OB-Chpater 11 decision making

Well-structured problem (IIASE)

1. Identifying the problem

2. Information search
    Too little versus too much information

3. Develop, evaluate & select best alternative
    Maximization
    Satisficing

4. Solution implementation
    Factors to consider: Motivation & KSAs

5. Evaluating solution
    Escalation to a failing course of action
    Preventing escalation
    Hindsight

Perfect rationality

decision-making approach that is fully informed, perfectly logical, and focused entirely on maximizing economic gain.

• ex. Choosing the cheapest supplier after comparing all options.

bounded rationality

decision-making approach that uses limited information and takes into account time limits and political factors, leading to a satisficing rather than an optimal solution.

ex. Picking the first good supplier you find due to time pressure

Framing

How information about a problem is presented, which influences decision makers’ perceptions and choice ex. Presenting a surgery as having a 90% survival rate instead of a 10% death rate to influence patient choice

Cognitive biases (ARIN)

• Availability heuristic: Making decisions based on information that is easiest to recall.

• Representative heuristic: Judging the probability of something based on how much it resembles a typical case.

• Ignoring the base rate: Overlooking general statistical information when making judgments about specific cases.

• Not-invented-here bias: The tendency to dismiss or reject ideas and solutions that come from outside one’s own organization or team.

Anchoring effect

When people rely too heavily on an initial number or piece of information (the “anchor”) and don’t adjust enough when making later estimates or decisions.

ex. Starting negotiations at $100,000 and sticking too close to that number.

Satisficing

Choosing the first solution that meets an acceptable standard instead of searching for the perfect one

ex. Buying the first laptop that meets your basic needs instead of comparing every model.

Sunk costs

Resources already spent that cannot be recovered.
Ex. Continuing a movie you dislike because you already paid for the ticket.

Escalation of commitment:

Investing more resources into a failing project hoping to turn it around.
Example: Pouring more money into a failing startup instead of cutting losses.

Hindsight

The tendency to look back on a decision and believe you knew the outcome all along, judging it as obvious after the fact.

ex. Saying “I knew that would happen” after a project fails.

Groupthink

When the desire for group harmony leads members to suppress doubts and ignore alternatives, harming decision quality.

ex. team agrees quickly on a risky plan without raising concerns to avoid conflict.

Isolated
 Highly cohesive
 Strong leader
 High stress
 Important

prevent group think

avoid exerting pressure towards decision
outcome
 Establish norms that reinforce constructive
dissent and/or appoint a devil’s advocate
 Develop & follow a rational decision-making
strategy
 Bring in experts to challenge group opinions

pros of decision-making ( 4 )

pooling of resources

cspecializatin of labour

decision acceptance

creativity

cons of decision-making

waste time

group conflict

group think

intimidation by group leaders

shift

Risky Shift
Groups choose riskier options than individuals would alone.
Example: Team agrees to invest heavily in a high-risk startup.

Conservative Shift
Groups make safer, less risky decisions than individuals might.
Example: Committee opts for a low-risk, steady investment instead of a bold venture

Crowdsourcing

Delegating parts of a decision-making process to a large group of people, often through an open call or online platform.