BEHAVIORAL DECISION MAKING

Dr. rer.pol. Heti Mulyati, S.TP, MT

Factors that affecting decision making
 How can the decision-making
process be managed?

Ø Choosing problems to address.

– Ask and answer the following questions:
• Is the problem easy to deal with?
• Might the problem resolve itself?
• Is this my decision to make?
• Is this a solvable problem within the context of the
organization?

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 How can the decision-making
process be managed?
Reasons for decision making failure.
– Managers too often copy others’ choices and
try to sell them to subordinates.
– Managers tend to emphasize problems and
solutions rather than successful
implementation.
– Managers use participation too infrequently.

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The Strategy Pyramid
The players in decisions
A Decision Tree
Influence Diagram
 The Decision Theories

Ø Classical decision theory

– Views the decision maker as acting in a world
of complete certainty.
Ø Behavioral decision theory
– Accepts a world with bounded rationality and
views the decision maker as acting only in
terms of what he/she perceives about a given
situation.

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 The Decision Theories

Classical decision theory.

– The classical decision maker:
• Faces a clearly defined problem.
• Knows all possible action alternatives and their
consequences.
• Chooses the optimum alternative.
– Is often used as a model of how managers
should make decisions.

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 The Decision Theories

Behavioral decision theory

– Recognizes that human beings operate with:

• Cognitive limitations.
• Bounded rationality.
– The behavioral decision maker:
• Faces a problem that is not clearly defined.
• Has limited knowledge of possible action
alternatives and their consequences.
• Chooses a satisfactory alternative.

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 The Decision Theories

Ø Classical decision theory:

– May not fit well in a chaotic world.
– Can be used toward the bottom of many
firms, even most high-tech firms.
Ø Behavioral decision theory:
– Fits with a chaotic world of uncertain
conditions and limited information.
– Encourages satisficing decision making.

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 What are the useful
decision making models?
Ø Decision making realities.
– Managers face complex choice processes.
– Decision making information may not be
available.
– Bounded rationality and cognitive limitations
affect the way people define problems,
identify alternatives, and choose preferred
solutions.

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 What are the useful
decision making models?
Ø Decision making realities —
– Most decision making in organizations goes
beyond step-by-step rational choice.
– Most decision making in organizations falls
somewhere between the highly rational and
the highly chaotic.
– Decisions must be made under risk and
uncertainty.

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 What are the useful
decision making models?
Ø Decision making realities — cont.
– Decisions must be made to solve nonroutine
problems.
– Decisions must must be made under time
pressures and information limitations.
– Decisions should be ethical.

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 How do intuition, judgment, and
creativity affect decision making?

Ø Intuition.
– The ability to know or recognize quickly and
readily the possibilities of a given situation.
– A key element of decision making under risk
and uncertainty.

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 How do intuition, judgment, and
creativity affect decision making?
Ø Judgmental heuristics.
– Simplifying strategies or “rules of thumb” used
to make decisions.
– Makes it easier to to deal with uncertainty and
limited information.
– Can lead to systematic errors that affect the
quality and/or ethics of decisions.

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 How do intuition, judgment, and
creativity affect decision making?

Ø Types of heuristics.
– Availability heuristic — bases a decision on recent
events relating to the situation at hand.
– Representativeness heuristic — bases a decision on
similarities between the situation at hand and
stereotypes of similar occurrences.
– Anchoring and adjustment heuristic — bases a
decision on incremental adjustments to an initial value
determined by historical precedent or some reference
point.

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 How do intuition, judgment, and
creativity affect decision making?

Ø Creativity factors.
– Creativity in decision making involves the
development of unique and novel responses
to problems and opportunities.
– Creativity is especially important in a dynamic
environment full of nonroutine problems.

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 How can the decision-making
process be managed?
Ø Deciding who should participate.
– Authority decisions.
• Made by the manager or team leader without involving other
people and by using information that he/she possesses.
– Consultative decisions.
• Made by one individual after seeking input from group
members.
– Group decisions.
• Made by all members of the group.

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 How can the decision-making
process be managed?
– Decision-making method used should fit the problem.
– In choosing among individual, consultative, or group
methods, managers should analyze:
• Quality requirements.
• Availability and location of relevant information.
• Commitments required to implement decision.
• Available time.

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 How can the decision-making
process be managed?
Ø Knowing when to quit — eliminating
escalating commitments
– Escalating commitment reflects the
continuation and renewed efforts on a
previously chosen course of action even when
feedback suggests that it is failing.
– Eliminating escalating commitment requires
self-discipline to admit mistakes and change
direction.

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 How do technology, culture, and
ethics influence decision making?
Ø Increasingly complex problems and
opportunities face decision makers in
organizations due to various workplace
trends.
Ø These workplace trends are changing the
who, when, where, and how of decision
making.

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 How do technology, culture, and
ethics influence decision making?
Ø Information technology and decision making.
– Artificial intelligence.
• The study of how computers can be programmed to think like
human beings.
• Will allow computers to displace many decision makers.

– Expert systems that support decision making by

following “either-or” rules to make deductions.

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 How do technology, culture, and
ethics influence decision making?
Ø Information technology and decision
making — cont.
– Fuzzy logic and neural networks that reason
inductively.
– Computer support for decision making.
• The Internet.
• Company intranets.
• Decision support software to facilitate virtual
teamwork.

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 How do technology, culture, and
ethics influence decision making?
Ø Information technology and decision
making — cont.
– Information technology does not deal with
issues raised by the garbage can model.

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 How do technology, culture, and
ethics influence decision making?

Ø Cultural factors and decision making.

– Culture is “the way in which a group of people solves
problems.”
– Other cultures place less emphasis on individual
choice than on developing implementations that work.
– The most important impact of culture on decision
making concerns which issues are elevated to the
status of problems solvable with the firm.

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 How do technology, culture, and
ethics influence decision making?
Ø Ethical issues and decision making.
– Ethical dilemma.
• A situation in which a person must decide whether
or not to do something that, although personally or
organizationally beneficial, may be considered
unethical and perhaps illegal.
– Ethical dilemmas are often associated with:
• Risk and uncertainty.
• Nonroutine problem situations.

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 How do technology, culture, and
ethics influence decision making?
Ø Ethical decision-making checklist.
– Is my action legal?
– Is it right?
– Is it beneficial?
– How would I feel if my family found out about
this?
– How would I feel if my decision were printed
in the local newspaper?

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 How do technology, culture, and
ethics influence decision making?

Ø Suggestions for integrating ethical decision

making into the firm.
– Develop a code of ethics and follow it.
– Establish procedures for reporting violations.
– Involve employees in identifying ethical issues.
– Monitor ethical performance.
– Reward ethical behavior.
– Publicize ethical efforts.

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 How do technology, culture, and
ethics influence decision making?
Ø Implications of ethics for decision making.
– Morality is involved in:
• Choosing problems.
• Deciding who should be involved in making
decisions.
• Estimating the impacts of decision alternatives.
• Selecting an alternative for implementation.
– Moral conduct does not arise from after-the-
fact embarrassment.

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