Chapter 2: Decision Making

What is decision making?

What is it? What is it not?

Where does the need for decision making come from?

Decision Making → a process of choosing amongst the alternatives

it is a process not an outcome

decision making happens when we identify a problem, seeing a discrepancy (gap) between the current state and the desired state

problem → identified by comparing the current reality with a standard

• past performances

• previous goal

• performance of other organizations

the approach to decision making

1. Reasoning (requires logical thinking and effort)

   1. Perfect Rationality (perfect reasoning)

      1. Identify a problem

      2. Create a decision criterion

      3. add weights

      4. develop → analyze → select → implement → evaluate the alternative
         
         

   2. Bounded Rationality (satisficing “good enough”)
      
      picking a satisfying solution that is sufficient
      there exists a better solution out there
      
      a trade-off between speed vs. accuracy
      
      limited access to information
      limited cognitive ability to process information given time
      fast decision-making can beat competitors → low-quality analysis
      
      

2. Intuition
   based on previous experiences and feelings
   
   pro: very fast, doesnt require brain power, can save time elsewhere
   con: decision bias; one can be skilled in a field, but making decisions for another field is dangerous
   
   
   
   
   

flaws in decision making (bias & heuristics)

what are the three categories

Cognitive Limitation (limited attention span and cognitive ability)

Motivated Cognition (self-interest, making themselves feel better)

Preference Instability (fluctuating preferences)

Programmed Decision

Organizations face the same problem often, protocols have been created, so employees can quickly resolve it

Non-Programmed Decision

organization faces a new unique problem, with large consequences

it requires reasoning and intuition to make the decision

What is Cognitive Limitation?

limited attention span and cognitive ability

• self-perception → being selective with information, paying attention selectively. This may affect problem identification → criteria making → etc
  
  

• Halo effect: the perception of one trait may influence the perception of another trait
  
  

• Availability bias: favouring the most recent information, putting less importance on the past
  
  

• Inattentional Blindness: limited attention → distractions

What is Motivated Cognition

need to see themselves succeed, act in self interest

• Overconfidence Bias: overestimating their performance and views, seen as above average
  
  

• Self Serving Bias: believe all successes are through them, but blame failure on outside influences
  
  

• Ultimate attribution error: positive to their own group, not to other groups
  
  

• Escalation of Commitment: fixated on initial idea, will put less emphasis on future ideas

What is Preference Inconsistency

unable to pick a firm preference, constantly change

• Framing Effect: emphasizes certain views but also down plays other views
  
  

• Decoy Effect: the preference changes by adding or subtraction preference its being compared to
  
  

• Paradox of Choices: people enjoy there being less choices → less missed opportunities
  
  

• Choice Blindness: chose something randomly, and justifying it, even though you dont remember what was chosen

What is Wisdom of Crowds in Group Decision Making

the average of all answers is closer to the real answer

however, people need to keep their responses private, However

sacrificing their potential ideas

What are the symptoms of Group Decision Making “Group Think”

1. Illusion of Invulnerability
   an overconfidence of being correct, dismissing warnings or criticism
   
   

2. Peer pressure: disagreeing with another’s idea would mean disloyalty
   
   

3. Self-censorship: if the a persons idea isn’t related to the current discussion, it wont be discussed
   
   

4. Illusion of unanimity: those whom are quiet → assumed to be agreeing
   
   

What are the problems in group decision making

1. diverse ideas can be shared, but some may be restraint from also sharing (deviates from current topic? your idea contrasts current idea being shared?)
   
   

2. while you may be committed, there exists bystanders
   
   

3. people have a diverse range of skills, but this requires coordination (process losses)