OB Ch. 11 Rational & Nonrational Models of Decision Making

What are the three key ways that AI can help managers enhance business operations

Automating business processes. Gaining insight through data analysis. Engaging w/ customers & employees.

What are the three practical problem-solving techniques?

Brainstorming The Delphi technique Decision support systems

What are the challenges with using AI?

Can be attributed to human biases but further studies need to be done.

What are some tendencies of people who use an analytical style?

Careful decision makers, take longer to make decisions, respond well to new situations, & can often be autocratic.

Judgmental heuristics

Cognitive shortcuts or biases that are used to simplify the process of making decisions.

Overconfidence bias

Results in overestimating our skills relative to those of others & overestimating the accuracy of our predictions.

What kind of solutions does satisficing produce?

Satisfactory ones as opposed to optimal ones.

What actions can reduce the escalation of commitment?

Set minimum targets for performance & have decision makers compare their performance against these targets. Regularly rotate managers in key positions throughout a project. Encourage decision makers to become less ego-involved w/ a project. Maker decision makers aware of the costs of persistence.

Optimizing

Solving problems by producing the best possible solution based on a set of highly desirable conditions.

What are the pros of using intuition?

Speeds up decision making process. Useful when resources are limited.

What are the four stages in rational decision making?

Stage 1: Identify the problem or opportunity. Stage 2: Generate alternative solutions. Stage 3: Evaluate alternatives & select a solution. Stage 4: Implement & evaluate the solution chosen.

cohesiveness

a sense of we-ness tends to override individual differences & motives

What are some tendencies of people who use a directive style?

Users tend to be autocratic, exercise power/control, & focus on the short run.

Decision-making styles vary along what two dimensions?

Value orientation Tolerance for ambiguity

Anchoring bias

When decision makers are influenced by the first information received about a decision, even if it is irrelevant.

Hindsight bias

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

The Delphi technique is useful for what situations?

When: face-to-face discussions are impractical, disagreements & conflict are likely to impair communication, certain individuals might severely dominate group discussion, groupthink is a probable outcome of the group process.

What are some tendencies of people who use a conceptual style?

Willing to take risks, good at finding creative solutions to problems, & can foster idealistic/indecisive approaches to decision making.

Should intution & rationality be used together?

Yes, they are complementary.

Stage 2: Generate alternative solutions

You get to be creative & share your ideas during this stage. Brainstorming is a common technique used to generate potential solutions.

How do person factors drive creativity?

You need to be motivated to apply your knowledge to create new ideas. The Big 5 personality dimensions, self-efficacy, national culture, willingness to tolerate ambiguity, & proactive personality.

Artificial intelligence (AI)

a form of computing that allows machines to perform cognitive functions

Delphi technique

a group process that generates anonymous ideas or judgements from physically dispersed experts in multiple rounds of brainstrorming.

In what categories does decision-making style vary by?

age, occupation, personality type, gender, & country.

electronic brainstorming (brainwriting)

allows participants to submit their ideas and alternatives over the internet

How should managers not link rewards to creative behavior?

should not use a one size fits all approach

What are the disadvantages of group decision making?

social pressure a few dominant participants goal displacement groupthink

What are the eight biases that commonly affect decision making?

1. Confirmation bias 2. Overconfidence bias 3. Availability bias 4. Representativeness bias 5. Anchoring bias 6. Hindsight 7. Framing bias 8. Escalation of commitment bias

What are the seven rules for brainstorming?

1. Defer judgment: don't be too critical in initial stage of generating ideas. 2. Build on the ideas of others: encourage rather than using "and" & "buts". 3. Encourage wild ideas: the wilder the better. 4. Go for quantity over quality: write as many ideas as possible. 5. Be visual: user colorful pens, poster boards, or whiteboards. 6. Stay focused on the topic: appoint a facilitator to keep the discussion on target. 7. Keep to one conversation at a time: set ground rules so no one interrupts each other, dismisses someone's ideas, or shows disrespect.

What are the techniques for preventing groupthink?

1. Each member should be assigned the role of critical evaluator or dissentor. 2. Top-level execs should not use policy committees to rubber-stamp decisions that have already been made. 3. Different groups w/ different leaders should explore the same policy questions. 4. Managers should encourage subgroup debates & bring in outside experts to introduce fresh perpectives. 5. Someone should be given the role of devil's advocate when discussing major alternatives. This person tries to uncover every conceivable negative factor. 6. Once a consensus has been reached, everyone should be encouraged to rethink his/her position to check flaws.

What are the four creative performance behaviors?

