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The Foundations of Decision Making - Coggle Diagram
The Foundations of Decision Making
How to correct or avoid the 12 errors
Managers can avoid the negative effects of these decision errors and biases by being aware of them and then not using them.
Managers also should be pay attention to “how” they make decisions and try to identify the heuristics they typically use and critically evaluate how appropriate those are.
In addition, managers might want to ask people around them to help identify weaknesses in their decision making style and try to improve on their style.
Within each of the four functions of managers, certain types of decisions usually are made.
Planning
What are the organization’s long-term objectives?
What strategies will best achieve those objectives?
What should the organization’s short-term objectives be?
How difficult should individual goals be?
Organizing
How many employees should I have report directly to me?
How much centralization should there be in the organization?
How should jobs be designed?
When should the organization implement a different structure?
Leading
How do I handle employees who appear to be low in motivation?
What is the most effective leadership style in a given situation?
How will a specific change affect worker productivity?
When is the right time to stimulate conflict?
Controlling
What activities in the organization need to be controlled?
How should those activities be controlled?
When is a performance deviation significant?
What type of management information system should the organization have?
How rational are managers’ decisions?
How rational are managers’ decisions?
The basic assumption of all managers is that they will make decisions in a rational manner by basing these decisions on the facts. They will make logical and consistent choices to maximize value for the organization. In addition, managers will decide according to what is best for the organization.
Unfortunately, that sometimes is not the case.
Although managers are expected to act rationally when making decisions, sometimes they face
limitations
.
These limitations can be in terms of resources, information, or information processing ability.
Therefore, it is best to say that managers (should) try to make decisions rationally, but within bounds (or boundaries). They attempt to reach decisions that are “good enough”.
Managers’ decision also can be influenced by
other factors
An organization’s culture
Internal politics
Power considerations
Escalation of commitment (a big problem)
Escalation of Commitment
: a big problem sometimes
This is the increased commitment to a previous decision despite evidence that it may have been wrong.
Why would decision makers escalate commitment to a bad decision? Because they don’t want to admit that their initial decision may have been flawed. Rather than search for new alternatives, they simply increase their commitment to the original solution.
12 common decision errors that managers make
Overconfidence bias: occurs when a decision maker thinks that he/she knows more than he/she does, or hold unrealistic positive views of himself/herself and his/her performance.
Immediate gratification bias: occurs when a decision maker wants to receive immediate rewards and to avoid immediate costs.
Selective bias: occurs when a decision maker selectively organizes and interprets events based on his/her biased perceptions.
Availability bias: when a decision maker tends to remember events that are the most recent and vivid in his/her memory.
Representation bias: when a decision maker assesses the likelihood of an event based on how closely it resembles other events or sets of events, drawing analogies where they don’t exist.
Randomness bias: occurs when a decision maker tries to create meaning out of random events.
Sunk cost error: when a decision maker forgets that current choices can’t correct the past.
Self-serving bias: occurs when a decision maker is quick to take credit for his/her successes and to blame failure on outside factors.
Hindsight bias: the tendency for a decision maker to falsely believe that he/she would have accurately predicted the outcome of an event once that outcome is actually known.
Anchoring effect: when decision makers fixate on initial information as a starting point and then, once set, fail to adequately adjust for subsequent information (in other words, first impressions receive too much weight).
Confirmation bias: when decision makers accept at face value information that confirms their preconceived views, and are critical and skeptical of information that challenges these views.
Framing bias: when decision makers select and highlight certain aspects of a situation while excluding others.
For decisions, sometimes managers also use their “intuition” to help their decision making.
What is intuitive decision making?
That is the act of making decisions on the basis of experience, feelings, and accumulated judgment. It has been described as “unconscious reasoning”.
Types of Intuition based Decisions
:
Experience-based (use of past experiences),
Affect-initiated (use of feelings or emotions),
Cognitive-based (use of skills, knowledge, and training),
Subconscious-based (use of data from the subconscious mind),
Values or Ethics-based (use of ethical values or culture).
Intuitive decision making can complement more rational methods at arriving at a decision.
A manager who has had experience with a similar type of problem or situation often can act quickly with what appears to be limited information because of that past experience. In addition, sometimes feelings and emotions can enhance decision making performance.