution -- Ethics, Feasibility, Effectiveness
Ask 1) is it ethical? 2) is it feasible? 3) is it ultimately effective?
Step 4: Implement & evaluate the solution chosen
For successful implementation: -plan carefully -be sensitive to those affected
1. Bounded Rationality & the Satisficing Model: "Satisfactory Is Good Enough"
Herbert Simon studied how managers actually make decisions bounded rationality = the concept suggesting that the ability of decision makers to be rational is limited by numerous constraints, such as time and money, complexity, skills, etc Simon's satisficing model = managers seek alternatives until they find one that is satisfactory, not optimal
Evaluation
If the action is not working: -give it more time -change it slightly -try another alternative -start over
2 systems of decision making
System 1 -- intuitive and largely unconscious: operates automatically and quickly (ex: when we detect hostility in someone's voice) System 2 -- analytical and conscious: slow, deliberate, analytical, and effortful mode of reasoning (ex: when we're parking a car in a narrow space)
curse of knowledge
When better-informed people find it extremely difficult to think about problems from the perspective of lesser-informed people; grow less able to see things from an outsiders perspective
predictive modeling
a data-mining technique used to predict future behavior and anticipate the consequences of change
decision tree
a graph of decisions and their possible consequences; it is used to create a plan to reach a goal; used to aid in making decisions
deciding to decide
a manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps
decision
choice made from among available alternatives
minority dissent
dissent that occurs when a minority in a group publicly opposes the beliefs, attitudes, ideas, procedures, or policies assumed by the majority of the group -group decision making is more effective when members can freely disagree with each other
Jeffrey Pfeffer and Robert Sutton
evidence-based management; said people are more interested in copying others and making decisions based on what ought to work rather than what actually works
rational model of decision making
explains how managers should make decisions; assumes managers will make logical decisions that will be optimum in furthering the organization's best interests
Big Data
includes not only data in corporate databases but also web-browsing data trails, social network communications, sensor data, and surveillance data -the next frontier for innovation, competition, and productivity
2. The Intuition Model: "It just feels right"
intuition = making a choice without the use of conscious thought or logical inference
automated experience
intuition based on feelings -- the involuntary emotional response to those same matters
holistic hunch
intuition that stems from expertise - a person's explicit and tacit knowledge about a person, situation, object, or decision opportunity
Nonrational Decision Making: Managers Find It Difficult to Make Optimal Decisions
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 -descriptive rather than prescriptive, describing how managers actually make decision
consensus
occurs when members are able to express their opinions and reach agreement to support the final decision
Step 1: Identify the Problem
problems = difficulties that inhibit the achievement of goals opportunities = situations that present possibilities for exceeding existing goals diagnosis = analyzing the underlying causes
ethics officer
someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas
big data analytics
the process of examining large amounts of data of a variety of types to uncover hidden patterns, unknown correlations, and other useful information
decision making
the process of making a choice or finding a solution; identifying and choosing alternative courses of action
Analytics (business analytics)
the term used for sophisticated forms of business data analysis -the purest application of evidence-based management