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Foundations of Decision Making

Foundations of Decision Making. Learning Outcomes. Describe the decision-making process Analyze the rational decision-making model Explain the limits of rationality Learn how certainty , risk , and uncertainty relate to decision making Discuss the bounded-rational decision maker.

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Foundations of Decision Making

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  1. Foundations of Decision Making Chapter 4

  2. Learning Outcomes • Describe the decision-making process • Analyze the rational decision-making model • Explain the limits of rationality • Learn how certainty, risk, and uncertainty relate to decision making • Discuss the bounded-rational decision maker Chapter 4

  3. Learning Outcomes • Identify the two types of decision problems and the two decisions that solve them • Learn how heuristics affect decision making • Identify four decision-making styles • Weigh the pros and cons of group decisions • Learn three ways to improve group decision making Chapter 4

  4. The Decision-Making Process Identification of a Problem I need to buy a new car. • Price • Interior Comfort • Durability • Repair Record • Performance Identification of Decision Criteria Allocation of Weights to Criteria • Price • Interior Comfort • Durability • Repair Record • Performance 10 8 6 4 2 Chapter 4

  5. Toyota Dodge Audi Isuzu Chevy Ford Mazda Jeep Appraisal of Decision Results Development of Alternatives • Price • Comfort • Durability • Repair Record • Performance Toyota Dodge Analysis of Alternatives Ford Audi Jeep Isuzu Mazda Chevy Selection of an Alternative The Toyota is the best. Implementation of the Alternative Chapter 4

  6. Problem Clarity Constant Preferences Single Goal Assumptions of Rational Decision Making No Constraints Known Options Maximum Payoff Clear Preferences Chapter 4

  7. A Model of Bounded Rationality Ascertain the Need for a Decision Set “Satisficing” Criteria Identify a Limited Set of Alternatives Compare Alternatives Against Criteria Select the First “Good Enough” Choice Yes Simplify the Problem Expand Search for Alternatives A “Satisficing” Alternative Exists No Chapter 4

  8. Common Errorsin Decision Making Representative Heuristic Availability Heuristic Escalation of Commitment Chapter 4

  9. How Do Problems Differ? Well- Structured Poorly Structured Programmed Decisions Nonprogrammed Decisions Chapter 4

  10. Sequential Procedures Making Programmed Decisions Specific Rules Guiding Policies Chapter 4

  11. Integrating Decision Making Poorly Structured Top Nonprogrammed Decisions Type of Problem Level in Organization Programmed Decisions Well-Structured Lower Chapter 4

  12. Decision-Making Styles High Analytic Conceptual Tolerance for Ambiguity Directive Behavioral Low Way of Thinking Rational Intuitive Chapter 4

  13. More information More alternatives Increased acceptance Legitimacy Time-consuming Minority domination Pressures to conform Unclear responsibility Group Decision Making Advantages Disadvantages Chapter 4

  14. Individual Versus Group Decision Making Strengths of Individuals Strengths of Groups Speed Input and Diversity Clear Accountability Higher Quality Decisions Consistent Values Increased Acceptance Chapter 4

  15. Brainstorming Group Decision Making Nominal Group Technique Electronic Meetings Chapter 4

  16. National Culture and Decision Making Decision Style Degree of Risk Chapter 4

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