Chp 6 tho Compressed

Rational Choice Decision-Making Process and Model

• Rational Choice Decision-Making Definition: Rational choice decision-making is the process of using logic and comprehensive information to evaluate options and select the alternative that yields the highest calculated value. Historically, this model has been viewed as the ideal baseline for organizational decision-making.

• Two Core Elements of Rational Choice:

  • Calculating the Best Alternative: Evaluating each potential option by weighing its criteria and probability of success.

  • Systematic Decision-Making Process: Following a structured, sequential series of logical steps from problem identification through post-implementation evaluation.

• The Six-Step Rational Choice Decision-Making Process:

  1. Identify the Problem or Opportunity: Recognize a gap between current conditions and desired goals, or identify a situation offering potential gain.

  2. Choose the Best Decision Process: Determine the appropriate methodology, decision rules, and degree of involvement required to address the issue.

  3. Discover or Develop Possible Choices: Search for existing solutions or design customized alternatives.

  4. Select the Choice with the Highest Value: Compute expected payoffs across options and choose the alternative providing maximum utility.

  5. Implement the Selected Choice: Operationalize the chosen option by allocating resources and executing action plans.

  6. Evaluate the Selected Choice: Assess post-implementation results against original objectives to verify effectiveness.

• Calculating the Best Alternative (Mathematical Utility Model):

  • Selection criteria are evaluated based on two quantitative metrics: Outcome Valences (the importance or utility weight of an outcome) and Probability / Expectancy (the likelihood that a given supplier or option will deliver that outcome).

  • Supplier Evaluation Criteria & Weights:

  • Product Quality Outcome Valence: $+9$

  • On-Time Delivery Outcome Valence: $+4$

  • Low Prices Outcome Valence: $+6$

  • Supplier Performance Probabilities:

  • Supplier A:

    • Product Quality Probability: $0.7$

    • On-Time Delivery Probability: $0.8$

    • Low Prices Probability: $0.9$

  • Supplier B:

    • Product Quality Probability: $0.6$

    • On-Time Delivery Probability: $0.4$

• Rational Choice Assumptions vs. Organizational Behavior (OB) Empirical Evidence:

  • Goal Clarity:

  • Rational Choice Assumption: Goals are clear, compatible, and agreed upon across the organization.

  • OB Empirical Evidence: Goals are frequently ambiguous, conflicting, and lack full support from stakeholders.

  • Information Processing:

  • Rational Choice Assumption: Decision makers can process all information and calculate all possible alternatives and outcomes.

  • OB Empirical Evidence: Decision makers possess limited cognitive and information-processing capacity (bounded rationality).

  • Alternative Evaluation Mode:

  • Rational Choice Assumption: Decision makers evaluate all potential alternatives simultaneously.

  • OB Empirical Evidence: Decision makers evaluate alternatives sequentially as they are discovered.

  • Evaluation Standards:

  • Rational Choice Assumption: Decision makers utilize absolute, objective standards to evaluate choices.

  • OB Empirical Evidence: Decision makers evaluate options relative to an implicit favorite benchmark.

  • Information Quality:

  • Rational Choice Assumption: Decision makers process purely factual, objective information.

  • OB Empirical Evidence: Decision makers rely on perceptually distorted and subjectively filtered information.

  • Decision Criterion:

  • Rational Choice Assumption: Decision makers choose the alternative with the absolute highest payoff (maximization).

  • OB Empirical Evidence: Decision makers settle for a "good enough" alternative that meets minimum criteria (satisficing).

Problem Identification Challenges and Strategies

• Nature of Problem Construction: Problems and opportunities do not present themselves cleanly; they are actively constructed from ambiguous, complex, and often conflicting information.

• Five Primary Problem Identification Challenges:

  1. Mental Models: Deeply ingrained visual or conceptual frameworks that blind individuals to unexpected opportunities or emerging threats that fall outside existing mental maps.

  2. Decisive Leadership: Social and organizational pressure on leaders to appear decisive, causing them to announce solutions before taking time to accurately identify the root problem.

