HRM 601 Organizational Behavior

Session 9

Decision Making In Organizations

General Analytical Model of Decision Making

• Conception of decision making as a series of analytical steps

• The model focuses on two aspects:– identifying the problem– implementing the solution

Steps in the Analytical Model

ProblemIdentification Define

Objectives

Predecision

GenerateAlternatives

EvaluateAlternatives

Make a choice

Implementchoice

Evaluate choice

Programmed vs Non-Programmed Decisions

• Programmed decisions are highly routine decisions usually made by lower level workers alone. (Time to re-order toner for the copy machine)

• Non-programmed decisions -- Decisions about a novel problem. There is no set course of action. (Identifying the cause of some rare disease)

Certain vs Uncertain Decisions

• The degree of risk involved in making the decision. The means the continuum ranges from– complete uncertainty (no risk) to– complete uncertainty (high risk)

• The point is to minimize risk by obtaining information

Rational-Economic Model

• A model in which decision makers consider all possible solutions before selecting the optimal one. Presumes

• We are entirely rational and logical

• We have complete and perfect information

• We can process all this information

Bounded Rationality Model

• A model that realizes that humans have a limited view of the problem, do not have perfect information or all the alternatives

• We accept a solution that is good enough

• This is called satisficing or settling for the decision that meets the criteria but may not meet them optimally

Image Theory

• Following your gut instinct. This model says we make decisions intuitively, by going through a two-step process. Step one is the compatibility test. Does the alternative feel right?

• Step 2: Profitability test - Which of the alternatives that feel right is best?

Framing Effects

• (from Bazerman, 1983): A large car manufacturer has recently bee hit with a number of economic difficulties and it appears as if three plants need to be closed and 6,000 employees laid off. The vice-president of production has been exploring alternative plans to avoid this crisis. She has developed two plan

• Plan A: This plan saves one of the three plants and 2,000 jobs

• Plan B: This plan has a 1/3 probability of saving al l three plants and all 6,000 jobs but a 2/3 probability of saving no plants and no jobs.

Framing Effects

• A large car manufacturer has recently bee hit with a number of economic difficulties and it appears as if three plants need to be closed and 6,000 employees laid off. The vice-president of production has been exploring alternative plans to avoid this crisis. She has developed two plan

• Plan C: This plan will result in the loss of two of the three plants and 4,000 jobs.

• Plan B: This plan has a 2/3 probability of resulting in the loss of all three plants and all 6,000 jobs but a 1/3 probability of losing no plants and no jobs

More Framing

• A. A sure gain of $240.

• B. A 25% chance to gain $1,000 and a 75% chance to gain nothing

• C. A sure loss of $750

• D. A 75% chance to lose $1,000 and a 25% chance to lose nothing

Availability Heuristic

• The tendency for people to base decisions on information that is easily accessed

• Which is riskier?

• A. Driving a car on a 400 mile trip

• B. Flying on a 400 mile trip on a commercial flight

Availability Heuristic

• The tendency for people to base decisions on information that is easily accessed

• Which is riskier?

• A. Driving a car on a 400 mile trip

• B. Flying on a 400 mile trip on a commercial flight

Representativeness Heuristic

• The tendency to perceive other in stereotypical ways if they appear to be typical of the category to which they belong

• Mark is finishing his MBS at a prestigious university. He is very interested in the arts and at one time considered a career as a musician. Mark is most likely to take a job

• A. In the management of the arts• B. With a management consulting firm

Other Cognitive Biases

• Anchoring -- People develop estimates based on initial information. When that information turns out to be wrong, people make adjustments to their decisions but not enough to overcome the impact of the initial piece of information.

• Confirmation bias -- We tend to focus only on evidence that supports our decisions.

• Overconfidence -- Because of confirmation bias, we are more confident than we are correct.

Group Decisions

• Advantages– Pooled knowledge and

information– Specialization of labor.– Scan the environment – Decision acceptance and

commitment– Diffusion of responsibility

Group Decisions

• Disadvantages– Time to reach a

decision– Conflict– Domination

Groups Exceed Individuals

Complex Problems

1. Members have complementary skills2. Ideas are communicated & accepted

Groups are betterthan best member

Individuals Exceed Groups

Simple Problem

No one in the group has the correct answer

Group is worse than worst member

Group Process in Decision Making

• Handling risk– Risky shift– Conservative shift

• Decision valence

Group Think

Symptoms

Outcomes

Antecedents

Group Think

• The tendency of highly cohesive groups to conform to group pressures and to suspend reality testing and engage in consensus seeking.

• Antecedents– .High cohesiveness– Group structure– Stressful situations

Group Think Cont.

• Symptoms– Overestimation of the group– Close-mindedness– Increased pressure for uniformity

• Consequences– Defective decision making– High probability of a bad decision

• Preventive tactics

Group Think Cont.

• Symptoms– Overestimation of the group– Close-mindedness– Increased pressure for uniformity

• Consequences– Defective decision making– High probability of a bad decision

• Preventive tactics

Improving the Effectiveness of Group

Decisions

• Group training• Brainstorming• Delphi technique• Nominal group technique• Managing controversy • Electronic groups

Group Training

• Problem stating in an objective manner• Providing and sharing relevant information• Drawing out group members• Preventing domination • Avoid moving to evaluation prematurely; • Stimulating discussion and clarify points;

• Summarizing to mark group progress.

Group Training, Cont.

• Training also reduces 3 problems• Unconflicted adherence• Defensive avoidance• Hyper-vigilance

Delphi Technique

• Enlist cooperation of experts and propose problem

• Experts record solutions

• Solutions are compiled and shared with others

• Experts comment on others’ solutions

• Solutions compiled and consensus sought

Nominal Group Technique

• Group gathers to hear problem

• Participants write down ideas privately

• All ideas are presented on a chart

• Each idea is discussed by group members

• Members privately rank ideas

• Highest ranked idea is the solution