DECISION MAKING

• Management process involves decision making at all

levels.
• Decision-making describes the process by which a
course of action is selected as the way to deal with a
specific problem.
• If there is only one alternative, the question of decision
making does not arise.
• The quality of alternatives which a manger selects
determines the organization‘s performance, and the
future of the organization.
Steps in the rational decision-making model:
• Identify the Problem: The current data management system of
spreadsheets is ineffective.
• Establish Decision Criteria: Key criteria were established in the first meeting
related to areas such as what systems need to be run, how many employees
it must handle, compatibility issues, and financial considerations.
• Weigh Decision Criteria: With some guidance, the team was able to settle
on which criteria were truly the most important.
• Generate Alternatives: Only two alternatives were presented by the team:
stay with the current system or use a firm run by the boss’s daughter.
• Evaluate Alternatives: The process essentially stalled here because of the
results of Step 4.
• Select the Best Alternative: Not completed yet.
Why does a manager need to understand
the processes and techniques in decision
making?
• Decision Criteria
• Weigh Decision Criteria
• Generate Alternatives
• Evaluate the Alternatives
 Barriers to Individual Decision Making
• Information-Related Barriers
• Circumstance and Time-Related Barriers
• Cognitive Biases
• Confirmation Bias
• Framing Bias
• Hindsight Bias
• Anchoring
• Halo Effect
• Overconfidence Bias
• Status-Quo Bias
• Pro-Innovation Bias
• Confirmation Bias
• Confirmation bias is the tendency to seek out or prefer information and
opinions that we believe will confirm our own judgment. We want to be
confirmed, so we pay more attention to information that we think supports
us, and we ignore or diminish the significance of information to the
contrary. We also tend to accept information at face value that confirms our
preconceived views while being critical and skeptical of information that
challenges these views. For example, if you believe your new diet of
bananas and almonds is the healthiest foods to eat, you will search for and
accept any supporting information on the virtues of bananas and almonds,
and ignore and discount any contradictory information.
• Framing Bias
• Framing bias is the tendency to be influenced by the way that a
situation or problem is presented. Framing a message with a positive
outcome has been shown to be more influential than framing a
message with a negative outcome. For example, public health
messages that depict nonsmokers as happy and popular with
sparkling white smiles has proven more effective than displaying a
smoker’s diseased lung. Numerous studies have demonstrated
framing effects in our everyday lives.
• We are more likely to enjoy meat labeled 75 percent lean meat as opposed
to 25 percent fat.
• 93 percent of PhD students registered early when the framing was in terms
of a penalty fee for late registration, with only 67 percent registering early
when the framing was in terms of a discount for earlier registration.
• More people will support an economic policy if the employment rate is
emphasized than when the associated unemployment rate is highlighted.[1]
• It is important to be aware of this tendency because, depending on how a
problem is presented, we might choose an alternative that is
disadvantageous simply because of how it is framed.
• Hindsight Bias
• Hindsight bias is the tendency to believe falsely that we would have accurately predicted the
outcome of an event after that outcome is actually known. When something happens and we
have accurate feedback on the outcome, we appear to be very good at concluding that this
outcome was relatively obvious. For example, a lot more people claim to have been sure
about the inevitability of who would win the Super Bowl the day after the game than they
were the day before.
• What explains hindsight bias? We are very poor at recalling the way an uncertain event
appeared before we realize the actual results of the event, but we can be exceptionally
talented at overestimating what we actually knew beforehand as we reconstruct the past. Just
listen to a call-in sports show after a big game, and hindsight bias will be on full display.
• We seek out or prefer information and opinions that we believe will confirm our own
judgment. We want to be confirmed, so we pay more attention to information that we think
supports us, and we ignore or diminish the significance of information to the contrary.
• Anchoring
• Anchoring bias is a tendency to fixate on initial information and then
fail to adjust for subsequent information. When our opinion becomes
anchored to that piece of information, we cannot stray very far from
it. For example, in a mock jury trial, one set of jurors was asked to
make an award in the range of $15 million to $50 million. Another set
of jurors was asked for an award in the range of $50 million and $150
million. The median awards were $15 million and $50 million
respectively with each set of jurors.
• Halo Effect
• Halo effect concerns the preferential attitude that we have toward
certain individuals or organizations. Because we are impressed with
their knowledge or expertise in a certain area or areas, we
unconsciously begin to give their opinions special credence in other
areas as well. This would, for example, be exhibited when sports stars
express their political opinions and the public gives strong weight to
what they say. There is no logical reason to think that they have sound
political opinions just because they have great skill in the realm of
sports.
• Overconfidence Bias
• Overconfident bias is particularly easy to understand. It basically
amounts to the idea that an individual decision maker trusts his own
judgment (usually his intuition) and allows that judgment to override
evidence to the contrary. His opinion counts more strongly to him
than that of experts who are more knowledgeable and often more
than factual data that contradicts his views. From an organizational
standpoint, as managers and employees become more
knowledgeable about an issue, the less likely they are to display
overconfidence. And overconfidence is most likely to arise when
employees are considering issues outside of their area of expertise.
• Status-Quo Bias
• Some decision makers prefer to avoid change and maintain the status
