Decision Making Approaches and Models

Study Notes

Rationality involves making choices that are logical, consistent, and maximize value.
- Assumes decision makers are objective, problems are clear, and all possible alternatives and consequences are known.
Bounded Rationality recognizes that decision making is rational, but limited by an individual's ability to process information.
- Decision makers "satisfice" (accept good enough solutions).
Intuition relies on experience, feelings, and accumulated judgment.
Evidence-Based Management (EBMgt) uses the best available evidence to improve management practices.

Decision Making involves choosing from alternatives.
Step 1: Identify a Problem: Recognize the discrepancy between the current state and the desired state.
- Example: Sales reps need new laptops because their old ones are outdated.
Step 2: Identify Decision Criteria: Determine relevant factors for solving the problem.
- Example: Memory, display quality, battery life, warranty, carrying weight.
Step 3: Allocate Weights to the Criteria: Prioritize criteria based on their importance.
- Example: Weight memory and battery life higher for sales reps.
Step 4: Develop Alternatives: List viable options that could solve the problem.
- Example: Identify 8 different laptop models.
Step 5: Analyze Alternatives: Evaluate each alternative's strengths and weaknesses based on criteria and weights.
Step 6: Select an Alternative: Choose the alternative with the highest total weight.
Step 7: Implement the Alternative: Put the chosen alternative into action and gain commitment from those involved.
Step 8: Evaluate Decision Effectiveness: Judge the outcome based on how effectively the problem was resolved.

Intuition can be helpful, but can also lead to decisions based on emotions and biases.
- Confirmation Bias: Seeking information that confirms preconceived beliefs.
- Availability Heuristic: Overestimating the likelihood of events easily recalled or emotionally vivid.
- Anchoring: Being overly influenced by the first piece of information.

Rationality - a logical and consistent decision-making process that maximizes value.
- Assumes decision makers are fully objective and logical.
- Problem is clear and unambiguous.
- Decision maker has a clear goal and knows all alternatives and consequences.
Rational Decision-Making Process Model - a step-by-step approach to making decisions
- Step 1: Identify a Problem - the discrepancy between a desired and existing state.
- Step 2: Identify Decision Criteria - factors relevant to resolving the problem.
- Step 3: Allocate Weights to the Criteria - prioritize criteria based on importance.
- Step 4: Develop Alternatives - list possible solutions to the problem.
- Step 5: Analyze Alternatives - evaluate the strengths and weaknesses of each alternative.
- Step 6: Select an Alternative - choose the alternative with the highest total weighted value.
- Step 7: Implement the Alternative - put the chosen solution into action.
- Step 8: Evaluate Decision Effectiveness - judge the outcome and effectiveness of the chosen alternative.
Bounded Rationality - a limited form of rationality that accounts for an individual's processing limitations.
- Satisfice - accepting a solution that meets a minimum acceptable standard, even if it isn't the absolute best.
Intuition - making decisions based on experience, feelings, and accumulated judgment
Evidence-Based Management - using the best available evidence to improve management practices.

Structured Problems - problems with clear and well-defined goals and solutions.
Programmed Decisions - routine, repetitive decisions that can be handled by established procedures.
Unstructured Problems - problems with ambiguous goals and solutions.
Non-Programmed Decisions - unique and non-recurring problems that require a custom solution.

Overconfidence Bias - overestimating one's own abilities and knowledge.
Anchoring Bias - being overly influenced by the first piece of information received.
Confirmation Bias - seeking out information that confirms existing beliefs and ignoring contradictory information.
Availability Bias - overestimating the likelihood of events that are easily recalled.
Escalation of Commitment - continuing to invest resources in a failing course of action.
Hindsight Bias - believing that an event was more predictable after it has happened.
Framing Bias - being influenced by the way a problem is presented.
Randomness Error - attributing meaning to random events.
Sunk Cost Error - continuing to invest resources in a project because of past investments.

Critical Thinking - analyzing information and ideas objectively.
Creativity - coming up with new and innovative solutions.
Decision Support Systems - computer-based systems that help decision makers analyze data and make better decisions.
Group Decision Making - involving multiple people in the decision-making process.
Collaboration Tools - technology that facilitates communication and shared decision-making.