Individual and Group Decision Making Chapter 7

Decision – a choice made from among available alternatives Decision Making – the process of identifying and choosing alternative courses of action.

Two Systems of Decision Making 1. Intuitive and largely unconscious 1. Operates automatically and systematically 2. Analytical and conscious 1. Slow, deliberate, analytical, and consciously effortful mode of reasoning.

Rational Model of Decision Making (classical model) explains how managers should make decisions; it assumes managers will make logical decisions that will be the optimum in furthering the organization’s best interests.

Four Stages 1. Identify the problem or opportunity 2. Think up alternative solutions 3. Evaluate alternatives and select solution 4. Implement and evaluate the solution chosen

Assumptions made by the rational model: That managers have complete information That managers are able to make an unemotional analysis That managers are able to make the best decision for the organization

Opportunities Situations that present possibilities for exceeding existing goals.

Diagnosis Analyzing the underlying causes.

Nonrational Decision Making Explain how managers make decisions; they assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions.

Bounded Rationality The concept suggests that the ability of decision makers to be rational is limited by numerous constraints.

Incremental Model Managers take small, short-term steps to alleviate a problem.

Satisfying Model Managers seek alternatives until they find one that is satisfactory, not optimal.

Intuition Model Making a choice without the use of conscious thought or logical inference.

Ethics Officer Someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas.

Decision Tree A graph of decisions and their possible consequences; it is used to create a plan to reach a goal.

Questions to ask… Is the proposed action legal? If yes, does the proposed action maximize shareholder value? If yes, is the proposed action ethical? If no, would it be ethical not to take the proposed action?

Evidence Based Decision Making Seven Implementation Principles Treat your organization as an unfinished prototype No brag, just facts See yourself and your organization as outsiders do Evidence-based management is not just for senior executives

Like everything else, you still need to sell it If all else fails, slow the spread of bad practice The best diagnostic question: What happens when people fail?

Analytics (Business Analytics) Sophisticated forms of business data analysis

Predictive Modeling A data-mining technique used to predict future behavior and anticipate the consequences of change.

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 Analytics – the process of examining large amounts of data or a variety of types to uncover hidden patterns.

Decision-Making Style Reflects the combination of how an individual perceives and responds to information. Value orientation Tolerance for ambiguity

high low Tolerance for ambiguity Value orientation ANALYTICALCONCEPTUAL DIRECTIVEBEHAVIORAL Task and technical concerns People and social concerns

Directive Style Low tolerance for ambiguity and are oriented toward task and technical concerns in making decisions. Efficient Logical Practical Systematic Action oriented/decisive – like to focus on facts

Analytical Style A much higher tolerance for ambiguity and is characterized by the tendency to over- analyze a situation Respond well to new or uncertain situations Consider ore information and alternatives than managers following the directive style. Careful decision makers who take longer to make decisions but who also respond well to new or uncertain situations.

Conceptual Style Have a high tolerance for ambiguity and tend to focus on the people or social aspects of a work situation. Take a broad prospective to problem solving and like to consider many options and future possibilities.

Behavior Style People with this style work well with others and enjoy social interactions in which opinions are openly exchanged. Behavioral types are supportive, receptive to suggestions, show warmth, and prefer verbal to written information.

Relaxed Avoidance A manager decides to take no action in the belief that there will be no great negative consequences. Relaxed Change – a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk.

Defensive Avoidance A manager can’t find a good solution and follows by Procrastinating Passing the buck Denying the risk of any negative consequences

Panic In panic, a manager is so frantic to get rid of the problem that he or she can’t deal with the situation realistically.

Three Effective Reactions – Deciding to Decide A manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps Based on Importance Credibility Urgency

Heuristics Rules of thumb Strategies that simplify the process of making decisions. Nine common decision-making biases

1. Availability Bias Using only the information available Managers use information readily available from memory to make judgments.

2. Representativeness Bias Faulty generalizing from a small sample or a single event The tendency to generalize from a small sample or a single event

3. Confirmation Bias Seeking information to support one’s point of view When people seek information to support their point of view and discount data that do not.