quo. This desire, perhaps unrecognized, often leads them to favor
ideas that do not lead to significant changes. Evidence and ideas that
support change are neglected as a result.
• Pro-Innovation Bias
• Pro-innovative bias is the opposite of the status-quo bias. Rather than
prefer things to stay the same, the innovation bias gives preference to
any new and innovative idea simply because it represents something
new. The feeling is that new ideas must be better than old ones. Even
if no objective evidence supports the new idea as useful and helpful,
it is still attractive just by virtue of being new.
In this optical illusion all lines are parallel. Perceptual distortion
makes them seem crooked.
Practice Question
Sally and Aamir’s company are celebrating a hard-won deal.
Sally manages the team who created the product, and believes
it was the high quality of the product that cinched the deal.
Aamir manages the sales team, and he believes it was the long
hours of work put in by his salespeople that sealed the deal.
These are examples of
• Framing
• Anchoring
• Confirmation bias
Sally and Aamir’s company are celebrating a hard-won
deal. Sally manages the team who created the product,
and believes it was the high quality of the product that
cinched the deal. Aamir manages the sales team, and he
believes it was the long hours of work put in by his
salespeople that sealed the deal. These are examples of
• Framing
• Anchoring
• Confirmation bias (Sally and Aamir each interpret the
facts to support an existing belief)
Styles of Decision Making
• Optimizing vs. Satisficing
• Intuitive vs. Rational
• Combinatorial vs. Positional
• Optimizing vs. Satisficing
• The “fog of war” refers to the uncertainty common on a battlefield.
• Business is not quite that bad, but there often isn’t good information for a full
analysis. With limitations on information, thoughtful analysis may be impossible.
• So what’s a decision maker to do? There are two ends of a spectrum from which
to approach this: satisficing and optimizing.
• Satisficing—a combination of the words “satisfy” and “suffice”—means settling
for a less-than-perfect solution when working with limited information.
• Optimizing involves collecting as much data as possible and trying to find the
optimal choice.
• Generally, decision makers don’t pick one or the other—you can think of
satisficing to optimizing as a spectrum, and each decision starts with an
assessment of how critical it is. A branch of management called management
science offers methods for solving complex problems.
• Intuitive vs. Rational
• According to Daniel Kahneman, who you’ll read more about in the
next section, each of us has two separate minds that compete for
influence.
• One way to describe this is a conscious and a subconscious
perspective.
• The subconscious mind is automatic and intuitive, rapidly
consolidating data and producing a decision almost immediately.
The subconscious mind works best with repeated experiences.
• The conscious, rational mind requires more effort, using logic and
reason to make a choice. For example, the subconscious mind
throws a ball and hits the target, while the conscious mind slowly
describes the physics and forces required to complete the action.
• Combinatorial vs. Positional
• Aron Katsenelinboigen proposed this description based on how
the game of chess is played.
• A combinatorial player has a final outcome in mind, making a
series of moves that try to link the initial position with the final
outcome in a firm, narrow, and more certain way. The name
comes from the rapid increase in the number of moves he must
consider for each step he looks ahead.
• The positional decision-making approach is “looser,” setting up
strong positions on the board and preparing to react to the
opponent. A player using this strategy increases flexibility, creating
options as opposed to forcing a single sequence.
• In business, a market share strategy is positional.
A dominant market share gives a firm negotiating
power even with lesser product.
• A complex situation with many players and many
solutions might require a more combinatorial
strategy. Apple faced a complex environment
when it entered the music streaming business.
• It created an ecosystem that served artists, labels,
and customers without dominating the music
business.
Practice Question
Compare the way a novice and an experienced driver make decisions. The
novice needs to rely on controlled processing, requiring focused
concentration on a sequence of operations that require mental effort and
are easily disrupted by any distractions. In contrast, the well-practiced driver,
relying on automatic processes, can carry out the same task efficiently while
engaged in other activities (such as chatting with a passenger or tuning in to
a radio station). Of course, he or she can always switch to more deliberative
processing when necessary, such as conditions of extreme weather, heavy
traffic or mechanical failure. The two processes for decision making are
________.
1. Rational and intuitive
2. Optimizing and satisficing
3. Combinatorial or positional
Evidence-Based Decision Making
• Proof of Success
• Data Collection, Sharing, and Analytics
• Descriptive Analytics
• Predictive Analytics
Practice Question
In 2015, Walmart’s revenue fell for the first time in its 45-year run as a
public company. Shoppers were fed up. They complained about dirty
bathrooms, empty shelves, endless checkout lines, and impossible-to-find
employees. Only 16 percent of stores were meeting the company’s
customer service goals. Walmart decided to conduct an experiment. They
raised wages, increased training, and provided employees with consistent
regular schedules. Early test results showed a strong positive response
from customers. By early 2016, the proportion of stores hitting their
targeted customer-service ratings had rebounded to 75 percent. Sales were
rising again! Walmart executives switched from the norm—cutting costs—
to ________.
• Rational decision making
• Heuristics
• Evidence-based decision making
Practice question
Frederick Corey, the vice provost of undergraduate
education at Arizona State University, argues that colleges
are driving by looking in the rear-view mirror. They use
descriptive statistics on alumni to make policy about
future students, so the data is years behind today’s event.
He advocates for
1. Artificial intelligence
2. Big data
3. Predictive analytics
 Managing Group Decision Making

