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