BUSI 3310 Chapters 11 & 12

Decision making

action or process of identifying a strategy to resolve problems

Programmed decisions

automatic responses to routine and recurring problems

Non-programmed decisions

responses to new or nonroutine problems for which there are no proven answers

influences on decision making

• Bounded rationality

• Satisficing decisions

• Intuition

• Heuristics

• Biases and Errors

Bounded rationality

• idea that we’re restricted by a variety of constraints when we make decisions

• we narrow our options to a few key criteria to save time and mental processing capacity

complete rationality

assumes we consider every possible alternative when making decisions

Satisficing decisions

aim for acceptable results rather than optimal results. useful for less important decisions

Intuition

unconscious process of making decisions based on imagination and possibilities. going with gut

Heuristics

shortcuts that allow us to make judgments and decisions quickly and efficiently.

3 types:

• availability

• anchoring and adjustment

• representativeness

Availability heuristic

• forming judgments based on information that’s most readily available to us

• thinking something is more probable than what it is

• i.e., plane crashes

Anchoring and adjustment heuristic

• forming judgments based on the first piece of information available (the anchor) and adjusting it while overlooking other relevant criteria

• i.e., seeing a car listed at $20,000, negotiating it to $18,000, thinking it’s a deal—even if the car’s real value is $15,000

Representativeness heuristic

• forming judgments based on existing mental prototypes or other stereotypes

• i.e., lawyer vs poet scenario

Common-information bias

inclination to overemphasize information held by the majority of group members while failing to consider other perspectives held by the minority

lack of participation error

inclination to exclude certain people from the decision-making process

Confirmation bias

tendency to seek out information that fuels our pre-existing views and to discount information that conflicts with our worldview

Ease-of-recall bias

• propensity to over-rely on information recollected from memory when making a decision

• relying on rare event from memory

Projection bias

inclination to believe that other people think, feel, and act the same way we do

Escalation of commitment

increased commitment to a decision despite negative information

Sunk cost bias

decision to continue an investment based on past investments of time, effort, or money

Framing error

• tendency to highlight certain aspects of a situation, either positive or negative, while ignoring other aspects

• i.e., ground beef labled as 80% lean vs 20% fat

Hindsight bias

• tendency to overestimate the ability to predict the outcome of a past event

• “I knew that was gonna happen”

Randomness error

• tendency to believe one can predict chance events or the outcome of chance events based on false information or superstition

• coincidence

ethical decision making approaches

• Rights approach

• Utilitarian approach

• Virtue

• Fairness (justice) approach

• Common good approach

Rights approach

Which action respects the legal, moral, and contractual rights of everyone?

Utilitarian approach

Which action produces the greatest good and least harm for the most people?

Virtue

Which action helps us reach the ideals for which we strive?

Fairness approach

Which action treats everyone equally or fairly?

Common good approach

Which action is best for the community or society?