DecisionMaking Types of Problems and Decisions Decision Making

Decision-Making ü Types of Problems and Decisions ü Decision Making Conditions ü Decision Making Styles

Types of Problems and Decisions • Structured Problems Ø Involve goals that clear. Ø Are familiar (have occurred before). Ø Are easily and completely defined—information about the problem is available and complete. • Programmed Decision Ø A repetitive decision that can be handled by a routine approach. 6– 2

Types of Programmed Decisions • Policy Ø A general guideline for making a decision about a structured problem. Example: Accept all customer-returned merchandise. • Procedure Ø A series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem. Example: Follow all steps for completing merchandise return documentation. • Rule Ø An explicit statement that limits what a manager or employee can or cannot do. Example: Managers must approve all refunds over $50. 00. 6– 3

Problems and Decisions (cont’d) • Unstructured Problems Ø Problems that are new or unusual and for which information is ambiguous or incomplete. Ø Problems that will require custom-made solutions. • Nonprogrammed Decisions Ø Decisions that are unique and nonrecurring. Ø Decisions that generate unique responses. 6– 4

Exhibit 6– 8 Programmed versus Nonprogrammed Decisions 6– 5

Decision-Making Conditions • Certainty Ø A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known. • Risk Ø A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives. 6– 6

Decision-Making Conditions • Uncertainty Ø A condition in which the decision maker does not know the alternatives, the risks associated with each, or the consequences each alternative is likely to have. 6– 7

Decision-Making Styles • Dimensions of Decision-Making Styles Ø Ways of thinking v Rational, orderly, and consistent v Intuitive, creative, and unique Ø Tolerance for ambiguity (Ambiguity: An expression whose meaning cannot be determined from its context) v Low tolerance: require consistency and order v High tolerance: multiple thoughts simultaneously 6– 8

Decision-Making Styles (cont’d) • Types of Decision Makers Ø Directive v Use minimal information and consider few alternatives. Ø Analytic v Make careful decisions in unique situations. Ø Conceptual v Maintain a broad outlook and consider many alternatives in making decisions. Ø Behavioral v Avoid conflict by working well with others and being receptive to suggestions. 6– 9

Exhibit 6– 12 Decision-Making Matrix 6– 10

Exhibit 6– 13 Common Decision-Making Errors and Biases 6– 11

Decision-Making Biases and Errors • Overconfidence Bias Ø Holding unrealistically positive views of one’s self and one’s performance. • Immediate Gratification Bias Ø Choosing alternatives that offer immediate rewards and that to avoid immediate costs. 6– 12

Decision-Making Biases and Errors (cont’d) • Anchoring Effect Ø Fixating on initial information and ignoring subsequent information. • Selective Perception Bias Ø Selecting organizing and interpreting events based on the decision maker’s biased perceptions. • Confirmation Bias Ø Seeking out information that reaffirms past choices and discounting contradictory information. 6– 13

Decision-Making Biases and Errors (cont’d) • Framing Bias Ø Selecting and highlighting certain aspects of a situation while ignoring other aspects. • Availability Bias Ø Losing decision-making objectivity by focusing on the most recent events. • Representation Bias Ø Drawing analogies and seeing identical situations when none exist. • Randomness Bias Ø Creating unfounded meaning out of random events. 6– 14

Decision-Making Biases and Errors (cont’d) • Sunk Costs Errors Ø Forgetting that current actions cannot influence past events and relate only to future consequences. • Self-Serving Bias Ø Taking quick credit for successes and blaming outside factors for failures. • Hindsight Bias Ø Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the -fact). 6– 15