Chapter 7

Rational Model of Decision Making

"classical model" explains how managers should make decisions; it assumes managers will make logical decisions that are the optimal means of furthering the organization's best interests

Heuristics

"rules of thumb" strategies that simplify the process of making decisions

low tolerance for ambiguity

- desire lot of structure - find ambiguous situations stressful

high tolerance for ambiguity

- do not need structure - thrive in uncertain situations

4 Decision Making Styles

1. Directive 2. Analytical 3. Conceptual 4. Behavioral

Disadvantages of Group Decision Making

1. a few people dominate or intimidate 2. groupthink 3. satisficing 4. goal displacement

9 Common Decision Making Biases

1. availability 2. representativeness 3. confirmation 4. sunk cost 5. anchoring and adjustment 6. overconfidence 7. hindsight 8. framing 9. escalation of commitment

Group Problem Solving Techniques

1. brainstorming 2. devils advocacy 3. dialectic method 4. project postmortems

Advantages of Group Decision Making

1. greater pool of knowledge 2. different perspectives 3. intellectual stimulation 4. better understanding of decision rationale 5. deeper commitment to the decision

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

Characteristics of Group Decision Making

1. less efficient 2. size affects decision quality 3. may be too confident 4. knowledge counts

Symptoms of Groupthink

1. sense of invulnerability 2. rationalization 3. illusion of unanimity and peer pressure 4. "the wisdom of crowds"

Two Systems of Decision Making

System 1 - intuitive and largely unconscious (fast) System 2 - analytical and conscious (slow)

Whats wrong with the rational model?

The rational model is prescriptive, describing how managers ought to make decisions. It doesn't describe how managers actually make decisions.

Decision

a choice made from among available alternatives

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

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

Project Postmortems

a review of recent decisions in order to identify possible future improvements

Directive

action-oriented decision makers who focus on facts

Devil's Advocacy

assigns someone to the role of critic

Analytical

careful decision makers who like lots of information and alternative choices

Bounded Rationality

concept suggests that the ability of decision makers to be rational is limited by numerous constraints: complexity, time, money

Big Data

data in corporate databases, web browsing data trails, social network communications, sensor data, and surveillance data

Escalation of Commitment Bias

decision makers increase their commitment to project despite negative information about it

Conceptual

decision makers who rely on intuition and have a long-term perspective

Nonrational models of decision making

descriptive rather than prescriptive: they describe how managers actually make decisions rather than how they should. explain how managers make decisions; they assume that decision making is nearly always uncertain and risky, making it difficult for manager to make optimal decisions

Herbert Simon

developed bounded rationality model

What is an employer's creates competitive resource?

employees burning with bright ideas

Intuition stems from...

expertise - a person's explicit and tactic knowledge about a person, situation, etc. automated experience (feelings) - the involuntary emotional response to those same matters

Representativeness Bias

generalizing from a small sample or single event; just because something happens once, that doesn't mean it will happen again or that it will happen to you

Autonomous Intelligence

human have given operational control to the machine; self driving cars

Tolerance of Ambiguity

indicated the extent to which a person has high need for structure or control in his or her life

Augmented Intelligence

learns from human inputs in order to assist humans in making better decisions

Intuition

making a choice without the use of conscious thought or logical inference "going with your gut"

Sunk Cost Bias

managers add up all the money already spent on a project and conclude it is too costly to simply abandon it

Satisficing Model

managers seek alternatives until they find one that is satisfactory, not optimal

Dialectic Method

managers to foster a structures dialogue or debate of opposing viewpoints prior to making a decision

Consensus

occurs when members are able to express their opinions and reach agreement to support the final decision

Stage 1: Problems and Opportunities

p - difficulties that inhibit the achievement of goals o - situations that present possibilities for exceeding existing goals

Overconfidence Bias

people's subjective confidence in their decision making is greater than their objective accuracy

Stage 4: how to implement and evaluate the solution chosen

plan carefully and be sensitive to those affected

Decision-Making Style

reflects the combination of how an individual perceives and responds to information

Value Orientation

reflects the extent to which a person focuses on either task and technical concerns or people and social concerns when making decisions

2 Nonrational Models

satisficing and intuition

Confirmation Bias

seeking information to support one's point of view and discount data that does not

Assisted Intelligence

simply automates basic tasks making it faster and cheaper for humans to accomplish them

Business Analytics

sophisticated forms of business data analysis

Behavioral

the most people-oriented decision makers

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 identifying and choosing alternative sources of action

Hindsight Bias

the tendency of people to view events as being more predictable than they really are; the "I knew it all along" effect

Framing Bias

the tendency to be influenced by the way a situation or problem is presented; 85% lean vs. 15% fat

Anchoring and Adjustment Bias

the tendency to make decisions based on an initial figure; that might be irrelevant to market realities

Evidence-Based Management

the translation of principles based on best evidence into organizational practice; bringing rationality to the decision making process

Brainstorming

used to help generate multiple ideas and alternatives for solving problems

Availability Bias

using only the readily available information from memory to make judgments; may not present a complete picture of the situation

Group Think

when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situation

Goal Displacement

when the primary goal is subsumed by a secondary goal