Chapter 6 Essentials:

Individual Decision Making

NOTE: There are 2 sets of handouts for this unit. First set had stuff about the challenger in it, and notes for the Chapparel Steel video. Second set was about groupthink, and problems associated with group decision making, e.g., risky shift, group polarization.

Why study decision making?

� Decisions have a big impact on ability to achieve goals.

� Who to hire

� Where to look for new business

� How to talk to people, treat others, reward, punish, motivate, judge

� It all boils down to making decisions, choosing options

Decision Making

� Choices from among alternatives to reduce the discrepancy between current state and desired state.

Best stuff:

� Context BEFORE and AFTER decisions are made

� Social support before and after

� Pressure from reference group members before

� Predecisional regret � fear before decisions are made

� CONSEQUENCES after decisions are made

� Regret (preoccupied with bad choice, worse off)

� Bolstering (feel better, want to think it was a good decision)

� Reactance theory (buyer�s remorse)

The pragmatic view:

� We make some great decisions, some poor decisions.

� Let�s hope it�s at least a wash.

� Make sure YOUR VALUES are taken into account

� The right thing for the right reason

Types of decisions:

� Programmed decisions

� structured, e.g. an employee checks the inventory to see if it meets the minimum requirements.

� Nonprogrammed decisions

� poorly structured

I. Optimizing Model of Decision Making

� Ascertain need for decision

� Identify decision criteria (e.g., rights)

� Allocate weights to the criteria

� Develop alternatives

� Evaluate alternatives

� Select best alternative

RATIONALITY assumes correct process:

� First you look at all the options

� Examine options with set of criteria in mind

� Choose the option that gives you the highest �number� or outcome

Rationality models� assumptions

� Goal Orientation

� All options known

� Preferences clear

� Preferences constant

� Final choice maximizes outcome

II. Satisficing Model

� Assumes bounded rationality

� Assumes cognitive limits

� Assumes limited knowledge of options

� Assumes limited set of preferences

� Choose "good enough" rather than maximizing outcome

The Satisficing Model

III. The Implicit Favorite Model

IV. Intuitive Model

� Unconscious process created out of distilled experience.

� May not be rational.

� Intuition may SUPPLEMENT rational decision making.

� Draws on PAST experience.

� E.g., the chess players who can play 50 games at once.

When intuition is used:

� High level of uncertainty exists

� Little precedent to draw on

� Variables are less scientifically predictable

� When �facts� are limited

� When facts don�t clearly point the way to go

� When analytical data are of little use

� When there are several plausible alternative solutions to choose from

� When there are several good, plausible solutions to choose from,

� When time is limited

Flawed decision making:

� Escalation of commitment

� Heuristics

� Group think

� Risky shift

� Cautious shift

Sources of decision BIAS:

� Decision Bias takes us away from facts, just as perceptual biases did.

� Heuristics

� Escalation of Commitment

Heuristics = Decision short cuts

� Kahnaman and Tversky

� Availability heuristic

� Basing decisions on information READILY available

� e.g., Basing Performance evaluation on recent events

� Representative heuristic

� Using things we observe now to indicate potential for our success

� e.g., Judging potential to play professional basketball because one person 10 years ago did it.

Escalation of Commitment:

� Barry Staw

� �Knee deep in the big muddy�

� Increase commitment when decision stream represents a series of decisions

� In spite of negative information, stick to decisions

� �Having a lot invested in a relationship�

Risk taking in groups:

� Risky shift

� Cautious shift

Group polarization

� Groups may polarize toward extreme points of view if risk is involved.

� Probably results from premeeting inclinations, which impose biases during group discussions.

� Group members will encourage others to buy into their way of thinking.

� May be explained by dominant cultural values.

V. Decision Style: decisions

� Refers to the PERSON, not the TYPE of decision that is made

� How well do you tolerate ambiguity?

� How do you THINK?

� Rationally?

� Intuitively?

� This model recognizes individual differences

Organizational Constraints:

� Evaluation

� Managers make decisions that influence ratings

� Reward systems

� People make decisions that make them rich

� System-imposed time constraints

� Makes it tough to gather enough information

� Precedent

� Organizational Inertia results from patterns of making decisions

Ethical Decision Criteria

� Utilitarianism:

� Greatest good for greatest number

� Rights

� Decisions based on fundamental liberties, privileges

� Justice

� Impose, enforce rules fairly, impartially for equitable distribution of benefits, costs

Ethical concerns:

� What are the "hot" topics in organizations today, in terms of social responsibility, and ethical concerns:

What if the culture that you join supports unethical conduct? Will you stay?

� In this case, fit might be more of an issue.

� For most of us, a match of values between self and the organization is managed by exception.

� We are only driven to leave an organization by ethical concerns if the mis-match occurs at an extreme!

� E.g.,

� Religious zealousness,

� Extreme attention to values that are unimportant to you, e.g. social climbing.

� Dishonest deception of the public.

� These are black and white concerns, your own situations may not be.

� Often, it is a question of interpretation. As a lower level employee you sometimes operate "blind".

Training and Development Journal:

� Ethics set boundaries

� Values are beacons

� Ethics convert values to actions

� Ethics ensure that actions achieve objectives without violating values

� More often define what is NOT acceptable than what is

Values versus Ethics

Values:

� Define individuals

� Are constant

� Concerned with VIRTUE

� Stated morally

� Set priorities

Ethics:

� Translate values into action

� Change

� Are situationally determined

� Are highly specific

� Stated behaviorally

� Set boundaries for behavior

The Power of Ethical Management,
by Kenneth Blanchard and Norman Vincent Peale

The 3 Ethics Check Questions:

1. Is it legal?

� will I be violating either civil law or company policy?

2. Is it balanced?

� Is it fair to all concerned in the short term as well as the long term?

� Does it promote win-win relationships?

3. How will it make me feel about myself?

� Will it make me proud?

� Would I feel good if my decision was published in the newspaper?

� Would I feel good if my family knew about it?

Control your destiny or someone else will,
Tichy and Sherman, re: Jack Welch, GE CEO

� As a society the US is failing to convince people about the value of honesty

� McCabe, an ethics professor from Rutgers, studied 6,000 university students

� 76% planning business careers admitted to cheating at least once, 19% said that they had cheated 4 times or more

How does GE fend off ethics abuses?

� Employees sign a written statement each year saying they know of no breach in wrongdoing

� Despite very well prepared ethical policies and the above step, employees of GE�s defense contracting business have still been found guilty of diversion of US defense funds into private accounts.

Factors Affecting Ethical/Unethical Decision-Making Behavior

INCREASED CAPACITY FOR ETHICAL DECISION MAKING BEHAVIOR

What can we do to improve QUALITY of decisions?

Dialectic Inquiry

� Involves the generation of a plan and a critical analysis of it.

Devil�s Advocacy

� A member of the group acts as the devil's advocate, bringing out all the reasons why the proposal should not be adopted.