BUS206: Chapter 4 Making Decisions

what is decision-making?

choosing between a set of alternatives (the ESSENCE of management)

what is the decision-making process?

a set of 8 steps that includes identifying a problem, selecting a solution, and evaluation the effectiveness of the solution

what are the 8 steps?

identification of a problem, identification of decision criteria, allocation of weights to criteria, development of alternatives, analysis of alternatives, selection of an alternative, implementation of the alternative, evaluation of decision effectiveness

what happens during allocation of weights to criteria?

this step determines the relevance of factors

define a problem

a discrepancy between an existing and a desired state of affairs

what are the 13 common decision-making erorrs and biases?

overconfidence, immediate gratification, anchoring effect, selective perception, confirmation, framing, revision, availability, representation, randomness, sunk costs, self-serving, and hindsightbiases.

what is overconfidence bias?

when decision-makers tend to think they know more than they do or hold unrealistically positive vies of themselves and their performance

what is immediate gratification bias?

decision-makers who tend to want immediate rewards and to avoid immediate costs, decision choices that provide quick payoffs are more appealing than those in the future

what is the anchoring effect?

when decision-makers fixate on initial information as a starting point and then, once set, fail to adequately adjust for later information

what is selective perception bias?

when decision-makers selectively organize and interpret events based on their biased perceptions, influences the info they pay attention to, the problems they identify, and the alternatives they develop

what is confirmation bias?

exhibited when decision-makers seek out info that reaffirms their past choices and preconceived views

what is framing bias?

when decision-makers see what they want to see

what is revision bias?

the tendency of decision-makers to assume that when an object or idea has been changed, it’s actually been improved regardless if it’s truly better

what is availability bias?

when decision-makers tend to remember events that are most recent and vivid in their memory

what is representation bias?

when decision-makers see identical situations were they do not exist

what is randomness bias?

when decision-makers try to create meaning out of random events

what is sunk costs error?

takes place when decision-makers incorrectly fixate on past expenditures

what is self-serving bias?

describes decision-makers who are quick to take credit for their successes and to blame failure on outside factors

what is hindsight bias?

the tendency for decision-makers to falsely believe they would have accurately predicted the outcome of an event once it is known

what are three ways managers can avoid these errors?

(1) BE AWARE of them and then DO NOT use them (2) Pay attention to how decisions are made, try to identify heuristics being used, and critically evaluate how appropriate those are (3) Ask colleagues to help identify weaknesses in decision-making style and then work on improving those weaknesses

what are heuristics?

judgemental shortcuts or “rules of thumb” used to simplify decision-making