Decision Making

Comprehensive vocabulary flashcards covering rational decision-making models, bounded rationality, cognitive and information biases, escalation of commitment, groupthink and polarization, Prospect Theory, and contemporary management analytics based on lecture and case study notes.

Decision making

The process of developing a commitment to a course of action, which involves making a choice among alternatives, navigating a multi-step process, and committing resources such as time, money, or personnel.

Problem

A perceived gap between an existing state (the current condition) and a desired state (the condition one aims to achieve).

Well-structured problem

A repetitive, familiar, and relatively simple problem where the existing state, desired state, and method for reaching the desired state are clear and generally uncontroversial.

Ill-structured problem

A unique, complex, and unfamiliar problem characterized by high uncertainty, risk, and controversy, where the current state, desired outcome, or method of resolution is unclear.

Programmed decision making

The application of standardized procedures, routines, rules of thumb, or standard operating procedures (SOPs) to solve familiar, well-structured problems.

Non-programmed decision making

A customized, analytical decision-making approach used to address novel, ill-structured, or complex problems that lack standardized solutions.

Perfect rationality

An idealized decision strategy associated with the concept of Economic Person, assuming an actor with complete cost-free information, perfectly logical processing, and a sole focus on maximizing economic gain.

Bounded rationality

A decision framework coined by Herbert Simon recognizing that individuals attempt to act rationally but are constrained by limited time, finite cognitive capacity to acquire and process data, political pressures, and cognitive biases.

Satisficing

A bounded rationality strategy that entails establishing an acceptable threshold and selecting the first alternative that meets that standard rather than searching exhaustively for an optimal solution.

Maximizing

A rational decision strategy aimed at evaluating all possible alternatives to identify and choose the option yielding the greatest expected value or maximum payoff.

Seven-Step Rational Decision-Making Model

A normative decision framework composed of seven sequential stages: Identify Problem, Search for Relevant Information, Develop Alternative Solutions to the Problem, Evaluate Alternative Solutions, Choose Best Solution, Implement Chosen Solution, and Monitor and Evaluate Chosen Solution, featuring a recycle loop back to earlier stages when difficulties emerge.

Perceptual defence

A problem identification error wherein a decision maker actively ignores, fails to recognize, or screens out unpleasant or threatening information.

Plunging-in bias

The error of defining a problem prematurely in terms of a pre-determined solution, causing the decision maker to jump straight to action without diagnosing the root cause.

Availability bias

The cognitive heuristic of over-relying on information that is readily retrieved from memory, particularly vivid, emotional, or recent events.

Confirmation bias

The tendency to selectively gather, recall, or interpret ambiguous information in a way that validates an existing belief, preference, or proposed solution while ignoring disconfirming data.

Not-invented-here bias

The systematic tendency to undervalue, dismiss, or reject viable ideas, products, or technologies originating outside of one's own group or organization.

Information overload

The condition of receiving an excessive volume of information beyond what is necessary or cognitively manageable, resulting in delays, omitted data, errors, and reliance on lower-quality cues.

Expected value

The quantitative product of the potential value of an outcome and its probability of occurrence ($\text{Expected Value} = \text{Outcome Value} \times \text{Probability}$).

Anchoring effect

The cognitive bias of over-relying on an initial piece of information or reference value when making estimates, followed by insufficient adjustment away from that anchor.

Sunk costs

Historical, irrecoverable expenditures of time, capital, or effort resulting from past decisions that should theoretically exert zero influence on prospective choices.

Escalation of commitment

The tendency to persistently invest additional resources into an objectively failing course of action to justify prior expenditures, avoid social inconsistency penalties, or reduce cognitive dissonance.

Temporal detachment

A de-escalation intervention involving intentional pauses or delays ("sleeping on it") to dampen heightened emotional arousal and permit objective re-evaluation of failing projects.

Knew-it-all-along effect

A hindsight bias whereby an individual falsely believes, after an outcome has materialized, that they had accurately predicted or anticipated that outcome all along.

Diffusion of responsibility

A group dynamic in which accountability for a choice is distributed across multiple individuals, reducing the perceived personal burden or blame of any single member.

Groupthink

A decision-making dysfunction wherein strong internal pressure for group consensus and cohesion impairs critical inquiry, realistic appraisal of options, and moral evaluation.

Mindguards

Members of a group who actively protect the leader and peers from contradictory facts, external criticism, or dissenting viewpoints to preserve internal harmony.

Devil's advocate

A designated individual assigned to critically challenge a proposed plan, point out weaknesses, and uncover overlooked risks to ensure rigorous pre-decision evaluation.

Risky shift

The empirical tendency of a decision-making group to adopt a riskier course of action than the average baseline risk originally preferred by its individual members.

Conservative shift

The tendency of a group to settle on a substantially more cautious, risk-averse choice than the average initial preference of its individual members.

Group polarization

The phenomenon whereby collective discussion strengthens and exaggerates the initial inclinations of group members, driving the group consensus toward a more extreme position.

Evidence-based management (EBM)

The systematic process of making organizational decisions by conscientiously, explicitly, and judiciously utilizing the best available evidence from scientific research, organizational data, and professional expertise.

Big data

Extremely large, diverse datasets collected in real time, defined by the three Vs: Volume (massive quantities), Velocity (rapid generation and processing), and Variety (diverse formats and sources).

Crowdsourcing

The practice of delegating parts of a problem-solving or decision-making process to a large, diverse external population to generate ideas or select solutions.

Sampling on the dependent variable

A data analysis error where cases are selected and examined only based on the presence of a specific outcome (such as analyzing gasket failures) while excluding baseline non-events, yielding incomplete and biased conclusions.

Garbage in, garbage out

A foundational operational principle stating that the quality and reliability of decision outcomes or quantitative calculations are strictly limited by the quality and accuracy of the input data.

Framing Effect on Plant Closure Dilemma

An experimental demonstration showing that individuals avoid risk when outcomes are positively framed around gains ($72\%$ selecting a certain save of $1$ of $3$ plants over a $1/3$ gamble) but become risk-seeking when framed negatively around losses ($78\%$ choosing a $2/3$ gamble of losing all plants over a guaranteed loss of $2$ of $3$).

Linear Value Function

A theoretical value model under classical rational economic assumptions depicting subjective value as a straight, symmetrical line where changes in objective gains and losses produce identical, proportional utility adjustments.

Prospect Theory Value Function

An asymmetrical S-shaped curve formulated by Daniel Kahneman and Amos Tversky demonstrating loss aversion, where subjective value is concave in gains, convex in losses, and approximately twice ($2\times$) as steep for losses ($v(-x)$) as it is for equivalent gains ($v(x)$).

Illusion of invincibility

A subjective sense of invulnerability developed through repeated past successes, causing decision makers to distort probability calculations and engage in aggressive, overconfident risk-taking.