Beyond Rational Decision Making

Brian Whitworth

1. Introduction

Rational Decision Making:

UUtility theory: selecting options with best payoffs

GGame theory: multiple participants in conflict

MMulti-criteria decision analysis (MCDA): multiple,

and conflicting criteria

BBayesian Analysis: probabilistic information

Why do group managers

usually ignore decision

modelling ?

Group

Answer A: People are stubborn, stupid and resist advances

Answer B: Such models leave out some important factors

1. Introduction

Decision software tools exist:Personal Decision Explorer

1. Introduction

GroupGroup

1. Introduction

Individual

Success stories: Paris metro renovation

• Chemical plant site location• HR: appointing chair of department

Failure or even catastrophe:• scarce resource allocations • Chernobyl nuclear experiment•New Jersey DMV testing fiasco

Social

1. Introduction

• Identify the assumptions of rational decision making

• Understand how socio-psychological processes allow managers to operate beyond these boundaries

• Develop groupware that allows computer-mediated groups to make decisions in realistic business settings

Aim:

• Design communication and data structures to support these processes

• Define those which commonly fail in a business setting

2. Assumptions: Elements

• Alternatives (Xi .. Xj) Behavioral choices leading to expected

outcomes

• Criteria (Cm .. Cn) Outcome evaluation measures

• Model (M): A predictive logic, given information

• Information (IA .. I@) Information relevant to criterion outcomes

• Analysis (A) Method of evaluating expected outcomes

by the criteria • Decider (D) Entity making the decision

The elements of rational decision making:

xf = R (X, C, M, I, A, D)

Figure 1.

RATIONAL

ANALYSIS

Decision

IA

IB

IC

ACTION

OUTCOME

A

B

Ce.g. to open an overseas branch?

Information

MODEL ALTERNATIVES DECIDER

CRITERIA

Alternatives assumed to be

1. Given. Where the alternatives are not known or not

well defined the problem is undefined. Rational decision

making fails.

2. Not a factor in the outcome. Where the decision

action is a factor in the decision, the problem is

recursive. Rational decision making may become

undefined.

2.1 Assumptions

Criteria assumed to be

1. Given. Where the criteria are not known or not well

defined the problem is equivocal. Rational decision

making fails.

2.2 Assumptions

Predictive model assumed to be

1. Valid. Where the model is invalid, or ignores relevant

information, the problem is misunderstood. Rational

decision making may fail, especially in sensitive

situations.

2.3 Assumptions

Information assumed to be

1. Available. Where the required information cannot be

obtained, the decider is uninformed. Rational decision

making may fail if the information fed into it is incomplete.

2. Valid. Where the required information is invalid, the

decider is misinformed. Invalid decisions may arise if the

information fed into the process is invalid.

3. Gatherable without altering the situation. Where other

people may judge gathering of information, which may

change the situation, it can be said to be political.

2.4 Assumptions

Analysis is assumed to be

1. Timely. Where the situation changes significantly during

the time taken for analysis, the problem is mobile.

2.5 Assumptions

Decider is assumed to be

1. Unitary. Where the decider is not unitary, as in any

group decision, there may be conflicting views of the

decision criteria, choice alternatives, predictive models,

and information. Situations where the decision entity is not

unitary, and in conflict regarding the elements of rational

analysis, can be called decider conflicted. E.g. US Steel.

In this case rational analysis becomes undefined.

2.6 Assumptions

Problems which fall beyond rational analysis

1. Undefined. Alternatives not defined

2. Recursive. Decision action is an outcome factor

3. Equivocal. No defined criteria.

4. Mobile. Changes in the time taken for decision.

5. Misunderstood. Predictive model is invalid.

6. Uninformed . Relevant information not available.

7. Misinformed. Available information not valid.

8. Political. Gathering information changes the situation

9. Conflicted. Decision entity is not unitary.

3.1 Summary of Assumptions

Problems common in business

6. Uninformed . Relevant information not available.

7. Misinformed. Available information not valid.

8. Political. Gathering information changes the situation

9. Conflicted. Decision entity is not unitary.

3.1 Summary of Assumptions

Problem causes

1. People. People are the primary sources and

transmitters of information.

2. Groups. Most decisions are made in or for groups.

3.2 C3P Model

It makes sense for decision makers to have processes

that deal with people and groups

(as now suggested by the C3P model)

RATIONAL ANALYSIS

ACTION

PHYSICAL OUTCOME

DECISION ENTITY

Group Outcome

INF

OR

MA

TIO

N S

OU

RC

ES

Interpersonal Outcome

Task Outcome

Interpersonal Process

Group Process

Cognitive Model

• Resolve task information: Informational influence (individual)

• Relating to others: Personal influence (dyadic)

• Representing the group: Normative influence (group)

Resolve task information

• Individual level• Values reasons and truth• One-way, one-to-many• Factual information• Anonymous is ok• Resolve logic problems • Work setting

Relate to others

• Dyadic level• Values relationships• Two-way, one-to-one• Sender information • Anonymous not ok• Build friendships• Informal setting

Represent the group

• Group level• Values unity and agreement• Two-way, many-to-many • Group position information• Anonymous ok• Enacts agreement• Group action

• Identity - the idea of “self” (a cognition)

• Behavior conforms to identity

• Groups form a group identity

• Group members take the group identity into their own identity

• Common identity gives common behavior

We identify with groups, not the people in them

Social identity theory

Why managers don’t use rational decision making

A human judgement based imperfectly on all three

processes is better than a perfect implementation of

one process alone.

3.2

Groupware support

Level I Support rational task analysis and information exchange

Level II Support I, plus personal relationships

Level III Support II, plus groups, norms & social structures

I

I IIII

The Tragedy of the Commons

INDIVIDUAL CHOICES• Graze: Some benefit• Not graze: No benefit

The commons is destroyed and all lose

GROUP CHOICES

• All graze: Resource destroyed!

• None graze: Excess growth

• Some graze: Managed

The commons is preserved and all benefit

Changing the decision entity changes the decision!

Recommend

Design groupware to encourage individuals to change the decision entity

• Group feedback within parties• Providing an area for agreed statements• Rules for items accepted into agreed area• Methods for getting items into agreed area•Recognition that agreed area represents the only area of production in negotiations.

Conclusions

• Despite evidence of human biases, • Business use of rational decision tools is minimal,• As most problems contradict their assumptions • People and groups cause the major contradictions• Social processes are designed to deal with them• Managers apply three processes simultaneously• Groupware should do likewise• Tragedy of commons due to individual rationality• Only forming a group solves the problem• It is irrational for the group to destroy its commons