Managing Information and Decision-Making (Decision Making Errors…
Managing Information and Decision-Making
Methods of Managerial Decision-Making
Rationality: Managerial decision making is assumed to be rational - rational decisions describe choices that are consistent and value-maximising.
Assumes that the problem is clear and unambiguous; a single and well-defined goal is to be achieve; all alternatives and consequences are known; preferences are clear, stable and constant; no time or cost constraints exist; final choice will maximise payoff.
Intuition: A product of previous experience, 'gut-level feeling', and accumulated judgement.
Based on experience, feelings, cognitive, subconscious mental processing and values/ethics.
Bounded Rationality: Decisions are made within parameters of a simplified model that captures the essential features of a problem.
Bounded by the limitations and constraints, managers attempt to behave rationality. They make decisions that are 'good enough' - 'satisficing'.
Managerial problems and decisions
Well structured problems and programmed decisions:
structured problems are easily defined, straightforward and familiar
programmed decisions are repetitive decisions handled by routine approach: procedures, rules and/or policies
procedures: sequential steps used to respond to a structured problems
rules: an explicit statement telling managers what they can or can't do
policy: guidelines that establishes parameters for making decisions
Unstructured problems and non-programmed decisions: - unstructured problems are new, unusual or unfamiliar and information is either ambiguous or incomplete
non-programmed decisions need a new custom approach
Group Decision Making
Advantages of group decision making are that there are more resources available in terms of human capital such as knowledge to solve the problem, there is likely going to be a more diverse range of alternatives as well as more legitimacy around the idea that this is the best option.
The Disadvantages of group decision making are that it is time consuming, there may be an ambitious allocation of responsibility and a pressure to conform to the idea that the majority puts forward even though it may not be the best option
Decision Making Styles
Linear decision making is where there is a preference for using external data and facts processed with rational / logical thinking
Non-Linear is a style whereby the decision maker has a preference for internal sources of information and will often process the information through personal insights, feelings and hunches.
Decision Making Errors
Overconfidence: Thinking they know more than they do or holding unrealistically positive views of themselves and their performance.
Immediate Gratification: Tend to want immediate rewards and to avoid immediate costs. For these individuals, decision choices that provide quick payoffs are more appealing.
Anchoring Effect: Fixating on initial information as a starting point and then, once set, fail to adjust adequately for subsequent information.
Selective Perception: Selectively organising and interpreting evens based on their biased perceptions.
Confirmation Bias: Seeking out information that reaffirms their past choices and discount information that contradicts past judgement.
Framing Bias: Selecting and highlighting certain aspects of a situation while excluding others.
Availability Bias: Tendency to remember events that are most recent and vivid in their memory.
Representation Bias: Assessing the likelihood of an event occurring based on how closely it resembles other events or set of events.
Randomness Bias: When decision makers try to create meaning out of random events.