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Decision Making: Powerpoint Presentation by Charlie Cook All Rights Reserved

decision making process , biases and errors

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zeeshan afzal
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© © All Rights Reserved
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155 views21 pages

Decision Making: Powerpoint Presentation by Charlie Cook All Rights Reserved

decision making process , biases and errors

Uploaded by

zeeshan afzal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Part 2: Planning

Decision
Making

PowerPoint Presentation by Charlie Cook


Copyright © 2004 Prentice Hall, Inc.
All rights reserved.
• Decision
A choice among two or more alternatives
• Problem
A discrepancy between an existing and
a desired state of affairs
• Decision criteria
Factors that are relevant in a decision

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–2


•Decision-making process
A set of eight steps that
includes identifying a problem,
selecting a solution, and
evaluating the effectiveness of
the solution

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–3


The Decision-Making Process

EXHIBIT 4.2
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–4
Criteria and Weight in Car-Buying Decision
(Scale of 1 to 10)

CRITERION WEIGHT
Price 10
Interior comfort 8
Durability 5
Repair record 5
Performance 3
Handling 1

EXHIBIT 4.3
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–5
Examples of Planning-Function Decisions

 What are long-term objectives?


 What strategies will best achieve those objectives?
 What should the organization’s short-term objectives
be?
 What is the most efficient means of completing
tasks?
 What might the competition be considering?
 What budgets are needed to complete department
tasks?
 How difficult should individual goals be?
EXHIBIT 4.1
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–6
The four ways managers make decisions!

• Rational decision making


• Describes choices that are logical and consistent
and maximize value.
• Bounded rationality
• Decision making that’s rational, but limited
(bounded) by an individual’s ability to process
information
• Satisfice
 Making a “good enough” decision

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–7


Assumptions of Rationality

EXHIBIT 4.6
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–8
• Intuitive decision making
• It’s making decisions on the basis of experience,
feelings, and accumulated judgment.

• Making Decisions: The Role of Evidence-


Based Management
• The “systematic use of the best available
evidence to improve management practice.”

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–9


Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–10
How Do Problems Differ?
• Well-structured problems
 Straightforward, familiar, easily defined problems
• Ill-structured problems
 New problems in which information is ambiguous or
incomplete
• Programmed decision
 A repetitive decision that can be handled by a routine
approach
• Nonprogrammed decisions
 Decisions that must be custom-made to solve unique and
nonrecurring problems

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–11


Types of Problems, Types of Decisions, and
Level in the Organization

EXHIBIT 4.8
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–12
Decision-Making Styles

• linear thinking style.


• Decision style characterized by a person’s
preference for using external data and facts and
processing this information through rational, logical
thinking to guide decisions and actions.
• Nonlinear thinking style.
• Decision style characterized by a preference for
internal sources of information (feelings and
intuition) and processing this information with
internal insights, feelings, and hunches to guide
decisions and actions.
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–13
Decision-Making Biases and Errors
• Heuristics: Using judgmental shortcuts or of thumb.
• Overconfidence bias.
• When decision makers tend to think they know more than they do or hold
unrealistically positive views of themselves and their performance.
• Immediate gratification bias
• describes decision makers who tend to want immediate rewards and to
avoid immediate costs.
• Anchoring effect
• describes how decision makers fixate on initial information as a starting
point and then, once set, fail to adequately adjust for subsequent
information.
• First impressions, ideas, prices, and estimates carry unwarranted weight
relative to information received later.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–14


• Selective perception bias.
• When decision makers selectively organize and interpret
events based on their biased perceptions.

• Confirmation bias.
• These people tend to accept at face value information
that confirms their preconceived views and are critical
and skeptical of information that challenges these views.

• Framing bias
• When decision makers select and highlight certain
aspects of a situation while excluding others.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–15


• Availability bias
• It happens when decisions makers tend to
remember events that are the most recent and
vivid in their memory.
• Representation bias
• Managers exhibiting this bias draw analogies
and see identical situations where they don’t
exist.
• Randomness bias
• It describes the actions of decision makers who
try to create meaning out of random events.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–16


Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–17
• Sunk costs error
• It occurs when decision makers forget that
current choices can’t correct the past.
• Self-serving bias
• Decision makers who are quick to take credit for
their successes and to blame failure on outside
factors.
• Hindsight bias
• It is the tendency for decision makers to falsely
believe that they would have accurately
predicted the outcome of an event once that
outcome is actually known.
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–18
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–19
• The temptation to go out with your friends, even
when you have some pending work to do.
• You bought a book because it had 20% off to the
price you first saw on the book.
• During a conflict, trying to hear what you want to
hear instead of any other opinion.
• Joining pages of your favorite political party on
facebook.
• A person thinking that he can pass a test without
studying, instead fails the test.
• A person thinking that he is the most valuable
person in an organization but he is not because
anyone can do his job
4–20
• Most people prefer a situation where 279 people
live out of 416 instead of a situation where 137
people die out of 416 total.
• You and your friends order too much food, but
still you eat it even when you know it is not
healthy because you’ve paid a large sum of
money.
• When a new product ABC at a company XYZ
failed, it’s competitor told his subordinates, well I
knew it all along.
• Wednesday is my lucky day, I buy stocks only on
Wednesdays.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–21

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