Chapter 7

Key Terms

• After Action Review

• Anchoring and Adjustment Bias

• Autonomous Devices

• Availability Bias

• Bounded Rationally

• Brainstorming

• Catergorical Thinking Bias

• Confirmation Bias

• Consensus

• Decision

• Decision Making

• Decision-Making Style

• Decision Tree

• Descriptive Analytics

• Diagnosis

• Electronic Brainstorming

• Escalation of Commitment Bias

• Ethics Officer

• Evidence-Based Decision Making

• Framing Bias

• Goal Displacement

• Groupthink

• Heuristics

• Hindsight Bias

• Hubris

• Intuition

• Machine Learning

• Minority Dissent

• Nonrational Models of Decision Making

• Opportunities

• Overconfidence Bias

• Predictive Analytics

• Problems

• Rational Model of Decision Making

• Representativeness Bias

• Satisficing Model

• Sham Participation

• Sunk-Cost Bias

• Value

• Variety

• Velocity

• Veracity

• Volume

Key Points

• A decision is a choice made from available alternatives. Decision making is the process of identifying and choosing among alternative courses of action. Two models managers follow in making decisions are rational and nonrational.

• In the rational model, there are four stages in making a decision: Stage 1 is identifying the problem or opportunity. A problem is a difficulty that inhibits the achievement of goals. An opportunity is a situation that presents possibilities for exceeding existing goals. This is a matter of diagnosis-analyzing the underlying causes. Stage 2 is thinking up alternative solutions. Stage 3 is evaluating the alternatives and selecting a solution. Alternatives should be evaluated according to cost, quality, ethics, feasibility, and effectiveness. Stage 4 is implementing and evaluating the solution chosen.

• Nonrational models of decision making assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimum decisions. Two nonrational models are satisficing and intuition.

• Corporate corruption has made ethics in decision making once again important. Many companies have an ethics officer to

  resolve ethical dilemmas, and more companies are creating values statements to guide employees as to desirable

  business behavior.

• To help make ethical decisions, a decision tree-a graph of decisions and their possible consequences-may be helpful.

  Managers should ask whether a proposed action is legal and, if it is intended to maximize shareholder value, whether it is

  ethical-and whether it would be ethical not to take the proposed action.

• Evidence-based management means translating principles based on best evidence into organizational practice. It is

  intended to bring rationality to the decision-making process.

• Big data, Al, and analytics inform evidence-based decision making.

• Big data requires handling by very sophisticated analysis software and supercomputers. Big data includes not only data in

  corporate databases, but also web-browsing data trails, social network communications, sensor data, and surveillance

  data.

• Big data's five core characteristics are volume, variety, velocity, veracity, and value.

  Big data is used by companies across different industries and at different managerial levels within a company.

• Artificial intelligence (Al) is a set of technologies that develop human-like capabilities such as gathering and interpreting

  information, generating responses, and learning from decisions to attain specific objectives.

  Al is organized into four types, or functions: automate tasks, analyze data for identification and information security,

  advise users with relevant information, and anticipate future events.

  Firms predominately use Al to enhance current offerings, optimize internal processes, and make more effective decisions.

  The top challenges of Al include implementation, data issues, and cost.

• A decision-making style reflects the combination of how an individual perceives and responds to information.

  Decision-making styles may tend to have a value orientation, which reflects the extent to which a person focuses on

  either task or technical concerns versus people and social concerns when making decisions. Decision-making styles also

  may reflect a person's tolerance for ambiguity, the extent to which a person has a high or low need for structure or control

  in their life.

  When the dimensions of value orientation and tolerance for ambiguity are combined, they form four styles of decision

  making: directive (action-oriented decision makers who focus on facts); analytical (careful decision makers who like lots of

  information and alternative choices); conceptual (decision makers who rely on intuition and have a long-term perspective);

  and behavioral (the most people-oriented decision makers).

• Ten common decision-making biases present real barriers to high-quality decision making. They are (1) availability, (2)

  representativeness, (3) confirmation, (4) sunk cost, (5) anchoring and adjustment, (6) overconfidence, (7) hindsight, (8)

  framing, (9) escalation of commitment, and (10) categorical thinking.

• Using a group to make a decision offers five possible advantages: (1) a greater pool of knowledge, (2) different

  perspectives, (3) intellectual stimulation, (4) better understanding of the reasoning behind the decision, and (5) deeper

  commitment to the decision.

  It also has four disadvantages: (1) a few people may dominate or intimidate; (2) it will produce groupthink, when group

  members strive for agreement among themselves for the sake of unanimity and so avoid accurately assessing the

  decision situation; (3) satisficing; and (4) goal displacement, when the primary goal is subsumed to a secondary goal.

  Some characteristics of groups to be aware of are (1) groups are less efficient, (2) their size affects decision quality, (3)

  they may be too confident, and (4) knowledge counts-decision-making accuracy is higher when group members know a

  lot about the issues.

  Using groups to make decisions generally requires that they reach a consensus, which occurs when members are able to

  express their opinions and reach agreement to support the final decision. Minority dissent should be allowed so members

  can safely disagree with each other.

  Four techniques aid in problem solving. (1) Brainstorming helps groups generate multiple ideas and alternatives for

  solving problems. (2) Devil's advocacy assigns someone the role of critic. (3) The dialectic method calls for managers to

  foster a structured dialogue or debate of opposing viewpoints prior to making a decision. (4) An after action review, or

  project post-mortem, is a review of recent decisions in order to identify possible future improvements.

• The career readiness competencies of critical thinking/problem solving and decision making go hand in hand.

  Reflecting on your past experiences and using a decision methodology are two ways to improve critical thinking and

  problem solving.