Decision Making

Topics: Decision making, Decision theory, Risk Pages: 10 (2928 words) Published: March 12, 2013
Chapter 11 – Decision Making
What is Decision Making?
* Decision making – the process of developing a commitment to some course of action * Can also be described as a process of problem solving
* Problem – a perceived gap between an existing state and a desired state Well-Structured Problems
* Well-structured problems – a problem for which the existing state is clear, the desired state is clear, and how to get from one state to the other is fairly obvious * Decision making takes time and is prone to error, so organizations attempt to program the decision making for well-structured problems * Program – a standardized way of solving a problem

* they short-circuit the decision-making process by enabling the decision maker to go directly from problem identification to solution Ill-Structured Problems
* Ill-structured problem – a problem for which the existing and desired states are unclear, and the method of getting to the desired state is unknown * They are generally unique, complex, involve a high-degree of uncertainty, and have not been encountered before * Cannot be solved with programmed decisions

* Need to gather more information and be more self-consciously analytical in their approach

The Complete Decision Maker – A Rational Decision-Making Model Perfect vs. Bounded Rationality
* Perfect rationality – a decision strategy that is completely informed, perfectly logical, and oriented toward economic gain (prototype is the familiar economic person) * He or she:
* Can gather information about problems and solutions without cost and is thus completely informed * Is perfectly logical – if solution A is preferred over solution B, and B is preferred over C, then A is necessarily preferable to see * Has only one criterion for decision making – economic gain * Bounded rationality – a decision strategy that relies on limited information and that reflects time constraints and political considerations * Framing and cognitive biases both illustrate the operation of bounded rationality, as does the impact of emotions and mood on decisions * Framing – aspects of the presentation of information about a problem that are assumed by decision makers * Could include assumptions about the boundaries of a problem, the possible outcomes of a decision, or the reference points used to decide if a decision is successful * Cognitive biases – tendencies to acquire and process information in an error-prone way * Constitute assumptions and shortcuts that can improve decision-making efficiency, but they frequently lead to serious errors in judgement Problem Identification and Framing

* A problem exists when a gap occurs between existing and desired conditions * Bounded rationality can lead to the following difficulties in problem identification: * Perceptual defence
* The perceptual system may act to defend the perceiver against unpleasant perceptions * Problem defined in terms of functional specialty
* Selective perception can cause decision makers to view a problem as being in the domain of their own specialty even when some other perspective might be warranted * Problem defined in terms of solution

* Short-circuits the rational decision-making process * Problem diagnosed in terms of symptoms
* A concentration on surface symptoms will provide the decision maker with few clues about an adequate solution * Rational decision makers should try to be very self-conscious about how they have framed problems * Should try to find out alternative frames and avoid overarching Information Search

* Information search may clarify the nature or extent of the problem and begin to suggest alternative solutions * Rational economic person is in good shape at this second stage for he or she has free and instantaneous access to all information necessary to clarify the problem and develop alternative solutions * Too Little...
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