  3. Stakeholder Framing: Internal or external stakeholders presenting filtered or biased representations of data to manipulate problem perception in favor of their personal or departmental interests

Rational Choice Decision-Making Process

• Two Key Elements:

  1. Calculating the best alternative

  2. Systematic decision-making process

• Six-Step Decision

• -Making Process:

  1. Identify problem or opportunity

  2. Choose the best decision process

  3. Discover or develop possible choices

  4. Select the choice with the highest value

  5. Implement the selected choice

  6. Evaluate the selected choice

Rational Choice Best Alternative Calculation

• Selection Criteria & Outcome Valences:

  • Product Quality: $+9$

  • On-Time Delivery: $+4$

  • Low Prices: $+6$

• Supplier Performance Probabilities:

  • Supplier A:

  • Product Quality: $0.7$

  • On-Time Delivery: $0.8$

  • Low Prices: $0.9$

  • Supplier B:

  • Product Quality: $0.6$

  • On-Time Delivery: $0.4$

Rational Choice Assumptions vs. OB Evidence

• Goals:

  • Rational Choice Assumption: Clear, compatible, and agreed upon.

  • OB Evidence: Ambiguous, in conflict, and lack full support.

• Information Processing:

  • Rational Choice Assumption: Can calculate all alternatives and outcomes.

  • OB Evidence: Limited information-processing abilities.

• Evaluation Mode:

  • Rational Choice Assumption: Evaluate all alternatives simultaneously.

  • OB Evidence: Evaluate alternatives sequentially.

• Evaluation Standards:

  • Rational Choice Assumption: Use absolute standards.

  • OB Evidence: Evaluate against an implicit favorite.

• Information Quality:

  • Rational Choice Assumption: Use factual information.

  • OB Evidence: Process perceptually distorted information.

• Decision Criterion:

  • Rational Choice Assumption: Maximization (highest payoff).

  • OB Evidence: Satisficing ("good enough" choice).

Problem Identification Challenges & Strategies

• Five Problem Identification Challenges:

  • Mental models

  • Decisive leadership

  • Stakeholder framing

  • Perceptual defense

  • Solution-focused problems

• Identifying Problems Effectively:

  1. Be aware of problem identification biases

  2. Resist temptation of looking decisive

  3. Develop a norm of "divine discontent"

  4. Discuss the situation with others

Decision Biases & Limitations

• Sequential Evaluation & Implicit Favorite:

  • Alternatives not all available simultaneously

  • Human preference for comparing two choices

  • Cognitive misers (minimizing mental effort)

  • Need for cognitive consistency

• Problems with Maximization:

  • Satisficing behavior

  • Oversimplifying decision processes

  • Decision avoidance when presented with too many choices

• Biased Decision Heuristics:

  • Anchoring and adjustment

  • Availability heuristic

  • Representativeness heuristic

Emotions, Intuition & Effective Choices

• Emotions and Choices:

  • Form preferences before conscious evaluation

  • Moods and emotions affect decision processes

  • Serve as information in decisions

• Intuitive Decision Making:

  • Emotional experience (gut feelings)

  • Rapid nonconscious analysis using action scripts

• Making Choices More Effectively:

  1. Be more contemplative than decisive

  2. Combine intuition with logical analysis

  3. Revisit decisions when moods change

  4. Use scenario planning

Decision Evaluation & Creativity

• Decision Evaluation Problems:

  • Confirmation bias

  • Escalation of commitment (Self-justification, Self-enhancement, Prospect theory, Sunk costs)

• Improving Decision Evaluation:

  1. Change the decision maker

  2. Create a stop-loss

  3. Seek factual and social feedback

  4. Change the decision-maker's mindset

• Creative Process Model:

  • Preparation

  • Incubation

  • Illumination

  • Verification

• Characteristics of Creative People:

  • Independent imagination

  • Knowledge and experience

  • Cognitive and practical intelligence

  • Persistence

Employee Involvement

• Levels of Involvement:

  • Low, Medium-low, Medium-high, High

• Contingencies of Involvement:

  • Decision structure

  • Source of decision knowledge

  • Decision commitment

  • Risk of conflict