Decision Making

Two Kinds of Decision Making: Rational and Non-rational

• $decision:$ a choice made from among available alternatives
• $decision making:$ process of identifying and choosing alternative courses of action
  • can be made rationally, but often it is non-rational
  • two types of thinking (Daniel Kahneman):
  • system 1: intuitive and largely unconscious (automatic and quick)
  • system 2: analytical and conscious (slow and deliberate)

Rational Decision Making

• $rational model of decision making:$ explains how managers should make decisions
  • assumes managers will make logical decisions that will be optimum in furthering the organization’s best interests
  • aka the classical model
  • there are 4 stages

Stages

1. identify the problem or opportunity
2. think up alternative solutions
3. evaluate alternatives and select a solution
4. implement and evaluate the solution chosen

What’s Wrong With the Rational Model

• complete information, no uncertainty
  • you should obtain complete error-free information about all alternative courses of action and the consequences that would follow from each choice
• logical, unemotional analysis
  • having no prejudices or emotional blind spots, you are able to logically evaluate the alternatives, ranking them from best to worst according to your personal preferences
• best decision for the organization
  • confident of the best future course of action, you cooly chose the alternative that you believe will most benefit the organization
• the rational model is prescriptive, describing how managers ought to make decisions
  • doesn’t describe how managers actually do make decisions

Some Hindrances to Perfectly Rational Decision Making

• complexity
• time and money constraints
• different cognitive capacity, values, skills, habits, and unconscious reflexes
• imperfect information
• information overload
• different priorities
• conflicting goals