Decision Making


Approaches in decision making

  1. Rationality Approach – Logical, rational, Consistent with objectives, value maximizing.
  2. Bounded Rationality: Decision making that’s rational but limited (bounded) by an individual’s ability to process information. They are rational within limits.

Satisfying – making a decision, which is `good enough’ not necessarily the best.

Escalation of commitment: High commitment to a previous decision despite evidence it may be a poor decision.

  1. Intuitive Decision Making: A survey (Miller and Ireland) that half of the executives used intuition more often than formal analysis to run their companies. A study (Seo and Barrett) show that managers who experienced intense feelings and emotions achieved higher decision- making performance.


Types of Decisions

  1. Structured or programmed decision (generally if the problem is easily defined and complete)
    1. Repetitive in nature, Developing alternative generally not possible.
    2. Procedures, rules and policies to handle.
  2. Unstructured problems and non-programmed decisions.
    1. New type
    2. Ambiguous information
    3. Non-recurring
    4. Custom made solutions


Twelve Decision Making Errors/Biases

  1. Over Confidence  (When they hold unrealistically + positive views
  2. Immediate gratification (They want immediate rewards)
  3. Anchoring effect (When they fixate on initial information and are unable to adjust or change)
  4. Selective Perception (When they selectively interpret data events)
  5. Confirmation (Base their decision on past decision)
  6. Framing (Decision by drawing attention to specific information)
  7. Availability (Considering information which they remember or more recent)
  8. Representation (Consider analogies and identical situations)
  9. Randomness (Create meaning out of random events)
  10. Sunk costs (forget that current choices cannot correct the past)
  11. Self serving (To take credit for their successes)
  12. Hind sight (Decision to say that they could have accurately predicted the outcomes).


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