Decision Processes Final

The decision making styles

-Autocratic -Participatory -Democratic -Consensus-based

What are some decision making tools? Select all that apply

-Case-based decision analysis -NPV analysis -Discounted cash flow analysis

Steps of decision making

-Define objective -Determine who's involved and how -Reduce ambiguity and risk -Communicate decision -Evaluate and adjust

What are some of the common Cognitive Biases? Select all that apply.

-Desire to confirm our opinions -Overconfidence in assumption -Reliance on familiar experiences and past successes -Affinity for the status quo

The Eisenhower matrix for prioritization includes

-Do -Delegate -Decide -Delete

Which of the following statements are true about the expected value of perfect information? Select all that apply

-EVPI is calculated as the absolute value of the difference of the expected value with perfect information and the expected value without perfect information -EVPI is always non-negative -EVPI provides directional guidance to decision makers to evaluate the need of incremental information before decision making

The 4 types of ambiguity are

-Highly predictable -Distinct probabilities -Spectrum of outcomes -Complete unpredictability

Quadrants of the cognitive bias codex are

-Memory -Perceiving -The need to fill gaps -How quickly decisions are needed

The RACI matrix is

-Responsible -Accountable -Consulted -Informed

Present cash is better because

-present consumption is more valuable -inflation -risk of future flows

Problem formulation steps

-statement of the problem -the decision alternatives -the states of nature or uncertain future events -payoff

To reduce bias

-use a process -challenge status quo -seek multiple perspectives -reflect on own views

Dunning Kruger bias

Belief that one is more smart or capable than they actually are

One of the results of involving stakeholders in a decision is increased

Buy-In

These characteristics best describe which decision-making environment? -High tension -High turbulence -No clear cause/effect links -Many decisions to make, no time to think

Chaotic

Buy-in is a critical aspect of making a(n) ___ decision.

Consensus-Based

Annuity

Constant cash flows at regular intervals for a fixed period

What should you do when you are in a state of ambiguity with distinct possible outcomes?

Create contingency plans for each possible outcome.

Which of the following decision-making approaches is best suited to generate one option, requiring only less information?

Decisive

Which of the following IS NOT a decision-making style?

Directorial

Payoff tables will always contain positive numbers only

False

States of nature are the possible outcomes in a decision-making problem over which the decision maker has some control

False

The EVPI can be determined without using probabilities

False

The NPV is unaffected by the timing of an investment's cash flows

False

What is the most valuable thing you can do when faced with a spectrum of outcomes in a state of ambiguity?

Gather more information from multiple sources

What should you try to balance wen reducing decision-making risk?

Gathering information and time

What does the letter I in RACI matrix stand for?

Informed

In a state of ambiguity where the outcomes are highly predictable, you need...

Little incremental input

A consensus-based decision-making style should be used for decisions with

Low urgency

What is NOT an effective approach to a state of ambiguity with completely unpredictable outcomes?

Make a decision with little incremental input

An optimistic decision maker would employ the ___ criterion

Maximax

Which of the following methods does not take into account the profit of the entire life of the project?

Payback period

The R in the RAPID model stands for ___

Recommend

Availability bias

Rely on existing knowledge rather than looking at other alternatives

Participatory decision-making style reduces the ___ of the decision

Risk

Cognitive bias

Systematic error in thinking that occurs when people are processing info in a way that affects decisions

Overconfidence bias

Tendency to be overconfident in self or one's skills

Sunk cost bias

Tendency to honor already spent resources that aren't affected by present or future decisions

Confirmation bias

Tendency to interpret information that only confirms beliefs

Posterior probabilities

The decision maker's revised belief on the likelihood of the states of nature with sample information

Backward induction

The method of folding back decision trees using the expected value approach

Which of the following is least likely a limitation of the method of payback period?

The payback method is highly complex and not intuitive

Decision Making

The process of selecting a choice from a range of possible options with a specific goal

Decision nodes are represented by squares or rectangles in decision trees

True

One way to safeguard against biases is to introduce further debate and challenge.

True

The IRR on an investment project is the discount rate that sets the NPV of all cash flows equal to 0

True

The LaPlace expected value is computed by assuming equally likely probabilities for all states of nature.

True

There should not be any casual link between the states of nature and decision alternatives

True

When discounting a future value, the higher the interest rate used, the higher the present value

True

A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as

an independent project

Minimax approach

based on regret

state

complete specification of all external facts relevant to decision maker

Autocratic decision making

decisions go from the top down and is tightly structured

influence diagram

depicts relationship between decisions, states, and consequences

Maximax approach

evaluating decisions in the terms of the best payoff

Reduce risk by

involving more people, taking more time, breaking down big decisions

Consensus-based decision making

need buy in to then vote

risk neutral

ranking on expected values only

A democratic decision-making style is best used for low ___ and low-to-medium ___ decisions

risk, urgency

Maximin approach

the best of the worse possible payoffs, conservative

payoff

the consequence resulting from a certain state and decision combination

IRR

the discount rate that makes the NPV 0

In the decision making process, states of nature are

the non-business factors in the environment in which the decision must be made

NPV

the present value of future cash flows minus the investment outlay

Money lottery

the probability distribution over list of outcomes where each outcome is a sum of money

Weighted average cost of capital

the rate a company is expected to pay on average to all security holders

Payback period

the time it takes an investment to generate cash inflows enough to recoup the initial requirement

Participatory decision making

there's some buy in but the final decision is made by a person or small group

Democratic decision making

vote by majority