Individual and group decision making

What does Herbert Simon say

"The assumptions of perfect rationality are contrary to fact. It is not a question of approximation; they do not even remotely describe the processes that human beings use for making decisions in complex situations"

Simon's normative model

-Simon proposed this model to describe the process that managers actually use when making decisions -process is guided by a decision maker's bounded rationality

What does the interaction of those events create

-a collection of choices looking for problems - issues and feelings looking for decision situations in which they might be aired -solutions looking for issues to which they might be the answer -decision makers looking for work

Non-rational models

-attempt to explain how decisions actually are made -based on the assumption that decision making is uncertain, that decision makers do not possess complete information, and that it is difficult for managers to make optimal decisions

People with directive style

-have low tolerance for ambiguity and are oriented toward task and technical concerns when making decisions -efficient, logical, practical, and systematic in their approach to solving problems -action oriented and decisive and like to focus on facts -in pursuit of speed and results, tend to be autocratic, exercise power and control, and focus on short run

People with conceptual style

-high tolerance for ambiguity and tend to focus on the people or social aspects of a work situation -take a broad perspective to problem solving and like to consider many options and future possibilities -adopt a long-term perspective and rely on intuition and discussions with others to acquire information -willing to take risks and are good at finding creative solutions to problems -can foster an idealistic and indecisive approach

People with Analytical style

-higher tolerance for ambiguity and is characterized by the tendency to overanalyze a situation -like to consider more information and alternatives than do directives -careful decision makers who take longer but who also respond well to new or uncertain situations

Pros of using intuition when making decisions

-it can speed up the decision-making process -practical approach when resources are limited and deadlines are tight

People with behavioral style

-most people oriented -work well with others and enjoy social interactions in which opinions are openly exchanged -supportive, receptive to suggestions, show warmth and prefer verbal to written information -avoid conflict and be too concerned with others

Anchoring bias

-occurs when decision makers are influenced by the first information received about a decision, even if it is irrelevant

Cons of using intuition when making decisions

-particularly susceptible to the availability and representativeness heuristics, as well as the anchoring, overconfidence, and hindsight biases -may have difficulty convincing others that the intuitive decision makes sense

Rational model

-proposes that managers use a rational, four-stage sequence when making decisions -managers are completely objective and possess complete information to make a decision

Escalation of commitment bias

-refers to the tendency to stick to an ineffective course of action when it is unlikely that the bad situation can be reversed

Framing bias

-relates to the manner in which a question is posed -tendency to consider risks about gains differently than risks pertaining to losses

Evidence-based decision making(EBDM)

-represents a process of conscientiously using the best available data and evidence when making managerial decisions

Research and practical implications

-research shows that very few people have only one dominant decision-making style -most managers have characteristics that fall into two or three styles

Confirmation bias

-to subconsciously decide something before investigating why it is the right decision -to seek information that supports purchasing an item while discontinuing information that does not

Representativeness heuristic

-used when people estimate the probability of an event occurring -reflects the tendency to assess the likelihood of an event occurring based on one's impressions about similar occurrences

Integrating Rational and Nonrational Models

1. A simple context is stable, and clear cause-and-effect relationships can be discerned, so the best answer can be agreed on -this calls for the rational model, where the decision maker gathers information, categorizes it, and responds in an established way 2. In a complicated context, there is a clear relationship between cause and effect, but some people may not see it, and more than one solution may be effective -rational model applies, but it requires the investigation of options 3.In a complex context, there is one right answer, but there are so many unknowns that decision makers don't understand cause-and-effect relationships -decision makers therefore need to start out by experimenting, testing options, and probing to see what might happen as they look for a creative solution 4. In a chaotic context, cause-and-effect relationships are changing so fast that no pattern emerges -use of intuition and evidence-based decision making

EBDM steps

1. Identify the problem or opportunity 2. Gather internal evidence or data about the problem, and evaluate its relevance and validity 3. Gather external evidence about the problem from published research 4. Gather views from stakeholders affected by decision and consider ethical implications 5. Integrate and critically appraise all data and then make a decision

Things to consider while evaluating alternative solutions

1. Is it ethical? 2. Is is feasible? 3. Will it remove the causes and solve the problem?

Steps of decision tree

1. Is the proposed action legal -If yes 2.Does it maximize shareholder value -If no->would it be ethical not to take the action -if yes, don't do it -if no, do it but disclose effect of action to shareholders -If yes-> It is ethical -yes, do it -no, don't do it

Two non-rational models:

1. Simon's normative model 2. Garbage can model

Three benefits of trying to follow a rational process as much as realistically possible

1. The quality of decisions may be enhanced, in the sense that they follow more logically from all available knowledge and expertise 2. It makes the reasoning behind a decision transparent and available to scrutiny 3. If made public, it discourages the decider from acting on suspect considerations

Why is 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 anyways

Seven implementation principles to help companies integrate EBDM into an organization's culture

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?

