Chapter 2: Making Decisions

Some common decisions making biases include:

Overconfidence, immediate gratification, anchoring effect, selective perception, confirmation, framing, availability, representation, randomness, sunk costs, self-serving, & hindsight.

Another way of saying heuristics:

"Rule of thumb"

Some decisions making biases and errors include:

Overconfidence bias, immediate gratification bias, anchoring effect, selective perception bias, confirmation bias, framing bias, availability bias, representation bias, randomness bias, sunk costs efforts, self-serving bias, & hindsight bias.

Techniques that may improve individual decision-making for programmed decisions:

Heuristics & Satisficing

Overconfidence bias:

Hiring managers believe that they have a special ability to judge applicants based on their gut and don't consider other information.

Escalation of commitment:

Hiring managers feel pressured to move forward with the candidate because they have already invested so much time or energy in the process.

Confirmation bias:

Hiring managers form a distinct impression of a candidate based on the school that they attended or club that they belong to and only hear comments that confirm their beliefs about the person.

Glare Factors:

Hiring managers give disproportionate weight to characteristics that appear on the surface during an interview such as how a candidate looks, dresses, and presents themselves.

Experience Fallacy:

Hiring managers had an applicant from a specific prior employer turn out to be highly successful so they assume everyone from that prior employer will be successful.

Stereotyping bias:

Hiring managers have unconscious stereotypes associated with gender, race, sexual orientation, ethnicity, and age.

Availability bias:

Hiring managers rely on their memory of an interview and decide based on a few high or low points rather than taking a comprehensive view.

Similarity bias:

Hiring managers select and hire people who are like them.

Overconfidence bias:

Holding unrealistically positive views of oneself and one's performance.

Step 3. Allocating weights to the criteria:

If the relevant criteria aren't equally important, the decision maker must weight the items in order to give them the correct priority in the decision.

Know your limits:

Leaders need to have an honest understanding of their decision-making strengths and weaknesses (bias). Get input (buy-in) from others.

Step 4. Developing alternatives:

List viable alternatives that could solve the problem.

Reflective System:

Logical, analytical, deliberate, and methodical

Availability bias:

Losing decision-making objectivity by focusing on the most recent events.

Intuitive Decision Making:

Making decisions based on experience, feelings, and accumulated judgment.

Hindsight bias:

Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).

Step 5. Analyzing alternatives:

Multiply the scores x the weights.

Randomness bias:

Creating unfounded meaning out of random events.

Step 2. Identifying decision criteria:

Decision criteria are factors that are important to resolving the problem.

Step 8. Evaluating decision effectiveness:

- Evaluate the result or outcome of the decision to see if the problem was resolved. - If it wasn't resolved, what went wrong?

Step 7. Implementing the alternative:

- Put the chosen alternative into action. - Convey the decision to those affected and get their commitment to it.

What are the 3 decision making conditions?

1. Certainty 2. Risk 3. Uncertainty

What are the 2 types of right answers?

1. Correct 2. Ethical

What are the 4 essential elements of EBMgt that are the decision-maker's?

1. Expertise and judgement 2. External evidence that's been evaluated by the decision-maker. 3. Opinions, preferences, and values of those who have a stake in the decision. 4. Relevant organizational (internal) factors such as context, circumstances, and organizational members. - The key for managers is to recognize and understand the mindful, conscious choice as to which element(s) are most important and should be emphasized in making a decision.

6 characteristics of an effective decision making process:

1. Focuses on what's important. 2. Is logical and consistent. 3. Acknowledges subjective and analytical thinking, blends analytical with intuitive thinking. 4. Requires only as much information as is needed to resolve the dilemma. 5. Encourages the gathering of relevant information. 6. Is straightforward, reliable, easy-to-use, flexible.

What are the 8 steps to the decision making process?

1. Identifying a problem 2. Identifying decision criteria 3. Allocating weights to the criteria 4. Developing alternatives 5. Analyzing alternatives 6. Selecting an alternative 7. Implementing the alternative 8. Evaluating decision effectiveness

What are the 3 keys to decision making?

1. Know your limits 2. Apply critical thinking 3. Use analytics & data-driven evidence

What 4 areas would managers make decisions in?

1. Planning 2. Organizing 3. Leading 4. Controlling

What are 5 assumptions of rationality?

