Decision Making

The Glaring Facts | November 26, 2011

What is Decision Making?

Decision Making: The process of developing a commitment to some course of action. Decision making involves three aspects: choices, process, and resources
Problem: a perceived gap between an existing state and a desired state.
Well-Structured Problems
- Well-structured problem: A problem for which the existing state is clear, the desired state is clear, and how to get from one state to the other is fairly obvious.
- The solutions to these problems follow programs: a standardized way of solving a problem. Programs usually go under labels such as rules, standard operating procedures/rule of thumb.
Ill-Structured Problem
- Ill-structured problem: a problem for which the existing and desired states are unclear, and the method of getting to the desired state is unknown. They are unique and unusual, problems like these are not encountered frequently

The Complete Decision Maker—A Rational Decision-Making Model

The Perfect vs. Bounded Rationality
- Perfect rationality: a decision strategy that is completely informed, perfectly logical, and oriented toward economic gain.
- Bounded rationality: a decision strategy that relies on limited information and that reflects time constraints and political considerations.
- Framing: aspects of the presentation of information about a problem that are assumed by decision makers.
- Cognitive biases: tendencies to acquire and process information in an error-prone way.
Problem Identification and Framing
- Perceptual defense è Perceptual system may act to defend the perceiver against unpleasant perceptions.
- Problem defined in terms of functional specialty è selective perception can cause decision makers to view a problem as being in the domain of their own specialty, even when some other perspective might be warranted.
- Problem defined in terms of solution è this form of jumping to conclusions effectively short-circuits the rational decision-making process.
- Problem diagnosed in terms of symptoms è Concentration on surface symptoms will provide the decision maker will few clues about an adequate solution.
Information Search
- Confirmation bias: the tendency to seek out information that conforms to one’s own definition of or solution to a problem (too little information)
- Information overload: the reception of more information than is necessary to make effective decisions (too much information).
- Alternative Development, Evaluation, & Choice
- Maximization: the choice of the decision alternative with the greatest unexpected value.
- The decision maker working under bounded rationality frequently “satisfices” rather than maximizes.
- Satisficing: establishing an adequate level of acceptability for a solution to a problem and then screening solutions until one that exceeds this level is found.
Solution Evaluation
- People tend to be overconfident about the adequacy of their decisions; thus, substantial dissonance can be aroused when a decision turns out to be faulty.
- Sunk costs: Permanent losses of resources incurred as the result of a decision.
- Escalation of commitment: the tendency to invest additional resources in an apparently failing course of action.
- Hindsight: the tendency to review the decision-making process to find what was done right or wrong. While hindsight can prove useful, it often reflects a cognitive bias (the I-knew-it-all-along effect)
How Emotion and Mood Affect Decision Making
- Decision makers in a good mood can overestimate the likelihood of good events and use shortcut decision strategies.

Group Decision Making

Why use Groups?
- Groups are: 1) more vigilant than individuals are (more people looking at same problem), 2) generate more ideas than individuals can, 3) evaluate ideas better than individuals can.
- Decision acceptance and commitment: Decisions made in this way will be more acceptable to those involved.
- Diffusion of responsibility: the ability of group members to share the burden of the negative consequences of a poor decision.
Do groups actually make higher-quality decisions than individuals?
- Groups usually produce more and better solutions to problems than do individuals working alone. Group members differ in skills & abilities, division of labour can occur, individual judgments can be combined and weighted based on the problem at hand.
Disadvantages of Group Decision Making
- Time: Groups seldom work quickly or efficiently compared with individuals.
- Conflict: Participants in group decisions have their own personal axes to grind or their own resources to protect.
- Domination: The advantages will seldom be realized if meetings are dominated by a single individual or a small coalition.
- Groupthink: The capacity for group pressure to damage the mental efficiency, reality testing, and moral judgment of decision-making groups (Illusion of invulnerability, Rationalization, Illusion of morality, Stereotypes of outsiders, Pressure for conformity, self-censorsip, illusion of unanimity, mindguards)
How do groups handle risk?
- Risk shift: the tendency for groups to make riskier decisions than the average risk initially advocated by their individual members.
- Conservative shift: the tendency for groups to make less risky decisions than the average risk initially advocated by their individual members.

Improving Decision Making in Organizations

Training Decision Leaders
Stimulating and Managing Controversy
- Devil’s advocate: a person appointed to identify and challenge the weaknesses of a proposed plan or strategy
- Managing controversy must come in an organized debate-like format
Traditional and Electronic Brainstorming
- Brainstorming: an attempt to increase the number of creative solution alternatives to problems by focusing on idea generation rather than evaluation (was originally conceived as a group technique. Individuals are more able to come up with more decisions than groups because of group disadvantages listed above)
- Electronic brainstorming: the use of computer-mediated technology to improve traditional brainstorming practises.
Nominal Group Technique
- Nominal Group Technique: a structured group decision-making technique in which ideas are generated without group interaction and then systematically evaluated by the group. Ideas are generated separately to prevent group inhibition and conformity.
The Delphi Technique

The Delphi Technique: a method of pooling a large number of expert judgments by using a series of increasingly refined questionnaires.

Stage	Perfect Rationality	Bounded Rationality
Problem Identification	Easy, accurate perception of gaps that constitute problems	Perceptual difference; jump to solutions; attention to symptoms rather than problems; mood affects memory.
Information Search	Free; fast; right amount obtained	Slow; costly; reliance on flawed memory; obtain too little or too much
Development of alternative solutions. Evaluation of alternative solutions	Can conceive of all Ultimate value of each known; probability of each known; only criterion is economic gain	Not all known Potential ignorance of or miscalculation of values and probabilities; criteria include political factors; affected by mood.
Solution Choice Solution Implementation	Maximizes Considered in evaluation of alternatives	Satisfices May be difficult owing to reliance on others
Solution Evaluation	Objective, according to previous steps	May involve justification, escalation to recover sunk costs, faulty hindsight.