Organizational Behavior: An Introduction to Your Life in Organizations Chapter 3 Decision Making ©2007 Prentice Hall

Preview When considering how to make a decision, what principles should guide your thinking? When you are designing a decision making process, what three major factors should you weigh? How can you use experts effectively? How can you use technology to improve decision making? How can you implement decisions successfully? ©2007 Prentice Hall

Rational-economic model Assumes that a person making a decision has complete and perfect information and is able to process this information accurately and without bias Assumes that individuals, households, and organizations always make rational (reasonable and logical) choices based on their economic self-interest ©2007 Prentice Hall

Problems with the rational-economic model Ignores other factors that influence decision making, such as: people’s values emotions, and the social context in which the decision is made ©2007 Prentice Hall

Herbert Simon’s model Based on bounded rationality The administrative model of decision making states that decision-makers: process only limited, manageable amounts of information rather than identifying all alternatives use shortcuts and rules of thumb when processing information choose solutions that seem adequate but are actually less than optimal, a process known as satisficing ©2007 Prentice Hall

Complications to the rational process The stages of rational problem-solving may happen simultaneously The stages of rational problem-solving may happen in different sequences Sometimes managers skip a stage entirely Each stage in the process can be quite complex Escalation of commitment: the tendency to continue on a course of action once money has been spent or effort has been invested, despite signals that a project is failing ©2007 Prentice Hall

Factors in designing a decision making process The type of problem to be solved The nature of the individuals who will make the decision The potential impact of the social context of the decision ©2007 Prentice Hall

What type of problem are you solving? Assess: Whether your organization’s decision-makers will be primarily choosing between alternatives, or primarily creating new ideas Whether the decision is programmed or non-programmed Whether the decision will be made under conditions of uncertainty ©2007 Prentice Hall

Type of thinking required Convergent thinking: the ability to apply logic and knowledge to narrow down the number of possible solutions to a problem Divergent thinking: the ability to think along many paths to generate many solutions to a problem ©2007 Prentice Hall

Does a ready-made solution for the problem already exist? Programmed decisions individuals follow explicit decision rules Non-programmed decisions no identifiable rules for developing solutions ©2007 Prentice Hall

Will the decision be made under conditions of uncertainty? Risky decisions: those made under conditions of uncertainty Loss aversion: when faced with an equal probability of gaining or losing, a person will often choose not losing as the preferred outcome Gambler’s fallacy: people tend to believe that random events will correct themselves ©2007 Prentice Hall

What are the attributes, strengths and weaknesses of the individuals who will make the decision? Consider: Personalities Problem-solving styles Other attributes ©2007 Prentice Hall

Recognize individual personalities Big Five personality variables of conscientiousness and openness Risk propensity: the tendency to take risks ©2007 Prentice Hall

Assess creative problem-solving abilities Two basic capabilities: divergent-thinking ability and insight Creativity is limited if you: closely supervise the decision making process set constraints on how the work will be done foster competition among the creators focus on how the product will be evaluated emphasize extrinsic rewards ©2007 Prentice Hall

Understand the value and limitations of intuition Intuition is a decision making process that integrates experience, goals and values without using direct reasoning Image theory: how a decision-maker manages and coordinates images is the essence of the intuitive decision making process The higher up the corporate ladder, the more prevalent is the use of intuition ©2007 Prentice Hall

Anticipate emotional influences Depending on their own emotional patterns, managers’ judgment may be biased toward more pessimistic or more optimistic evaluations of a situation When individuals postpone or avoid making choices, emotional influences may be at work Under stress, individuals sometimes regress to more paranoid and infantile modes of thinking ©2007 Prentice Hall

How might the social context affect the decision? Consider factors such as: a person’s need to feel accepted their belief in the group’s superior judgment the impact of participation issues of fairness, bias, ethics, and culture ©2007 Prentice Hall

Acknowledge social influences Under some circumstances individuals will literally deny their own perceptions in order to agree with the other members of their group, even when the group consists of strangers Sometimes people conform because of social pressure or belief that all the others could not be wrong ©2007 Prentice Hall

Decide who should be involved in the decision Autocratic: You alone decide; may obtain information from others Consultative: Share the problem with others and get their ideas and suggestions but you make the decision Group: Share the problem and group reaches a consensus about what to do ©2007 Prentice Hall

Make a fair decision Procedural justice (also called procedural fairness): using formal decision making procedures that are fair Interactional justice: being treated respectfully when formal organizational procedures are carried out ©2007 Prentice Hall

Monitor biases in yourself and others Collect data that reveal your own and others’ prejudice Ask yourself whether your environment is reinforcing harmful stereotypes Before relying on your intuition to make a decision, try to put yourself into the shoes of the people who will be affected When choosing people to consider for any special opportunity or benefit, start with a list of names of all employees who have relevant qualifications ©2007 Prentice Hall

Foster individual and organizational ethics Bentley College Center for Business Ethics: Is it right? Is it fair? How does it “smell”? (What is your instinctive reaction to it?) Who gets hurt? Would you be comfortable if the details of your decision were reported on the front page of your local newspaper? What would you tell your child to do? ©2007 Prentice Hall

Account for cultural influences How employees view participative decision making depends on forces outside of the decision making process, including sociopolitical, legal, historical, and sociocultural factors The impact of culture on decision making is likely to be related to whether a culture is individualistic or more group oriented, and whether it has a high or low emphasis on hierarchical relationships ©2007 Prentice Hall

How can you use experts effectively? Naturalistic decision making is decision making that occurs in real-world settings, often under time pressure Experts ignore conventional methods in favor of intuition, mental simulation, metaphor, and storytelling When confronted with a truly novel situation, experts are bound by their experience ©2007 Prentice Hall

How can you use technology to improve decision making? Provides information to decision makers Expert systems: computer programs that mirror some aspects of human decision making processes ©2007 Prentice Hall

How can you implement decisions successfully? Implementation: putting a solution into effect using a definite plan or procedure Implementation abilities include: interpersonal skills, such as avoiding hubris and arrogance the ability to fit into a company’s culture communication skills, including the ability to convey complex ideas clearly and succinctly ©2007 Prentice Hall

Apply what you have learned World Class Company: Google, Inc. Advice from the Pro’s Gain Experience Can you solve this manager’s problem? ©2007 Prentice Hall

Summary – When considering how to make a decision, what principles should guide your thinking? Organizational decision making is both rational and psychological. Rational problem-solving is more complicated than it looks. Problems occur both when making a decision and when implementing a decision. A common problem is escalation of commitment, the tendency to continue on a course of action because so many resources have already been expended ©2007 Prentice Hall

Summary – Major factors in designing a decision making process the type of problem you are solving the attributes, strengths and weaknesses of the individuals who will make the decision the social context of the decision ©2007 Prentice Hall

Summary – How can you use experts effectively? Recognize experts’ strengths and weaknesses. Compared with beginners, they are good at solving problems that require knowledge based on experience. In truly novel situations, they may see what they have learned to see, or, they may approach the problem like anyone else would ©2007 Prentice Hall

Summary – How can you use technology to improve decision making? Likely to find different organizational levels using different technologies. Information technology and expert systems are both useful aids to human decision making. ©2007 Prentice Hall

Summary – How can you implement decisions successfully? Ensure: the roles that must be played to implement the decision are assigned those to whom they are assigned know they will be held accountable ©2007 Prentice Hall