1. Rational decision maker is logical and objective. 2. Problem faced is clear and unambiguous. 3. Decision maker would have clear, specific goal and be aware of all alternatives and consequences. 4. The alternative that maximizes achieving this goal will be selected. 5. Decisions are made in the best interest of the organization.

What are the 4 decision making approaches?

1. Rationality 2. Bounded Rationality 3. Intuition 4. Evidence-Based Management

What are the 2 decision making systems of the brain?

1. Reactive System 2. Reflective System

What are the 4 types of decisions?

1. Structured Problems 2. Programmed Decisions 3. Unstructured Problems 4. Non-programmed Decisions

Techniques that may improve individual decision-making for non-programmed decisions:

1. Systematically go through the six steps of the decision-making process. 2. Talk to other people 3. Be creative 4. Conduct research; engage in evidence-based decision-making. 5. Engage in critical thinking. 6. Think about the long-term implications. 7. Consider the ethical implications.

5 guidelines for making effective decisions:

1. Understand cultural differences. 2. Create standards for good decision making. 3. Know when it's time to call it quits. 4. Use an effective decision-making process. 5. Develop your ability to think clearly.

Policy:

A guideline for making decisions.

Procedure:

A series of sequential steps used to respond to a well-structured problem.

Uncertainty:

A situation in which a decision maker has neither certainty nor reasonable probability estimates available.

Certainty:

A situation in which a manager can make accurate decisions because all outcomes are known.

Risk:

A situation in which the decision maker is able to estimate the likelihood of certain outcomes.

Satisfice:

Accepting solutions that are "good enough".

Rule:

An explicit statement that tells managers what can or cannot be done.

Escalation of Commitment:

An increased commitment to a previous decision despite evidence it may have been wrong.

Problem:

An obstacle that makes it difficult to achieve a desired goal or purpose.

Design Thinking:

Approaching management problems as designers approach design problems. - Differs from the traditional deductive analysis.

Heuristics:

Can help make sense of complex, uncertain, or ambiguous information. However, they can also lead to errors and biases in processing and evaluating information.

Rational Decision Making:

Choices that are logical and consistent and maximize value.

Step 6. Selecting an alternative:

Choose the alternative that generates the highest total in Step 5.

Immediate gratification bias:

Choosing alternatives that offer immediate rewards and avoid immediate costs.

Bounded Rationality:

Decision making that's rational, but limited by an individual's ability to process information.

Apply critical thinking:

Does the decision make sense? Does the question make sense? What is the logic? What problem are we really trying to solve? Leaders have to think critically about what the problems really are, and what options are viable.

Representation bias:

Drawing analogies and seeing identical situations when none exist.

Step 1. Identifying a problem:

Every decision starts with a problem, a discrepancy between an existing and a desired condition.

Anchoring effect:

Fixating on initial information and ignoring subsequent information.

Sunk costs errors:

Forgetting that current actions cannot influence past events and relate only to future consequences.

Biases in hiring decisions include:

Glare factors, experience fallacy, confirmation bias, overconfidence bias, similarity bias, stereotype bias, availability bias, & escalation of commitment.

Unstructured Problems:

Problems that are new or unusual and for which information is ambiguous or incomplete.

Reactive System:

Quick, impulsive, and intuitive, relying on emotions or habits to provide cues for what to do next.

Programmed Decisions:

Repetitive decisions that can be handled by a routine approach.

Confirmation bias:

Seeking out information that reaffirms past choices while discounting contradictory information.

Framing bias:

Selecting and highlighting certain aspects of a situation while ignoring other aspects.

Selective perception bias:

Selecting, organizing and interpreting events based on the decision maker's biased perceptions.

Structured Problems:

Straightforward, familiar, and easily defined problems.

Self-serving bias:

Taking quick credit for successes and blaming outside factors for failures.

What is the premise behind evidence-based management (EBMgt)?

That any decision-making process is likely to be enhanced through the use of relevant and reliable evidence.

Big Data:

The vast amount of quantifiable data that can be analyzed by highly sophisticated data processing. - Can be a powerful tool in decision making, but collecting and analyzing data for data's sake is wasted effort.

Non-programmed Decisions:

Unique and nonrecurring and involve custom made solutions.

Use analytics & data-driven evidence:

What do the numbers say? What kinds of assumptions have you made? What are the patterns in the data? Does the data support or conflict with your gut? If done correctly, data overrules politics and bias.