Individual Decision Making Session 6. The Link Between Perceptions and Individual Decision Making. Problem A perceived discrepancy between the current state of affairs and a desired state. Perception of the decision maker.
ProblemA perceived discrepancy between the current state of affairs and a desired state.
Perception of the decision maker
DecisionsChoices made from among alternatives developed from data perceived as relevant which lead to a desired state of affairs.
Rational Decision Making Model
Bounded Rationality Model
Describes how individuals should behave in order to maximize some outcome.
Define the problem
Identify the decision criteria
Allocate weights to the criteria
Develop the alternatives
Evaluate the alternatives
Select the best alternatives
No time or cost constraints
Individuals make decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity.
The ability to produce novel and useful ideas.
Three-Component Model of Creativity
Proposition that individual creativity requires expertise, creative-thinking skills, and intrinsic task motivation.
Source: T.M. Amabile, “Motivating Creativity in Organizations,” California Management Review, Fall 1997, p. 43.
Framing Bias –
Tendency to consider risks about gains differently than risks pertaining to losses
Eg- US is preparing for the outbreak of an unusual Asian disease that is expected to kill 600 people. Two alternative programs are proposed.
If Program A is adopted, 200 people will be saved.
If Program B is adopted, 1/3 probability of 600 people being saved and 2/3 probability that nobody will be saved.
Winner’s Curse –
Winning participants in a competitive auction pay too much for the item. Some may underestimate the value and others may overestimate it. Highest bidder overestimates the most. Therefore, unless bidders undervalue, there is a good chance that winner will pay too much.
1. Improving Decision Making through Effective Knowledge Management
2. General Decision Making Styles
A combination of how individuals perceive and respond to information.
Styles vary along two dimensions –
Source: A.J. Rowe and J.D. Boulgarides, Managerial Decision Making, (Upper Saddle River, NJ: Prentice Hall, 1992), p. 29.
Analyze the situation and adjust your decision making style to fit the situation.
Be aware of biases and try to limit their impact.
Combine rational analysis with intuition to increase decision-making effectiveness.
Don’t assume that your specific decision style is appropriate to every situation.
Enhance personal creativity by looking for novel solutions or seeing problems in new ways, and using analogies.
Source: S.P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control of Your Life (Upper Saddle River, NJ: Financial Times/Prentice Hall, 2004), pp. 164–68.
Group Involvement in Decision Making
Advantages and Disadvantages of Group Decision Making
Group Problem Solving Techniques
Creating an environment of participation
Minority Dissent – members comfort of disagreement with other members
Developing a clear understanding of the decision situation
Developing a clear understanding of the requirements for an effective choice
Thoroughly and accurately assessing the positive and negative qualities of alternative solutions
Greater pool of knowledge
Domination by a Vocal Few
Nominal Group Technique
Computer Aided Decision Making