Chapter 7.1 Individual & Group Decision Making: Two Kinds of Decision Making: Rational and Nonrational
System 1—intuitive and largely unconscious
System 1 operates automatically and quickly; it is our fast, automatic, intuitive, and largely unconscious mode, as when we detect hostility in a voice or detect that one object is more distant than another
True or False The nonrational models are descriptive rather than prescriptive: They describe how managers actually make decisions.
True
True or False The rational model is prescriptive, describing how managers ought to make decisions. It doesn't describe how managers actually make decisions
True
bounded rationality
the concept suggests that the ability of decision makers to be rational is limited by numerous constraints, such as complexity, time and money, and their cognitive capacity, values, skills, habits, and unconscious reflexes
The opposite of an opportunity is a
threat
What are the two nonrational models
(1) satisficing and (2) intuition.
What should you do if the action is not working? Some possibilities
1)Give it more time. You need to make sure employees, customers, and so on have had enough time to get used to the new action. 2)Change it slightly. Maybe the action was correct, but it just needs "tweaking"—a small change of some sort. 3)Try another alternative. If Plan A doesn't seem to be working, maybe you want to scrap it for another alternative. 4)Start over. If no alternative seems workable, you need to go back to the drawing board—to Stage 1 of the decision-making process.
Stage 1: Identify the Problem or Opportunity—Determining the Actual versus the Desirable
As a manager, you'll probably find no shortage of "problems, or difficulties that inhibit the achievement of goals:" customer complaints, supplier breakdowns, staff turnover, sales shortfalls, competitor innovations However, you'll also often find "opportunities—situations that present possibilities for exceeding existing goals". It's the farsighted manager, however, who can look past the steady stream of daily problems and seize the moment to actually do better than the goals he or she is expected to achieve. When a competitor's top salesperson unexpectedly quits, that creates an opportunity for your company to hire that person away to promote your product more vigorously in that sales territory
Stage 2: Think Up Alternative Solutions—Both the Obvious and the Creative
Employees burning with bright ideas are an employer's greatest competitive resource. After you've identified the problem or opportunity and diagnosed its causes, you need to come up with alternative solutions.
Stage 3: Evaluate Alternatives and Select a Solution—Ethics, Feasibility, and Effectiveness
In this stage, you need to evaluate each alternative not only according to cost and quality but also according to the following questions: (1) Is it ethical? (If it isn't, don't give it a second look.) (2) Is it feasible? (If time is short, costs are high, technology unavailable, or customers resistant, for example, it is not.) (3) Is it ultimately effective? (If the decision is merely "good enough" but not optimal in the long run, you might reconsider.)
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, a situation, an object, or a decision opportunity
what are the 4 stages associated with rational decision making
Stage 1: Identify the Problem or Opportunity—Determining the Actual versus the Desirable Stage 2: Think Up 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
System 2—analytical and conscious
System 2 is our slow, deliberate, analytical, and consciously effortful mode of reasoning, which swings into action when we have to fill out a tax form or park a car in a narrow space.
Stage 4: Implement and Evaluate the Solution Chosen
With some decisions, implementation is usually straightforward (though not necessarily easy—firing employees who steal may be an obvious decision, but it can still be emotionally draining). With other decisions, implementation can be quite difficult; when one company acquires another, for instance, it may take months to consolidate the departments, accounting systems, inventories, and so on.
Bounded Rationality and the Satisficing Model: "Satisfactory Is Good Enough"
economist Herbert Simon began to study how managers actually make decisions. From his research he proposed that managers could not act truly logically because their rationality was bounded by so many restrictions Called bounded rationality, the concept suggests that the ability of decision makers to be rational is limited by numerous constraints, such as complexity, time and money, and their cognitive capacity, values, skills, habits, and unconscious reflexes
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
What is The rational model of decision making also called the classical model
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.
The Intuition Model
intuition, is making a choice without the use of conscious thought or logical inference
decision
is a choice made from among available alternatives. Decision making is the process of identifying and choosing alternative courses of action
what are the Two Systems of Decision Making
System 1—intuitive and largely unconscious System 2—analytical and conscious
satisficing model
that is, managers seek alternatives until they find one that is satisfactory, not optimal While "satisficing" might seem to be a weakness, it may well outweigh any advantages gained from delaying making a decision until all information is in and all alternatives weighed.