Decision Making Under Uncertainty
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Questions and Answers

What are decision criteria in decision-making?

  • Weights assigned to each criterion
  • Factors that are important and relevant to resolving the problem (correct)
  • Factors that are irrelevant to resolving the problem
  • Alternatives to resolve the problem

    • Why are weights assigned to each decision criterion?

  • To place the criteria in the correct priority order of their importance (correct)
  • To make the decision-making process faster
  • To make the decision-making process more complicated
  • To eliminate some criteria from the decision-making process

    • What is the purpose of Step 2 in the decision-making process?

  • To analyze alternatives
  • To identify decision criteria (correct)
  • To allocate weights to the criteria
  • To develop alternatives

    • What is the purpose of Step 3 in the decision-making process?

    <p>To allocate weights to the criteria</p> Signup and view all the answers

    What is the purpose of Step 4 in the decision-making process?

    <p>To develop alternatives</p> Signup and view all the answers

    What is the purpose of Step 5 in the decision-making process?

    <p>To analyze alternatives</p> Signup and view all the answers

    In Exhibit 6-2, what is the weight assigned to the 'Memory and Storage' criterion?

    <p>10</p> Signup and view all the answers

    What is the purpose of allocating weights to the criteria?

    <p>To prioritize the importance of each criterion</p> Signup and view all the answers

    According to the concept of Bounded Rationality, what do managers do when faced with making a decision?

    <p>Choose the first alternative that satisfactorily solves the problem</p> Signup and view all the answers

    What is the term for an increased commitment to a previous decision despite evidence that it may have been wrong?

    <p>Escalation of commitment</p> Signup and view all the answers

    What is the main difference between maximizing and satisficing?

    <p>Maximizing involves considering all alternatives, satisficing involves choosing the first good enough option</p> Signup and view all the answers

    What is the term for making decisions based on experience, feelings, and accumulated judgment?

    <p>Intuitive decision making</p> Signup and view all the answers

    According to Bounded Rationality, what do managers do when they cannot analyze all information on all alternatives?

    <p>Satisfice rather than maximize</p> Signup and view all the answers

    What is the main assumption of Bounded Rationality?

    <p>Managers are limited by their ability to process information</p> Signup and view all the answers

    What is the result of the escalation of commitment?

    <p>Increased commitment to a previous decision despite evidence that it may have been wrong</p> Signup and view all the answers

    What is the term for choosing the first alternative that satisfactorily solves the problem?

    <p>Satisficing</p> Signup and view all the answers

    What is a characteristic of a structured problem?

    <p>Goals are clear</p> Signup and view all the answers

    What type of decision can be handled by a routine approach?

    <p>Programmed decision</p> Signup and view all the answers

    What is a series of interrelated steps to respond to a structured problem?

    <p>Procedure</p> Signup and view all the answers

    What is an explicit statement that limits what a manager or employee can or cannot do?

    <p>Rule</p> Signup and view all the answers

    What is the term for a decision that involves unclear goals and incomplete information?

    <p>Unstructured decision</p> Signup and view all the answers

    What type of decision-making approach involves maximizing?

    <p>Maximizing</p> Signup and view all the answers

    What is the purpose of a procedure in decision-making?

    <p>To respond to a structured problem</p> Signup and view all the answers

    What is the benefit of a rule in decision-making?

    <p>It permits rapid and fair decisions</p> Signup and view all the answers

    What is the initial step in the decision-making process?

    <p>Identifying a problem</p> Signup and view all the answers

    What is the correct order of evaluating alternatives in the decision-making process?

    <p>Developed, analyzed, selected and well-implemented</p> Signup and view all the answers

    What is the primary characteristic of rational decision making?

    <p>Makes consistent, value-maximizing choices</p> Signup and view all the answers

    What is the primary goal of a manager in the decision-making process?

    <p>To achieve a specific goal</p> Signup and view all the answers

    What is the term for the idea that managers do not make perfectly rational decisions due to cognitive limitations and complexity?

    <p>Bounded rationality</p> Signup and view all the answers

    What is the primary role of a manager in an organization?

    <p>To make decisions in all four managerial functions</p> Signup and view all the answers

    What is the characteristic of a manager's decision-making process?

    <p>Logical and objective</p> Signup and view all the answers

    What is the primary assumption of rational decision making?

    <p>All of the above</p> Signup and view all the answers

    What is the main characteristic of a situation where the decision maker is able to estimate the likelihood of certain outcomes?

    <p>Risk</p> Signup and view all the answers

    What is the term for a guideline for making decisions?

    <p>Policy</p> Signup and view all the answers

    What is the term for a situation where limited information prevents estimation of outcome probabilities?

    <p>Uncertainty</p> Signup and view all the answers

    What is the main difference between risk and uncertainty?

    <p>Risk involves probability estimation, while uncertainty involves no probability estimation</p> Signup and view all the answers

    What is the term for a situation where the decision maker is able to know the outcomes with absolute certainty?

    <p>Certainty</p> Signup and view all the answers

    What is the purpose of decision-making models?

    <p>To provide a structured approach to decision-making</p> Signup and view all the answers

    What is a common challenge faced by decision makers in situations of uncertainty?

    <p>Reliance on intuition and hunches</p> Signup and view all the answers

    What is the term for biases that can affect decision-making?

    <p>Decision-making biases</p> Signup and view all the answers

    Study Notes

    Decision-Making Process

    • The decision-making process involves five steps:
      • Identifying decision criteria
      • Allocating weights to the criteria
      • Developing alternatives
      • Analyzing alternatives
      • Selecting an alternative

    Decision Criteria

    • Decision criteria are factors that are important to resolving the problem
    • Examples of decision criteria include:
      • Costs that will be incurred
      • Risks likely to be encountered
      • Outcomes that are desired

    Allocating Weights to Criteria

    • Decision criteria are not of equal importance
    • Assigning a weight to each criterion places the items in the correct priority order of their importance in the decision-making process

    Developing Alternatives

    • Identifying viable alternatives that can resolve the problem
    • Alternatives are listed without evaluation

    Analyzing Alternatives

    • Appraising each alternative's strengths and weaknesses
    • An alternative's appraisal is based on its ability to resolve the issues identified in steps 2 and 3

    Decision-Making Styles

    • Rational decision making:
      • Managers make consistent, value-maximizing choices with specified constraints
      • Assumptions are that decision makers are perfectly rational, fully objective, and logical
    • Bounded rationality:
      • Managers make decisions rationally, but are limited by their ability to process information
      • Assumptions are that decision makers will not seek out or have knowledge of all alternatives and will satisfice rather than maximize the outcome of their decision
    • Intuitive decision making:
      • Making decisions on the basis of experience, feelings, and accumulated judgment
      • Can complement bounded rational decision making

    Decision-Making Biases

    • Biases affect decision making, including:
      • Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong
      • Satisficing: choosing the first alternative encountered that satisfactorily solves the problem rather than maximizing the outcome of the decision

    Decision-Making Conditions

    • Structured problems:
      • Involve goals that are clear
      • Are familiar and easily and completely defined
    • Programmed decisions:
      • A repetitive decision that can be handled by a routine approach
    • Uncertainty:
      • Limited information prevents estimation of outcome probabilities for alternatives associated with the problem

    Decision-Making Guidelines

    • Policy:
      • A general guide for decision making and action
    • Rule:
      • An explicit statement that limits what a manager or employee can or cannot do
    • Procedure:
      • A series of interrelated steps that a manager can use to respond to a structured problem

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    Description

    This quiz covers decision-making under uncertainty, including limited information, estimation of outcome probabilities, and intuition-based decision making.

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