Chapter 11: Decision Making, Rationality, & Risk

the challenge of fake news

• decision making depends vitally on information, what facts decision makers use in making decisions, and on values how they weigh those facts

• President Trump flipped the notion of “news” which suggests trustworthy information, carefully reported “fake” which suggests the news may not be so trustworthy after all

information

• the problem is that information rarely appears as the pure truth

• decision making is an administrative act that decision makers must use to interpret reality

values

• no public policy, no matter how strong the analytical support behind it is, can endure without political support

• political support comes from favorable opinion among the general public or support from individuals with strong interests in the policy

rational decision making

• seeks to produce the most output for a given level of inputs

• or using the minimum number of inputs to produce a given amount of output

• essentially the goal is to find the most efficient decision

5 basic steps of rational decision making

1. define goals

2. identify alternatives

3. calculate the consequences

4. decide

5. begin again

public choice

embrace of the market (includes policy prescriptions and turning certain things over to the private sector)

problems with public choice

• information asymmetry - subordinates may know more than their superiors

• adverse selection - supervisors’ decisions are not as good as they would be if they had better information

• moral hazard problem - if supervisors can not know enough about what their subordinates are doing, then subordinates are going to end up doing things that don’t align with their supervisor’s goals

bargaining

• alternative to rational approach as decisions emerge as a product of bargains

• who win depends on who has the strongest hand and who bargains the most effectively

• easy for the broad public interest to be forgotten however

participative decision making

• involving stakeholders in the decision making process

• too much representation occurs when there is direct participation in decision making by all members of the clientele who wish to participate

• too little representation occurs when there is only direct participation by those appointed or elected to committees or council

uncertainty

• surrounds every important decision

• a decision maker does not always know what results the decision will produce

• uncertainty weights more on decisions that are irreversible

information pathologies

• decision making relies on the flow of information, but the very structure of bureaucracy can distort the flow of information as it moves upward through an organization

• increasing the flow of information may also clog internal channels or overload top officials

steps toward effective management

• establish transparency

• create a risk constitution

• change what matters most

• build a risk culture