Four 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

Can use knowledge of decision-making styles in four ways

1. knowledge of styles helps you to understand yourself 2. can increase your ability to influence others by being aware of styles 3. knowledge of styles gives you an awareness of how people can take the same information and yet arrive at different decisions by using a variety of decision-making strategies 4. there is not a single best decision-making style that applies in all situations

Three key decision-making blunders managers make while creating alternative solutions

1. rushing to judgement 2. selecting readily available ideas or solutions 3. making poor allocation of resources to study alternative solutions

Actions to reduce the escalation of commitment

1. set minimum targets for performance, and have decision makers compare their performance against these targets 2. regularly rotate managers in key positions throughout a project 3. encourage decision makers to become less ego-involved with a project 4. make decision makers aware of the costs of persistence

Four practical implications of garbage can model

1. this model of decision making is more pronounced in industries that rely on science-based innovations such as pharmaceutical companies 2. many decisions are made by oversight or by the presence of a salient opportunity 3. Political motives frequently guide the process by which participants make decisions 4. Important problems are more likely to be solved than unimportant ones because they are more salient to organizational participants

Two types of intuition

1.Holistic Hunch 2.Automated experience

Two broad decisions to make decisions

1.Rational model 2.Non-rational model

Eight biases that affect decision making

Availability Representativeness Confirmation anchoring overconfidence hindsight framing escalation of commitment

Most frequent causes of poor decision making

Poorly defined processes and practices Unclear company vision, mission, and goals Unwillingness of leaders to take responsibility Lack of reliable, timely information

What type of constraints?

These constraints include any personal characteristics or internal and external resources that reduce rational decision making

decision-making styles vary along two different dimensions

Value orientation tolerance for ambiguity

Satisficing

consists of choosing a solution that meets some minimum qualifications, one that is "good enough"

Garbage can model

decisions result from a complex interaction between four independent streams of events: problems, solutions, participants, and choice opportunities

Decision making

entails identifying and choosing alternative solutions that lead to a desired state of affairs

Tolerance for ambiguity

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

Decision tree

graphical representation of the process underlying decisions and it shows the resulting consequences of making various choices

Personal Characteristics

include the limited capacity of the human mind, personality, and time constraints

Optimizing

involves solving problems by producing the best possible solution and is based on a set of highly desirable assumptions-having complete information, leaving emotions out of the decision-making process, honestly and accurately evaluating all alternatives, time and resources are abundant and accessible, and people are willing to implement and support decisions

Hindsight bias

occurs when knowledge of an outcome influences our belief about the probability that we could have predicted the outcome earlier

Examples of internal resources:

organization's human and social capital, financial resources, technology, plant and equipment, and internal processes and systems

decision-making style

reflects the combination of how an individual perceives and

Value orientation

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

Overconfidence bias

relates to our tendency to be overconfident about estimates or forecasts

Judgemental heuristics

represent rules of thumb or shortcuts that people use to reduce information-processing demands

Automated experience

represents a choice that is based on a familiar situation and a partially subconscious application of previously learned information related to that situation

Availability heuristic

represents a decision maker's tendency to base decisions on information that is readily available in memory -this is likely to cause people to overestimate the occurrence of unlikely event ex: manager is more likely to give an employee a positive performance evaluation if the employee exhibited excellent performance over the last few months

Holistic Hunch

represents a judgement that is based on subconscious integration of information stored in memory -people using this form of intuition may not be able to explain why they want to make a decision, except that it "feels right"

Opportunity

represents a situation in which there are possibilities to do things that lead to results that exceed goals and expectations

Intuition

represents judgements, 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"

Bounded rationality

represents the notion that decision makers are "bounded" or restricted by a variety of constraints when making decisions

A problem exists when:

the actual situation and the desired situation differ

Examples of external resources:

things the organization cannot directly control such as employment levels in the community, capital availability, and government policies

In the long run, constraints of bounded rationality cause decision makers

to fail to evaluate all potential alternatives, causing them to satisfice