Sub: DECISION ANALYSIS

UNIT – II
BEHAVIORAL ASPECTS IN DECISION MAKING
By: M Rafeeq

I. Board Framework for Decisions: -

Decision-making is an integral pat of the Management, where explorations of the
behavioural aspects of the decision process were at minimum. In 1950s after development of
decision theory management gained much more and with the emergence of more
sophisticated and powerful tools of mathematical and statistics.

There are two types of framework models:

1) Closed 2) Open.

1) Closed: - This is the classical decision situation, where a decision maker faces a
known set of alternatives and selects one or several such courses of
action by a “rational selection” process. (Rational – based or season)

2) Open: - It parallels the “adaptive or learning” model. This particular kind of

framework is designated to facilitate a more complex view of the
decision process. The act of choice spans many dimensions of
behaviour, rational as well as non-rational aspects.
Both models are not mutually exclusive i.e., they are having same set of basic
decision elements

Decision elements: -

Decision theory is the “Complete” decision model. A decision model to be ‘complete’

means it is Universally applicable and it must solve the most complex as well as simplest
problems.

The six common elements to all decisions are:

1. The state of nature or events - the various possible outcomes for a decision maker,
which are not under the control of decision – maker.
2. The decision maker- the individual or group making a choice is referred to as the
decision maker. The decision maker is influenced by facts of the choice situation
and his environment i.e., social, political and economic forces around him.
3. The goals and ends to be served – In some situations the goals are clearly defined
& operative. In others such as sequential choice situation where choices are
influenced by past choices and outcomes.
4. The relevant alternatives and the set of actions from which a choice will be made.
5. A relation, which produces an ordering of alternatives in some arrangement
6. The choice i.e., the selection of one or some combination of alternatives.
1. “Closed” Decision Models: -

Organizations are goal-oriented systems i.e., they are designed to improve the
planning, problem solving and decision making abilities of individuals to achieve goals.

Therefore the most commonly used & accepted analytical framework for choice
behaviour or decision-making in an organization is the “closed” decision model.

This framework is a concept of rationality rooted to individual choice behaviour.

Individual is faced in a given situation with a number of choices or alternatives or
several possible courses of action each course of action is likely to lead a unique consequence.

We can call individual rational if he takes into account the possible consequence of
actions open to him, according to his estimation and leads to the best or most preferred
consequence.
The ideas rational man makes a choice on the basis of:
1) A known set relevant alternatives with corresponding alternatives.
2) An established rule or relation, which produces an ordering of the alternatives.
3) Maximizing, such as many rewards, income, physical goods or some form of
utility.
Most widely accepted decision models in management are closed frameworks, which
are structured, closed of the decision maker and with the complexity of act of choice.

Eg:- For closed decision making or rational choice.

1. Linear programming problems.
Max Z = 6x1 + 8x2
S+c
4x1 + 6x2 ≤ 8
3x1 + 6x2 ≤ 9
Where
x1, x2 ≥ 0.
- The goals or ends are - Profits (Max)
- The decision makes has feasible alternatives.
- Problem solving algorithms such as the simplex method is also used to
obtain optimal solution.
2. Game Theory

2) “Open” Decision models: -]

In closed system, there are few dimensions of decision environment are
selected and applied to decision process. The decision maker is assumed to a logical,
methodical maximizer.

In open system, its total environment continually influences the dimensions.

In open decision models, an individual cannot weigh all alternatives i.e., decision
maker does not posses the ability to recognize and weigh the alternative choices so he cant’
minimize as done is “closed” decision models.
 There are two types of open decision models:

1. Single – choice “open” decision model.

2. Multiple – choice “open” decision model.

1. Single – choice “open” decision model: -

This model in same ways resembles a dynamic end-means or closed scheme
i.e., the decision is made within the framework of a predetermined goal and
established alternatives.

1 and 3 are compared

level of Take limited Satisfactory

aspiration number of alternatives solution

Period 1 2 3 4

“Search sequence” “Search sequence”

Fig:- A single – choice “Open Model”.

The decision maker passes through three time periods = Period1, Period2 and
Period 3.

Period 1: -

The individual starts out with an idealized goal structure, by designing one or more
goals as a “first approximation” of the “ideal goal” in the structure. The action goals are
considered as representative of the decision maker’s aspiration level.

Period 2: -

The individual engages in search activity and defines a limited number of outcomes
and alternatives where relations are established. The analysis proceeds from loosely defined
rules of approximation, because it take only limited umber of outcomes and alternatives,
which defines to establish a further search towards a solution.

Period 3: -
A search among limited alternatives is undertaken to find a “satisfactory” as solution,
contrasted with an “optimal” solution. “Satisfactory” is defined in terms of the aspiration
level or action goals.

Difference between “Closed” and “Open” decision models.

1. An aspiration level replaces predetermined goals.

2. All alternatives and outcomes are not predetermined; the relationship between
alternatives and outcomes are determined.
3. The ordering of all alternatives is replaced by a search routine, which considers
fewer than all alternatives.
4. The individual does not maximise but seeks to find a solution to “satisfy” an
aspiration level.

In a single choice situation, the “open” models offer a “deeper description n” of

the choice process than “closed” decision models.

2. Multiple – choice “open model” : -

This model is a hierarchy of “single-decisions”, where each successive
decision is an attempt to improve the outcome in light of new information gained
in the previous decisions. It provides a highly relative simulation of human
problem - solving.

The key element in multiple-choice open models the attainment discrepancy or

the difference between the levels of aspiration and achievement.

In outcome is identified at aspiration level, which can be satisfactory

(unsatisfactory) successful (unsuccessful) according to the magnitude of the
attainment discrepancy. In this mode only significant discrepancies (plus or minus)
are considered.

Stage – 1 Stage – 2

1. Aspiration 1. Aspiration level

level (upward adjustment)
2. Search for limited 2. Search for limited
No. of alternatives Attainment Attainment No. of alternatives
Discrepancy discrepancy (smaller range)

3. Searches for “Satisfactory” 3. Search for “Satisfactory”

Solution. Solution.

Stage – 3

1. Aspiration level]
(Downward adjustment)
2. Search for limited No.of alternatives
(larger range)
Attainment
Discrepancy.
3. Search for “Satisfactory”
Solutions.
 The attainment discrepancy controls to reach a stable solution in “open
models”. In the above fig: it is explicitly assumed that a “plus” discrepancy increases
the level of aspiration and decreases the range of search for solutions.

A negative discrepancy decreases the level of aspirations and broadens the range of
search. The decision and aspiration level fluctuates between positions of minimum
and maximum potential.

This model is an adaptive one, where decision maker reacts to the outcome by
adjusting his goals (aspiration level) and hence his definition is of an acceptable
outcome.

Limitations of open decision model: -

It is difficult to discover and measure attributes of complex choice situations.

II. Utility of decision Support Systems :-

The advancement in computer technology have witnessed development of DSS
(Decision Support Systems). In a DSS, a system is developed to Aid Management in
improving its decision – making. The presence of such a system often implies the use
of computer to assist the managers in decision making for semi-structured problems.

DSS is interactive and allows the manager the use of what if questions, so that
a manager can try for different decisions. Its emphasis is an effectiveness of decision
– making rather than efficiency.

Break-even analysis, profitability decisions, decision tables, expected values,

decision trees etc are all typical DSS models.