Chapter 12 – Decision Making, Creativity, and Ethics
Questions:
* Is there a right way to make decisions? * How do people actually make decisions? * How can knowledge management improve decision making? * What factors affect group decision making? * How can we get more creative decisions? * What is ethics, and how can it be used for better decision making? * What is corporate social responsibility?
Is there a right way to make decisions? * Decision – the choice made from two or more alternatives * Reaction to a problem or an opportunity * Problem = discrepancy between some current state of affairs and some desired state, requiring alternative course of action * Opportunity = something unplanned happens, giving rise to thoughts about new ways of proceeding * Occurs at all levels of an organization * Rational Decision-Making Process – a six-step decision-making model that describes how individuals should behave in order to maximize some outcome * Rational = refers to choices that are consistent and value maximizing within specified constraints * 6 steps: 1. Define the problem 2. Identify the criteria 3. Allocate weights to the criteria 4. Develop alternatives 5. Evaluate the alternatives 6. Select the best alternative * Assumptions 7. Problem Clarity – the problem is clear and unambiguous. The decision maker is assumed to have complete information regarding the decision situation 8. Known Options – the decision maker can identify all the relevant criteria and list all workable alternatives + aware of all consequences 9. Clear Preference – the criteria and alternatives can be ranked and weighted to reflect their importance 10. Constant Preferences – the specific decision criteria are constant and weights assigned are stable over time 11. No Time or Cost Constraint – the decision maker can obtain full information about criteria and alternatives due to no time or cost constraints 12. Maximum Payoff – the decision maker will choose the alternative that yields the highest perceived value How do people actually make decisions? * In reality, very few decision are made using the Rational Model * Bounded rationality – limitations on a person’s ability to interpret, process, and act on information * When unable to collect and process all the alternatives * Usually, * Make a list of the most conspicuous choices that represent familiar criteria and previously tested solutions * Rather than reviewing all alternatives, individuals settle on “good enough” * Satisfice – to provide a solution that is both satisfactory and sufficient * Intuition decision making – a subconscious process created out of a person’s many experiences * Occurs out of conscious thought * Fast and affectively charged engages the emotions * Should be used a supplement to rational decision making * Judgment Shortcuts * To minimize the effort and avoid difficult trade-offs * Can lead to distortions of rationality * Overconfidence bias – error in judgment that arises from being far too optimistic about one’s own performance * People with weakest intellectual and interpersonal abilities are most likely to suffer from this bias * Anchoring bias – A tendency to fixate on initial information, from which one then fails to adequately adjust for subsequent information * Confirmation bias – the tendency to seek out information that reaffirms past choices an to discount information that contradicts past judgments * Availability bias – the tendency for people to base their judgments on information that is readily available to them rather than complete data * The reason why managers tend to award bonus to recent behaviors * Escalation