DECISION MAKING February 10, 2010

Decision-Making Styles Logical, systematic Action oriented Facts focused Autocratic, Short-term More information & Alternatives Overanalyze Broader perspective Many alternatives Intuition & disc. Indecisive Supportive Open to suggestions Wishy-washy Conflict Avoidant

Question? Bill is supportive of his employees and prefers to have verbal conversations rather than written memos. His style is: A. Analytical B. Behavioral C. Conceptual D. Directive

Which Style Do You Have? Knowledge of your decision-making style: u Helps

Rational Decision Making Awareness Pressure Resources Decision Criteria Weigh Criteria Rate alternatives on criteria Weighted score for each alt.

ANALYZING ALTERNATIVES u Certainty u Outcome of an alternative is known u RISK u Likelihood of outcomes may be estimated u UNCERTAINTY u Neither certainty or reasonable probability estimates are available

TYPES OF DECISIONS u Programmed u Well-structured, repetitive u Non-programmed u Uniqued/infrequent u Complex; Ill-defined

HOW RATIONAL ARE WE? u Rationality u Perfectly Rational/Logical u Complete Info. u Certainty u Maximize/Optimize u Bounded-Rationality u Bounded Rationality u Incomplete Info. u Satisficing u Incremental

Limited Resources Information Overload Cognitive Limitations Expertise Problems WHY DO WE SATISFICE? Politics Imperfect Information

COMMON DECISION MAKING BIASES u Intuition u Availability Bias u Confirmation Bias u Representative Bias u Cultural Bias u Sunk Cost Bias u Escalation of Commitment u Anchoring and adjustment u Framing

u A large car manufacturer has recently been hit with a number of economic difficulties, and it appears as if three plants need to be closed and 6,000 employees laid off. The vice-president of production has been exploring alternative ways to avoid this crisis. She has developed two plans: u Plan A: This plan will save one of three plants and 2,000 jobs. u Plan B: This plan has a 1/3 probability of saving all three plants and 6,000 jobs, but has a 2/3 probability of saving no plants and no jobs.

u A large car manufacturer has recently been hit with a number of economic difficulties, and it appears as if three plants need to be closed and 6,000 employees laid off. The vice-president of production has been exploring alternative ways to avoid this crisis. She has developed two plans: u Plan C: This plan will result in the loss of two of the three plants and 4,000 jobs. u Plan D: This plan has a 2/3 probability of resulting in the loss of all three plants and all 6,000 jobs, but has a 1/3 probability of losing no plants and no jobs.

Framing Effects on Decision Making u Positive Frame u a problem presented as a gain u become more risk-averse u Negative Frame u a problem presented as a loss u become more risk-seeking + -

Improving Decision Making u Decide to Decide u How important is this situation? u How credible is my information u How urgent is the situation? u Minimize Biases u Conscious information processing u Reality testing—Check your assumptions u Ask questions (and let them answer) u Look for information that disconfirms your beliefs u Know your people

The Ethical Decision Tree

Participative Management u Participative Management u process of involving employees in setting goals, making decisions, solving problems, and making changes in the organization

Advantages of Group Decision Making u u u u u u u u u u u u

Disadvantages of Group Decision Making u u u u u u u u

GROUP VS. INDIVIDUAL DECISION MAKING