Decision Making, Learning, Creativity, and Entrepreneurship chapter seven lecture 2 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Cognitive Biases and Decision Making Heuristics – Rules of thumb that simplify the process of making decisions. Systematic errors – errors that people make over and over and that result in poor decision making 7-2

Sources of Cognitive Biases Prior Hypothesis Bias – A cognitive bias resulting from the tendency to base decisions on strong prior beliefs even if evidence shows that those beliefs are wrong. Representativeness – A cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode. 7-3

Sources of Cognitive Biases Illusion of Control – The tendency to overestimate one’s own ability to control activities and events. Escalating Commitment – A source of cognitive bias resulting from the tendency to commit additional resources to a project even if evidence shows that the project is failing. 7-4

Group Decision Making Superior to individual making Choices less likely to fall victim to bias Able to draw on combined skills of group members Improve ability to generate feasible alternatives 7-5

Group Decision Making Potential Disadvantages – Can take much longer than individuals to make decisions – Can be difficult to get two or more managers to agree because of different interests and preferences – Can be undermined by biases 7-6

Group Decision Making Groupthink – Pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision 7-7

Devil’s Advocacy and Dialectical Inquiry Figure

Organizational Learning and Creativity Organizational learning – Managers seek to improve a employee’s desire and ability to understand and manage the organization and its task environment so as to raise effectiveness. Learning organization – An organization in which managers try to maximize the ability of individuals and groups to think and behave creatively and thus maximize the potential for organizational learning to take place. 7-9

Organizational Learning and Creativity Creativity – The ability of the decision maker to discover novel ideas leading to a feasible course of action. 7-10