Judgment in Managerial Decision Making Chapter 1

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Questions and Answers

What is decision making?

Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternatives.

What is satisficing in decision making?

Satisficing is a decision-making strategy that attempts to meet an acceptability threshold.

What does bounded rationality refer to?

Bounded rationality is the idea that individuals' rationality in decision-making is limited by available information, cognitive limitations, and time constraints.

Define negotiation.

Negotiation is a dialogue between two or more parties intended to reach an understanding or produce an agreement. Signup and view all the answers

What is rationality in philosophy?

Rationality is the exercise of reason and how individuals derive conclusions when considering things deliberately. Signup and view all the answers

Identify the six steps to rational decisions.

Identify the criteria Signup and view all the answers

What is System 1 thinking?

System 1 thinking is intuitive, fast, automatic, effortless, implicit, and emotional. Signup and view all the answers

What characterizes System 2 thinking?

System 2 thinking is slow, conscious, effortful, explicit, and logical. Signup and view all the answers

Are we maximizers in decision-making?

False Signup and view all the answers

What are heuristics?

Cognitive short-cuts used to make decisions Signup and view all the answers

Which heuristic involves assessing events based on available memories?

Availability heuristic Signup and view all the answers

Give an example of the availability heuristic.

Worker proximity can influence evaluations based on the visibility of performance. Signup and view all the answers

What is the representativeness heuristic?

It judges individuals based on how closely they match a previously formed stereotype. Signup and view all the answers

What does the confirmation heuristic entail?

It involves seeking evidence that confirms our intuitions rather than refuting them. Signup and view all the answers

How can emotions influence decision-making?

Emotions guide decision-making, often affecting evaluations and choices. Signup and view all the answers

What is escalation of commitment?

It is when individuals continue to invest in a failing decision due to previous commitments. Signup and view all the answers

What is framing in decision-making?

Framing refers to how presenting information can alter decision preferences. Signup and view all the answers

Study Notes

Key Concepts in Decision Making

Decision Making: Mental process leading to a choice among alternatives, resulting in either an action or an opinion.
Satisficing: Combines "satisfy" and "suffice"; involves selecting a satisfactory option that meets acceptable thresholds rather than searching for the optimal choice.
Bounded Rationality: Introduced by Herbert A. Simon; suggests that decision-making is limited by available information, cognitive constraints, and time, leading to simplified choice processes.

The Decision-Making Process

Negotiation: A dialogue aimed at reaching an agreement, resolving differences, or reaching individual/collective advantages; involves compromise.
Rationality: Involves reasoning and conformity of beliefs and actions with reasons for them.

Rational Decision-Making Steps

Define the Problem: Precisely defining the issue is crucial; common pitfalls include misidentifying solutions as problems and overlooking larger issues.
Identify Criteria: Determine necessary trade-offs by identifying relevant objectives and criteria.
Weight the Criteria: Importance of each criterion must be assessed and scored on a quantifiable scale.
Generate Alternatives: Identify various possible actions, but avoid excessive costs in searching for options.
Rate Each Alternative: Evaluate the anticipated costs and benefits associated with each alternative based on established criteria.
Compute the Optimal Decision: Calculate the highest weighted benefit option by multiplying expected benefits by the importance of each criterion.

Cognitive Processes in Decision-Making

System 1 Thinking: Fast, intuitive, and emotional decision-making.
System 2 Thinking: Slow, conscious, and logical decision-making process.

Human Limitations and Heuristics

Bounds of Human Attention: Satisficing instead of maximizing outcomes due to limited cognitive resources, often leading to reliance on heuristics.
Heuristics: Simplifying strategies or rules used in decision-making that can sometimes mislead. Key types:
- Availability Heuristic: Based on ease of recall; judgments influenced by readily available memories.
- Representativeness Heuristic: Reliance on stereotypes or prototypical examples to judge probabilities.
- Confirmation Heuristic: Seeking evidence that supports existing beliefs while ignoring contradicting information.
- Affect Heuristic: Emotional states influencing decisions.

Examples of Heuristics and Their Impact

Worker Proximity: Subordinates close to a manager may receive more scrutiny due to frequent visibility.
Investment Decisions: Recent successes of comparably popular products tend to bias managers' assessments of new products.
Stereotypical Judgments: Managers may unconsciously favor candidates fitting established profiles (e.g., extroverts for sales roles).

Cognitive Biases and Decision-Making Errors

Overconfidence: A common bias that can exacerbate other decision-making errors.
Framing Effect: Decision preferences can radically shift based on how options are presented.
Escalation of Commitment: Increasing commitment to a losing course of action rather than changing direction.
Common Investment Mistakes: Various biases lead to suboptimal investment strategies.

Future Considerations in Decision-Making

Improved Decision Strategies: Emphasizing rational approaches in negotiation and understanding common pitfalls to enhance decision outcomes.

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Description

Explore key concepts from Chapter 1 of 'Judgment in Managerial Decision Making' through these flashcards. Understand important terms such as decision making and satisficing, which are crucial in effective managerial practices. Test your knowledge and enhance your learning of decision-making processes.