4. Sunk-cost Bias Money already spent seems to justify continuing When managers add up all the money already spent on a project and conclude it is too costly to simply abandon it.

5. Anchoring and Adjustment Bias Being influenced by an initial figure The tendency to make decisions based on an initial figure.

6. Overconfidence Bias Blind to one’s own blindness The bias in which people’s subjective confidence in their decision making is greater than their objective accuracy.

7. Hindsight Bias The I knew it all along effect The tendency of people to view events as being more predictable than they really are.

8. Framing Bias Shaping how a problem is presented The tendency of decision makers to be influenced by the way a situation or problem is presented to them.

9. Escalation of Commitment Bias Feeling overly invested in a decision Decision makers increase their commitment to a project despite negative information about it.

Advantages of Group Decision Making Greater pool of knowledge Different perspectives Intellectual stimulation Better understanding of decision rationale Deeper commitment to the decision

Disadvantages of Group Decision-Making A few people dominate or intimidate Groupthink: occurs when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situation. Satisficing Goal Displacement – occurs when the primary goal is subsumed by a secondary goal.

Groupthink Occurs when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situation. Goal Displacement – Occurs when the primary goal is subsumed by a secondary goal.

Minority Dissent Dissent that occurs when a minority in a group publicly opposes the beliefs, attitudes, ideas, procedures, or policies assumed by the majority of the group.

Consensus Occurs when members are able to express their opinions and reach agreement to support the final decision.

Brainstorming A technique used to help groups generate multiple ideas and alternatives for solving problems. Electronic Brainstorming – members of a group come together over a computer network to generate ideas and alternatives.

Delphi Technique A group process that uses physically dispersed experts who fill out questionnaires to anonymously generate ideas the judgments are combined and in effect averaged to achieve a consensus of expert opinion.

Decision Support System A computer-based information system that provides a flexible tool for analysis and helps managers focus on the future.

Risk propensity The willingness to gamble or to undertake risk for the possibility of gaining an increased payoff.  competitiveness

Predictive Modeling A data mining technique used to predict future behavior and anticipate the consequences of change.

When confronted with any proposed action for which a decision is required, a mangers should ask the following questions: Is the proposed action legal? If “yes,” does the proposed action maximize shareholder value? If “yes,” is the proposed action ethical? Of “no,” would it be ethical not to take the propsed action?

Kent Hodgson – The Magnificent Seven 1. Dignity of human life: The lives of people are to be respected. 2. Autonomy: All persons are intrinsically valuable and have the right to self- determination. 3. Honesty: The truth should be told to those who have a right to know it.

4. Loyalty: Promises, contracts, and commitments should be honored. 5. Fairness: People should be treated justly. 6. Humaneness: Our actions ought to accomplish good, and we should avoid doing evil. 7. The Common Good: Actions should accomplish the greatest good for the greatest number.

Research suggests that groups make better decisions than most individuals acting alone.

What Managers Need to Know about Groups and Decision Making They are less efficient Their size affects decision quality They may be too confident Knowledge counts

Participative Management (PM) The process of involving employees in A. Setting goals B. Making decisions C. Solving problems D. Making changes in the organization

Rules for Brainstorming Defer judgment Build on the ideas of others Encourage wild ideas Go for quantity over quality Be visual Stay focused on the topic One conversation at a time

How do individuals respond to a decision situation? Ineffective responses Effective responses

Ineffective Reactions Relaxed Avoidance – A manager decides to take no action in the belief that there will be no great negative consequences. Relaxed Change - A manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk.

Ineffective Reactions Defensive Avoidance – A manager can’t find a good solution and follows by: Procrastinating Passing the buck Denying the risk of any negative consequences. Panic – a manager is so frantic to get rid of the problem that he or she can’t deal with the situation realistically.

Effective Reactions Deciding to Decide – a manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps. Importance – To determine how much priority to give the decision situation. Credibility – How believable is the information. Urgency – How quickly must I act on the information about the situation?

Heuristics Strategies that simplify the process of making decisions.

Research article Articles About Leadership & Management: Decision Making & Problem Solving — HBS Working Knowledge Articles About Leadership & Management: Decision Making & Problem Solving — HBS Working Knowledge