3. Desicion making Flashcards
What defines Cognition and decision making ?
- When making a choice, humans are pressured by multiple factors, such as time, lack of information, limited cognitive capacities or other contextual factors (Emotional factor)
- identifying deal-breakers is enough to make a choice
- Contextual factors: to which degree social influences affect an individual (social pressure)
Max weber: Rationalization of Society
Shift from traditional to rational
Tradition is based on past, sentiments and beliefs passed down
Rationality is based on now and future, requires calculations, most efficient means to achieve a goal, deliberate
Important effect of the rise of protestantism on the rise of capitalism
Weber’s pessimism
Alienation, impersonality, efficiency is the only goal, we are robots
Society enslaves humanity
Counterclaim to Weber’s pessimism
Emotion is easier and more efficient in decision-making
Increased value of feelings, people are turning to their own groups, polarization which is emotional is increasing
Humans are fundamentally social beings, cannot be purely efficient robots, society will reach a balance between emotion and rationality
What did Max Weber about Types of Social Action?
Weber’s types of ideal social action
1) Instrumentally rational
It refers to actions that are fully calculated, with all factors taken into account and weighted.
2) Value-rational
It refers to a conscious choice based on values and beliefs, though it is not always the most optimal choice.
3) Affectual
It is based on emotions and feelings.
4) Traditional
Based on what is learned and ingrained, habits and norms.
action cannot be meaningful unless it is goal oriented
The more unconditional and absolute the value on which the choice is based becomes, the less rational the choice is, because it is less and less calculated.
what does the behavioral theory say?
- firms are working collectives of participating stakeholders that have multiple objectives
- goes beyond the homo economicus
What are the Agency theory, positive theory of agency and the theory of principal of agent?
Agency theories refer to the decision making process within organisations
* based on relationship between the Principal (owner) and the Agent (CEO)
- positive theory of agency: a firm is a nexus of contracts. It analyses how such contractual agreements affect the behaviour of individuals and how organisational forms and systems come into being
- theory of principal of agent:
design of inducement and reward
structures
Agent makes decisions in the interest of the firm, or the Principal,not because of affective factors but because of motivational factors
what is the Role of Emotion in decision-making?
People dislike emotional trade-offs
Emotionally difficult decision avoids compensatory decision rules
High risk, high reward
Some attributes are sacred / protected (deal-breakers)
Emotions are very influential in decision-making, more decisive
Dual process theory: 2 ways to asses the world
Fast, intuitive, automatic, unconscious
Slow, analytical, deliberative
Emotions represent a direct input into the decision processes, because risks and benefits
are assessed through emotional evaluation. Hence, emotional strategies are more efficient and easier than cognitive strategies.
Role of Context in decision-making?
social context shapes behaviour directly, through various forms of influence
indirectly, by dictating available opportunities or social positions
importance of default option: fits human
tendencies of procrastination, status quo bias and inertial behaviour etc.
Role of Congnition in decision-making?
two major challenges when making a decision:
*each choice has multiple attributes but none of them are ideal
*information can overwhelm us
When making a choice:
*you limit your options: all possible options →
awareness set→consideration set → final choice
noncompensatory decision rules are the conjunctive rule (exclude→dealbreakers)
disjunctive rule (include→one good reason)
weighted additive rule (decision makers compute a weighted sum of all relevant attributes of potential alternatives→cognitively demanding)
tallying rule (best known as pro-and-con list→little less demanding)
