Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Decision Making and Creativity

6-2 Subjective Expected Utility  Core feature of rational choice paradigm  Best alternative (maximization) is calculated by: Expected – chance that outcomes will occur if alternative is implemented Utility – expected happiness from outcomes of each alternative  Choice ‘B’ has higher SEU Choice ‘B’ expected utility is (.8x7)+(.2x-2)+(.3x1)=6.4 Choice B Outcome 1 (+7) Outcome 2 (-2) Outcome 3 (+1) Choice A Outcome 1 (+7) Outcome 2 (-2) Outcome 3 (+1) Utility (expected happiness) Chance of outcome occurring

6-3 Rational Choice Decision Process Subjective expected utility

6-4 Problem Identification Challenges  Problems and opportunities are constructed from ambiguous information, not “given” to us  Influenced by cognitive and emotional biases  Five problem identification challenges Stakeholder framing Mental models Decisive leadership Solution-focused problems Perceptual defense

6-5 Identifying Problems Effectively 1. Be aware of perceptual and diagnostic limitations 2. Fight against pressure to look decisive 3. Maintain “divine discontent” (aversion to complacency) 4. Discussing the situation with colleagues -- see different perspectives

6-6 more Making Choices: Rational vs OB Views Goals are ambiguous, conflicting, and lack agreement Goals are clear, compatible, and agreed upon People are able to calculate all alternatives and their outcomes People evaluate all alternatives simultaneously People have limited information processing abilities People evaluate alternatives sequentially Rational Choice Paradigm Assumptions Observations from Organizational Behavior

6-7 Making Choices: Rational vs OB Views People evaluate alternatives against an implicit favorite People use absolute standards to evaluate alternatives People make choices using factual information People choose the alternative with the highest payoff (SEU) People make choices using perceptually distorted information People evaluate alternatives sequentially Rational Choice Paradigm Assumptions Observations from Organizational Behavior

6-8 Emotions and Making Choices 1. Emotions form preferences before we consciously evaluate those choices 2. Moods and emotions influence how well we follow the decision process 3. We ‘listen in’ on our emotions and use that information to make choices

6-9 Intuitive Decision Making  Ability to know when a problem or opportunity exists and select the best course of action without conscious reasoning  Intuition as emotional experience Gut feelings are emotional signals Not all emotional signals are intuition  Intuition as rapid nonconscious analysis Uses action scripts

6-10 Escalation of Commitment  The tendency to repeat an apparently bad decision or allocate more resources to a failing course of action  Four main causes of escalation: Self-justification Prospect theory effect Perceptual blinders Closing costs

6-11 Employee Involvement Model Potential Involvement Outcomes Contingencies of Involvement Employee Involvement  Better problem identification  Synergy produces more/better solutions  Better at picking the best choice  Higher decision commitment

6-12 Contingencies of Involvement Knowledge Source Decision Commitment Employees have relevant knowledge beyond leader Employees would lack commitment unless involved Risk of Conflict 1.Norms support firm’s goals 2.Employee agreement likely Decision Structure Problem is new & complex (i.e nonprogrammed decision) Higher employee involvement is better when:

6-13 Cognitive and practical intelligence Persistence Subject knowledge/expe rience Independent imagination Characteristics of Creative People Independent imagination includes: Higher openness to experience personality Lower need for affiliation motivation Higher self- direction/stimulation values Characteristics of Creative People

6-14 Creative Work Environments  Learning orientation Encourage experimentation Tolerate mistakes  Intrinsically motivating work Task significance, autonomy, feedback  Open communication and sufficient resources  Team competition and time pressure have complex effect on creativity

6-15 Activities to Spark Creative Thinking  Redefining the problem Revisit old problems Consult with people unfamiliar with the issue  Associative play Art classes, storytelling, divergent thinking events Morphological analysis  Cross-pollination Move employees around Cross-functional teams