Decision Making

How Should Decisions Be Made? Rational Decision-Making – The “perfect world” model assumes complete information, all options known, and maximum payoff. – Six step decision-making process Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Rational Decision-Making Model Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada Making a Decision Define the problem Identify the criteria Develop alternatives Allocate weights to the criteria Evaluate the alternatives Select the best alternative

Assumptions of RCM Problem clarity – The problem is clear and unambiguous. Known options – The decision maker can identify all relevant criteria and viable alternatives. Clear preferences – Rationality assumes that the criteria and alternatives can be ranked and weighted. Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Assumptions of the RCM Constant preferences – Specific decision criteria are constant and the weights assigned to them are stable over time. No time or cost constraints – Full information is available because there are no time or cost constraints. Maximum payoff – The choice alternative will yield the highest perceived value. Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Actual Decision Making Bounded Rationality – Limitations on one’s ability to interpret, process, and act on information. Satisficing – Identifying a solution that is “good enough.” Intuition – A non-conscious process created from distilled experience that results in quick decisions Relies on holistic associations Affectively charged – engaging the emotions Copyright © 2010 Pearson Education Canada

Group vs. Individual Decision Making Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Group Decision-Making Techniques Interacting Groups Brainstorming Nominal Group Technique Electronic Meetings Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Nominal Group Technique Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Groupshift – Phenomenon in which the initial positions of individual members of a group are exaggerated toward a more extreme position. Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

What Causes Groupshift? Discussion creates familiarization among group members. Group discussion motivates individuals to take risks. Group diffuses responsibility. Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Creativity The process of creating products, ideas, or procedures that are novel or original, and are potentially relevant or useful to an organization. Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

The Three Components of Creativity Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Creativity Blocks Expected evaluation Surveillance External motivators Competition Constrained choice Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Making Ethical Choices Utilitarian criterion Rights criterion Justice criterion Care criterion Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Stages of Moral Development Copyright © 2010 Pearson Education Canada 6. Following self-chosen ethical principles even if they violate the law. 5. Valuing rights of others and upholding absolute values and rights regardless of the majority’s opinion. 4. Maintaining conventional order by fulfilling obligations to which you have agreed. 3. Living up to what is expected by people close to you. 2. Following rules only when doing so is in your immediate interest. 1. Sticking to rules to avoid physical punishment. Conventional Principled Preconventional Source: Based on L. Kohlberg, “Moral Stages and Moralization: The Cognitive-Developmental Approach,” in Moral Development and Behaviour: Theory, Research, and Social Issues, ed. T. Lickona (New York: Holt, Rinehart and Winston, 1976), pp

Organizational Response Explosion in demand for more ethical behaviour: – Ethics specialists – Ethics officers – Codes of ethics – Ethics auditors In addition, many companies are creating mechanisms that encourage employees to speak up when they see wrongdoing Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Common Biases in Decision Making Overconfidence Bias – Believing too much in our own ability to make good decisions – especially when outside of own expertise Anchoring Bias – Using early, first received information as the basis for making subsequent judgments Confirmation Bias – Selecting and using only facts that support our decision Availability Bias – Emphasizing information that is most readily at hand Recent Vivid Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada

Common Biases in Decision Making Escalation of Commitment – Increasing commitment to a decision in spite of evidence that it is wrong – especially if responsible for the decision! Randomness Error – Creating meaning out of random events - superstitions Winner’s Curse – Highest bidder pays too much due to value overestimation – Likelihood increases with the number of people in auction Hindsight Bias – After an outcome is already known, believing it could have been accurately predicted beforehand Langton, Robbins and Judge, Organizational Behaviour, Fifth Cdn. Ed. Copyright © 2010 Pearson Education Canada