• Advantages of Group Decision Making

Practice Question
• Computer CORE offers computer education to adults. Volunteers teach the
classes. When CORE needed to update the presentations, the executive
director created a committee of teachers. Each teacher had taken unique
approaches to the presentations. The teachers were slow to agree, but they
eventually chose a format and structure for new presentations. What were
the advantages of using a committee?
1. A faster resolution to the problem than using another decision
making process
2. Giving group members ownership of and accountability for the
decision
3. Greater expertise, and group buy-in and support for the choices
 Disadvantages of Group Decision Making

Practice Questions
Suresh owns a shoe store, and he likes to give his employees a lot of say in management
decisions. He’s deciding what styles to carry for the upcoming back-to-school rush, so he
calls a meeting with his eight part-time employees to get their ideas. Three of his employees
come to the meeting sporting sneakers from a new brand Suresh has never heard of before.
They tell him that they heard about the brand on Instagram, and they think it’s going to be
the next big thing. Several of the other employees get excited about the shoes and ask
where they can get them. Suresh’s most experienced employee, Delilah, tries to ask about
the company making the shoes and its marketing strategy, but she eventually gets swept up
in the excitement, too. Suresh orders 1,000 pairs to stock for the back-to-school rush, but he
quickly realizes that what people really wanted was the newest sneaker from Nike. The
trend his employees predicted never materialize, and he eventually has to sell the shoes at
a deep discount. What drawback of group decision making did Suresh experience?
1. Polarization
2. Groupthink
3. Lack of consensus
You and some friends are on vacation, and you have just found
out that a hurricane is approaching the island you are staying on.
Your vacation group must decide between staying on the island
or leaving immediately. The last flight leaves in one hour. The
group needs to stay together, but if the group discusses this, it
could take awhile to reach consensus. Which decision style is
appropriate?
[Link] decision making
[Link] decision making
[Link] or autocratic style
Ways to Facilitate Group Decision Making
1. Brainstorming
2. nominal group technique
3. e-brainstorming
4. devil’s advocacy
5. facilitator or referee
6. Delphi technique
Practice Question
Meetings to generate ideas favor first speakers. People hoping to
look smart and productive will blurt out obvious ideas first.
Everyone else then rallies around those ideas both internally and
externally. The best thinking is often undeveloped. Professors
Nordgreen and Thompson favor a write first, talk second
approach. Thompson calls this “brainwriting.” Another name is
1. Brainstorming
2. Groupthink
3. Nominal group technique
 Evaluating Group Decision-Making Techniques
Group Decision-Making Techniques

Effectiveness Brainstormi e- Devil’s Referee/

Nominal Delphi
Criteria ng Brainstorming Advocate Facilitator

Number of ideas Moderate High High High Low Low

Quality of ideas Moderate High Moderate Moderate High High
Speed Moderate Moderate High Low Moderate High

Potential for
interpersonal Low Moderate Moderate Low High Moderate
conflict

Commitment to Not
solution applicable Moderate Moderate High Moderate High

Group
High Moderate Low Low Moderate High
cohesiveness
U sin g a D eciso n T re