Transcript Foundations of Decision Making

Foundations
of Decision Making
©Prentice Hall, 2001
Chapter 4
1
Learning Outcomes
• Describe the decision-making process
• Analyze the rational decision-making model
• Explain the limits of rationality
• Learn how certainty, risk, and uncertainty
relate to decision making
• Discuss the bounded-rational decision maker
©Prentice Hall, 2001
Chapter 4
2
Learning Outcomes
• Identify the two types of decision problems
and the two decisions that solve them
• Learn how heuristics affect decision making
• Identify four decision-making styles
• Weigh the pros and cons of group decisions
• Learn three ways to improve group decision
making
©Prentice Hall, 2001
Chapter 4
3
The Decision-Making Process
Identification
of a
Problem
I need to buy
a new car.
•Price
•Interior Comfort
•Durability
•Repair Record
•Performance
Identification
of Decision
Criteria
•Price
•Interior Comfort
•Durability
•Repair Record
•Performance
Allocation
of Weights
to Criteria
©Prentice Hall, 2001
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8
6
4
2
4
Development
of
Alternatives
Analysis
of
Alternatives
Dodge
Audi
Isuzu
Chevy
Toyota
Ford
Jeep
Mazda
Toyota
Ford
Jeep
Mazda
Selection
of an
Alternative
•Price
•Comfort
•Durability
•Repair Record
•Performance
Audi
Isuzu
Chevy
The Toyota
is the best.
Implementation
of the
Alternative
©Prentice Hall, 2001
Dodge
Appraisal of
Decision Results
Chapter 4
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Problem
Clarity
Constant
Preferences
Single
Goal
No
Constraints
Known
Options
Clear
Preferences
©Prentice Hall, 2001
Assumptions
of Rational
Decision
Making
Maximum
Payoff
Chapter 4
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A Model of Bounded Rationality
Ascertain
the Need
for a Decision
Set
“Satisficing”
Criteria
Identify a
Limited Set
of Alternatives
Compare
Alternatives
Against Criteria
Simplify
the Problem
©Prentice Hall, 2001
Expand
Search for
Alternatives
No
Chapter 4
Select the
First “Good
Enough” Choice
A “Satisficing”
Alternative
Exists
Yes
7
Common Errors
in Decision Making
Representative
Heuristic
Availability
Heuristic
Escalation of
Commitment
©Prentice Hall, 2001
Chapter 4
8
How Do Problems Differ?
WellStructured
Poorly
Structured
Programmed
Decisions
Nonprogrammed
Decisions
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9
Sequential
Procedures
Making
Programmed
Decisions
Specific
Rules
Guiding
Policies
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Chapter 4
10
Integrating Decision Making
Top
Level in Organization
Type of Problem
Poorly Structured
Nonprogrammed
Decisions
Programmed
Decisions
Well-Structured
©Prentice Hall, 2001
Lower
Chapter 4
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Decision-Making Styles
Tolerance for Ambiguity
High
Analytic
Conceptual
Directive
Behavioral
Low
Rational
©Prentice Hall, 2001
Way of Thinking
Chapter 4
Intuitive
12
Group Decision Making
Advantages
Disadvantages
• More information
• Time-consuming
• More alternatives
• Minority domination
• Increased acceptance
• Pressures to conform
• Legitimacy
• Unclear responsibility
©Prentice Hall, 2001
Chapter 4
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Individual Versus Group
Decision Making
Strengths of
Individuals
Strengths of
Groups
Speed
Input and Diversity
Clear Accountability
Higher Quality Decisions
Consistent Values
Increased Acceptance
©Prentice Hall, 2001
Chapter 4
14
Brainstorming
Group Decision
Making
Nominal Group
Technique
Electronic
Meetings
©Prentice Hall, 2001
Chapter 4
15
National
Culture and
Decision Making
Decision
Style
Degree
of Risk
©Prentice Hall, 2001
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