1. Problem formation/definition. Requires System 1. 2. Prep/info gathering: Creativity starts from the base of knowledge. 3. Idea generation: Requires making new mental connections about the problem at hand. Emphasized in brainstorming & requires System 1. 4. Idea evaluation/validation: Selecting the most creative idea from others requires System 2.

What are the three benefits of trying to follow a rational process as closely as possible?

1. Quality of decisions may be enhanced. 2. Makes the reasoning behind a decision transparent. 3. Discourages decision makers from acting on suspect considerations. Makes them more responsible.

What are three practical considerations in decision making?

1. Routine & frequency: Groups tend to produce consistent decisions than individuals for frequent decisions. 2. Time constraints: Given time contraints, let the most competent individual, rather than the group, make the decision. 3. Info & communication: in the face of environmental threats such as time pressure & potential serious effects of an decision, groups use less info & fewer communication channels. This increases the probability of a bad decision.

What are the three key decision-making blunders that cause managers to struggle during brainstorming?

1. Rushing to judgement. 2. Selecting readily available ideas or solutions. 3. Making poor allocation of resources to study alternate solutions.

Decision tree

A graphical representation of the process underlying decisions, & it shows the consequences of making various choices. Helps managers make ethical decisions.

Pros to System 2

A more methodical approach to a problem. Can be used when System 1 runs into difficulties.

Opportunity

A situation in which results that exceed goals & expectations are possible.

Expertise

An individual's combined explicit knowledge or ingo that can easily be put into words & tactical knowledge or info we gain through experience that is difficult to express & formalize.

Satisfice

Consists of judgments, insights, or decisions that "come to mind on their own, w/o explicit awareness of the evoking cues & of course w/o explicit evaluation of the validity of these cues.

Intuition

Consists of judgments, insights, or decisions that come to mind on their own, w/o explicit awareness of the evoking cues & of course w/o explicit evaluation of the validity of these cues.

Stage 3: Evaluate alternatives & select a solution.

Costs & quality are important but other things should be considered as well: 1. Is it ethical? 2. Is it feasible? 3. Will it remove the causes & solve the problem?

Bounded rationality

Decision makers are restricted by a variety of contraints when making decisions.

What does the nonrational model assume?

Decision making is uncertain. Decision makers do not possess complete info. Managers struggle to make optimal decisions.

What are the four styles of decision making?

Directive Analytical Conceptual Behavioral

Decision making

Entails identifying & choosing from among alternate solutions that lead to a desired state of affairs.

What does bounded rationality cause decision makers to fail at?

Evaluating potential alternatives, causing them to satisfice.

What two sources are the intuitive processes influenced by?

Expertise Feelings

Nonrational models of decision making

Explain how managers ACTUALLY make decisions.

Rational model of decision making

Explains how managers SHOULD make decisions. Assumes that managers are completely objective & possess all info for their decisions. Should be used in a complicated decision environment.

Cons to System 2

Requires more cognitive energy & attentions to think through a situation. Takes longer than a quick decision.

Pros to System 1

Forms first impressions & judgements. Makes quicker decisions.

What are the two nonrational models that explain why we make nonrational decisions?

Herbert Simon's normative model Intuition model

What kind of systems promotes creative behavior?

High-commitment work systems

What are two forms of intuition?

Holistic hunch Automated experience

Stage 4: Implement & evaluate the solution chosen.

If the solution is effective, it should eliminate or reduce the difference btwn the problem state & the desired outcome. If not, the problem was incorrectly identified or the solution was inappropriately conceived/executed.

What questions/considerations are included in the decision tree?

Is the proposed action legal? Does the proposed action maximize shareholder value? Is the proposed action ethical? Would it be ethical not to take the proposed action?

Holistic hunch

Judgment that is based on a subconscious integration of information stored in memory.

Stage 1: Identify the problem or opportunity

Know what the problem is to make decisions about optimizing opportunities.

In what ways does Big Data create value?

Makes info more transparent & usable. Allows orgs to measure & collect all types of performance info, enabling them to try to enhance productivity. Enhances decision making at all levels of the org. Can be used to develop new products/services.

Cons to System 1

May lead us to jump to conclusions that may or may not be accurate. Can lead to poor follow-through on plans because it focuses on immediate payoffs, which distracts us from considering the long-term implications of our decisions.

Does the decision tree work for every situation?

No. It depends on cross-cultural differences & organizational climate/culture.

Is it true that people only have one dominant decision-making style?

No. Most managers have characteristics that fall into two or three styles.

What does the rational model assume managers do?

Optimizing when making decisions.

System 1: Intuitive & largely unconscious thought

Our automatic, instinctive, & emotional mode of decision making. Ex. Hitting the brakes at the sight of another car's brake lights.

