Decision Making I and II

Question 1

Define decision making

Answer 1

The process of developing a commitment to some course of action

Question 2

Explain how decision making is a process of problem solving

Answer 2

There is a perceived gap between your current state and your desired state. You need to take actions to resolve that discrepancy

Question 3

Define well-defined/well-structured problems

Answer 3

When the parameters are known; you can follow rules or standard procedures

Question 4

Define ill-defined/ill-structured problems

Answer 4

When the parameters are unknown; there are no obvious rules, no clear means to the end goal, and you might not even be clear on what the goal should be

Question 5

When are biases most likely to happen in decision making? Why?

Answer 5

When it’s most important for us to make good decisions: when we perceive a threat, when there’s uncertainty, and when there’s pressure

Question 6

What are five different forms of egocentrism (i.e. poor reasoning)?

Answer 6

1. Confirmation bias
2. Echo chambers
3. Justifying earlier decisions
4. Sunk costs and escalation of commitment
5. Groupthink and the status quo

Question 7

Explain why you are more likely to make bad decisions regarding ill-structured problems

Answer 7

1. More missing information
2. More likely to ignore information
3. More likely to make up information
4. More likely to try to find “short-cuts”
5. More vulnerable to bias

Question 8

Define confirmation bias

Answer 8

Paying more attention of evidence that supports what they were already inclined to do

Question 9

Explain how perceptual biases play a role in ill-structured problems

Answer 9

Essentially, we select the info we want and neglect important info

1. We see what we want (eg. confirmation bias)
2. We trust/remember best what we hear first
3. We go with who we like or respect more

Question 10

What are the seven different types of decision making bias?

Answer 10

1. Confirmation bias
2. Overconfidence
3. Stereotyping
4. Groupthink
5. Group polarization
6. Framing effects
7. Escalation of commitment

Question 11

What are the seven steps of the rational decision making process?

Answer 11

1. Identify problems
2. Search for relevant information
3. Develop alternative solutions to the problem
4. Evaluate alternative solutions
5. Choose best solution
6. Implement chosen solution
7. Monitor and evaluate chosen solution

Question 12

What are the decision making biases that affect individual decision making?

Answer 12

1. Heuristic decision making
2. Overconfidence
3. Confirmation bias/selective perception
4. Escalation of commitment
5. Anchoring effect
6. Framing effect

Question 13

What are the decision making biases that affect group decision making?

Answer 13

1. Groupthink

2. Group polarization

Question 14

Define bounded rationality

Answer 14

Ideally we would like to follow the rational decision making process; however, our decision making is limited by a huge number of factors

Question 15

What are some limitations on the rational decision making process?

Answer 15

1. The capacity to acquire and process information (bottleneck)
2. Time constraints (feel like we need to make quick decisions, we don’t have time to find all the available alternatives)
3. Social and political considerations
4. Willpower limitations (things take effort)
5. Self-interest/egocentric view

Question 16

Define framing

Answer 16

The manner in which objectively equivalent alternatives are presented

Question 17

What happens if information is framed negatively (loss frame)?

Answer 17

Encourages risk

Question 18

What happens if information is framed positively (gain frame)?

Answer 18

We go with the sure thing; more conservative

Question 19

Define prospect theory

Answer 19

The theory that we make decisions based on (the feeling of) losses and gains, instead of the actual value of the final outcome

Question 20

Define sunk costs

Answer 20

Permanent losses of resources incurred as the result of a decision. Since these resources have been lose permanently, they should not enter into future decisions

Question 21

Define escalation of commitment

Answer 21

The tendency to invest additional resources in a failing course of action

Question 22

Why do people do escalation of commitment?

Answer 22

People want to reduce dissonance by recouping the “sunk costs” from a previous decision

Question 23

How can you prevent yourself from committing escalation of commitment?

Answer 23

Take yourself out of the picture; re-frame losses as gains/opportunity; don’t punish inconsistency, reward accuracy; hand off decisions about whether to commit more resources to an investment to new decision makers; make sure decision-makers are frequently reminded of actual goals

Question 24

Define groupthink

Answer 24

The capacity for group pressure to damage the mental efficiency, reality testing, and moral judgement of decision-making groups

Question 25

What happens if a group suffers group polarization?

Answer 25

If group members are initially somewhat conservative, then the group will shift even more conservative. If group members are initially somewhat risk, then the group will shift even more risky