Management Chapter 2

Rational Decision Making

choices that are logical and consistent and maximize value

Bounded rationality

decision making that’s rational, but limited by an individual’s ability to process information

Intuitive Decision Making

making decisions on the basis of experience, feelings, and accumulated judgment

Evidence-based management

the systematic use of the best available evidence to improve management practice.

The four essential elements of EBMgt

1.The decision maker’s expertise and judgment;

2. External evidence that’s been evaluated by the decision maker;

3. Opinions, preferences, and values of those who have a stake in the

decision;

4. Relevant organizational (internal) factors such as context,

circumstances, and organizational members

Crowdsourcing

decision-making approach where you solicit

ideas and input from a network of people outside of the traditional set of decision makers

Structured problems:

straightforward, familiar, and easily defined

problems

Programmed decisions

repetitive decisions that can be handled

by a routine approach

Procedure

a series of sequential steps used to respond to a well-structured problem

Rule

an explicit statement that tells managers what can or cannot be done

Policy

a guideline for making decisions

Unstructured problems

problems that are new or unusual and for which

information is ambiguous or incomplete

Nonprogrammed decisions

unique and nonrecurring and involve custom-

made solutions

4 types of decision making styles

Analytic, Conceptual, Directive, Behavioral

Directive style

low tolerance for ambiguity and seek rationality

 Characteristics: Low tolerance for ambiguity, seeks rationality.

 Approach: Efficient, logical, fast decisions, minimal information and

alternatives.

 Focus: Short-term.

Analytic style

seek rationality but have a higher tolerance for

ambiguity

 Characteristics: High tolerance for ambiguity, careful decision-maker.

 Approach: Adapts to new situations, evaluates information thoroughly.

 Focus: Detailed, long-term.

Conceptual

intuitive decision makers with a high tolerance

for ambiguity

 Characteristics: Broad outlook, considers many alternatives.

 Approach: Creative, innovative problem-solving.

 Focus: Long-range, creative solutions.

Overconfidence Bias

holding unrealistically positive

views of oneself and one’s performance

Immediate Gratification Bias

choosing alternatives that offer immediate rewards and avoid immediate costs

Anchoring Effect

fixating on initial information and ignoring subsequent information

Selective Perception Bias

selecting, organizing and interpreting events based on the decision maker’s biased perceptions

Confirmation Bias

seeking out information that reaffirms

past choices while discounting contradictory information

Framing Bias

selecting and highlighting certain aspects of

a situation while ignoring other aspects

Availability Bias

losing decision-making

objectivity by focusing on the most recent events

Representation Bias

drawing analogies and
seeing identical situations when none exist

Randomness Bias

creating unfounded meaning out of random events

Sunk Costs Errors

forgetting that current actions cannot

influence past events and relate only to future consequences

Self-serving Bias

taking quick credit for successes and

blaming outside factors for failures

Hindsight Bias

mistakenly believing that an event could

have been predicted once the actual outcome is known

(after-the-fact)