System 2: Analytical & conscious thought

Our slow, logical, deliberate mode of decision making. Requires more effort than System 1. Ex. Contemplating how to parallel park.

Conceptual style

People who have a high tolerance for ambiguity & tend to focus on the ppl or social aspects of a work situation. Focus on long-term thinking, a broad perspective, & intuition.

Analytical style

People who have a higher tolerance for ambiguity & tend to overanalyze a situation. Like lots of info.

Directive style

People who have a low tolerance for ambiguity & are oriented toward task/technical concerns when making decisions. Focus on the facts.

Behavioral style

People who work well w/ others & enjoy social interactions in which opinions are openly exchanged. Most-people oriented of the four styles.

Model of Creativity

Person factors & situation factors influence creative performance behaviors which in turn affect creative outcome effectiveness.

Confirmation bias

Pertains to how we selectively gather info. Discounting info that does not support our decision.

What is one problem with big data?

Private or sensitive info is more easily obtained which means it can be leaked.

Framing bias

Relates to the manner in which a question is posed or framed. It leads us to change the way we interpret alternatives.

What are the cons of using intuition?

Subject to biases. May be difficult to convince others that it makes sense.

What are some tendencies of people who use a behavioral style?

Supportive, receptive to suggestions, show warmth, & prefer verbal to written info. Avoid conflict & may have a hard time saying no.

What are the two ways of thinking that affect the way we make decisions?

System 1: Intuitive & largely unconscious thought System 2: Analytical & conscious thought

Which system should be used during Stage 4?

System 2

Which system should be used during Stage 2?

System 2 because it should lead them to identify a broader set of alternatives & potential solutions.

What are the cons of the rational decision making model?

The assumptions about managers from this model are unrealistic.

Simon's Normative Model

The decision making process is guided by a manager's bounded rationality. (restrictions)

Availability bias

The tendency for people to base their judgments on information that is readily available in memory.

Representative bias

The tendency to generalize from a small sample, a single event, or stereotypes.

Escalation of commitment bias

The tendency to hold to an ineffective course of action even when it is unlikely the bad situation can be reversed.

What are the pros of using heuristics when making decisions?

They can help managers make decisions by drawing from knowledge gained from past experience.

What are the cons of using heuristics when making decisions?

They can lead to bad decisions by ppl facing time constraints. Ex. Inaccurate diagnoses.

What are two reasons why members tend to be cohesive?

They enjoy each other's company & they need each other to achieve a common goal.

What three ways do managers use evidence for decisions?

To make decisions. To inform decisions. To support decisions.

Decision support systems

computer systems that help decision makers to use data & models to solve unstructured problems

How does boredom affect creativity?

enhances creativity

Creative performance behaviors

four key behaviors that drive the production of creative outcomes

What are the advantages of group decision making?

greater pool of knowledge different approaches to a problem greater commitment to a decision better understanding of decision rationale more visible role modeling

Brainstorming

helps groups generate multiple ideas & alternatives for solving problems

What is groupthink driven by?

high levels of cohesiveness

What situation factors affect creativity?

interpersonal diversity, time pressure, positive relationships w/ supervisors & coworkers, mutual accountability among group members , & spatial configuration of work settings.

What are the symptoms of groupthink?

invulnerability inherent morality rationalization stereotyped views of oppostion self-censorship illusion of unanimity peer pressure mindguards

Minority dessent

occurs when group members feel comfortable disagreeing w/ other group members

goal displacement

occurs when the primary goal is overriden by a secondary goal

Evidence-based decision making

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

Consensus

reached when all members can say they either agree w/ the decision or have had their day in court & were inable to convince the others of their viewpoint. In the final analysis, everyone agrees to support the outcome.

Big data

reflects the vast quantity of data available for decision making.

High-commitment work systems

rely on selective hiring, comprehensive training, comparatively high pay, pay contingent on performance, and good benefits

Automated experience

represents a choice based on a familiar situation and a partially subconscious application of learned information related to it.

What are some tips for sparking creativity?

taking a walk lying on the beach doing nothing

Tolerance for ambiguity

the extent to which a person needs structure or control in his or her life

Value orientation

the extent to which an individual focuses on either task & technical conerns or ppl & social concerns when making decisions

Creative outcome effectiveness

the joint novelty and usefulness (quality) of a product or service as judged by others

groupthink

the mode of thinking that occurs when the desire for unanimity in a decision-making group overrides a realistic appraisal of alternatives

Creativity

the process of producing new & useful ideas concerning products, services, processes, & procedures.

Decision-making style

the way an individual perceives & comprehends stimuli & the general manner in which he or she chooses to respond to such info