Descision Making

Question 1

Problem

Answer 1

perceived discrepancy between the current state of affairs and a desired state

problem for me is not necessarily a problem for you
problems are organizational bound
oriblem are national culture bound

Question 2

Decisions

Answer 2

choices made from among alternatives developed from data perceived as relevant

Perception of decision maker leads to outcomes, subjective

Question 3

Decision making models

Answer 3

rational decision making
bounded rationality

Question 4

Outcome bias

Answer 4

we place too much weight on outcome and are not critical enough about process

Question 5

hindsight bias

Answer 5

see events that have occurred as being more predictable than they were before they took place

“I knew it all along” effect
bad decisions that went well are repeated

Question 6

how decisions are made

Answer 6

Content of decisions
structured or unstructured problems
operational or strategical

Context
urgency
organizational characteristics
decision makers’ attributes

Question 7

Rational decision making

Answer 7

homo economicus: searching for the best value maximizing choice

define problems, identify criteria and allocate weights to those, develop alternatives, evaluate alternatives, select best one, implement, evaluate

Question 8

assumptions of Rational Model (not true)

Answer 8

Complete knowledge of the situation
all relevant options are known in an unbiased manner
time is important
clear goal: the decision maker seeks the highest utility

Question 9

Rational model in Reality?

Answer 9

1. Limited search for problem definition, decision criteria and alternatives = we stick to easy alternatives,
2. We choose alternatives, similar ones to those already in effect
3. satisficing- selecting the first alternative that is good enough (stick effect)
   4.Intuition

WHY? Managers are humans

Question 10

Bounded rationality

Answer 10

Managers are bounded by their ability to process information

Perception: we perceive things differently
We make sense
Emotion: we fall in love, we have stress
Bias: we convince ourselves that
Satisficing: we are quickly satisfied
We have no time

Question 11

how does brain work?

Answer 11

according to emotions, biases and perceptions

Question 12

Dual process theory

Answer 12

System 1: The cheater, reptile brain (habit, emotion based)
Default: always on
Fast
Intuitive: impulsive stereotypes, perception and emotion
What You See Is All There Is

System 2: Logical machine, the scientist (fact based)
Lazy, works only when we want it to
Slow
Wants facts, use rules
Looks actively for information: it can overrule system 1 but extrmely lazy

Question 13

Relation between System 1 & System 2

Answer 13

System 1 is always on and busy
System 2 has two tasks: Controlling System 1
Helping System 1
When system 2 is tired, system 1 gets the say
System 1 and system 2 always fight. System 1 generally wins

Question 14

Heuristics (information processed shortcut)

Answer 14

simple, efficient rules which people often use to form judgments and make decisions.
They are mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others
Errors that result from these are called Cognitive Biases

Question 15

Selective perception / attention

Answer 15

directing our awareness to some stimuli while ignoring other» why? there is a limit of info we can process

Applications ( in marketing)
Priming
Nudging

Question 16

Priming (suggestion)

Answer 16

Familarity Bias: use of selective attention, important for marketing (repeat messages, color, etc)

Putting System 1 in the right mood

Question 17

Nudging

Answer 17

gentle push toward good direction although all options stay open and person can choose (usually in social marketing)

It make use of all kind of heurisitics

Question 18

The decoy effect

Answer 18

makes the best option look even better by introducing (eg middle option)

Question 19

Availability Bias

Answer 19

people predict the frequency of an event or a proportion within a population based on how easily an example can be brought to mind

Recent information
Horrible things
Media coverage

Look for info not available easily, detail looking

Question 20

Anchoring bias

Answer 20

human tendency to rely too heavily or anchor on one trait or piece of information

Question 21

Confirmation bias

Answer 21

we see what we want to see, we hear what we want to hear, interpret and/or search info to confirm one’s perception, leads to overconfidence

related to the concept of cognitive dissonance
if we believe there is no ethical wrong-doing, we will not see any wrong doing

Question 22

Self-serving bias (attribution theory)

Answer 22

concerning self
-attribute positive events and successes to our own character or actions
-blame negative results to external factors unrelated to our character

concerning others
-attribute events and successes of others to external actors(luck)
- blame negative results to the character of other person

May lead to conflict in workplace

Question 23

Overconfidence Bias

Answer 23

ego gets in the way
thinking to be better than one actual is

Question 24

Dunning-Kruger effect

Answer 24

people with limited knowledge tend to overestimate their own competence, the other way round for people who actually have above average

Question 25

Optimism Bias

Answer 25

a mistaken belief that our chances of experiencing negative events are lower than those of our peers

Macho mistake- feeling of invulnerability

Question 26

Denomination effect

Answer 26

law of little bits: people are less likely to spend money if there is one large amount than if they spend the same amount in smaller portions

Question 27

Prospect theory (framing theory)

Answer 27

states that decisions are made based on potential value of losses and gains rather than final outcome

people will take decisions based on howoutcomes are framed

Gain frame&raquo_space; not taking risks
Loss frame&raquo_space; taking risks

Question 28

loss aversion and framing

Answer 28

people can’t stand loosing, however not winning / gaining something is less of a problem

Question 29

value function

Answer 29

gain is less valued, loss is felt deeper

eg. gambling and its prospect in different cases

Question 30

Esclation of commitment (sunk costs)

Answer 30

people justify increased investment in a decision, based on the cumulative prior investment, even if new evidence suggesting that the cost of continuing the decision outweighs the expected benefit

Sunk costs greatly affect actor’s decisions because humans are ingerently loss-averse

Question 31

Threat Label

Answer 31

threat associated to potential loss, risk more to avoid loss opportunity label: less risk will be taken

Question 32

Endowment effect (linked to loss aversion)

Answer 32

someone places a higher value on something they own simply because they own it

Question 33

Immediate gratification

Answer 33

tendency to immediately want gratification and avoid costs

Question 34

Randomness bias

Answer 34

people tend to see patterns in random things (system 1)

Question 35

Representation bias

Answer 35

judging probability of hypothesis by considering how much the latter resembles available data

eg. shy hum and library

Question 36

Intuition

Answer 36

based on implicit knowlege available to decision-maker; should not be taken at face value

Question 37

Bandwagon effect

Answer 37

believe and act in a way just because other people do so. Related to groupthink and herd behaviour

Question 38

negativity effect

Answer 38

tendency to pay more attention to negative experience

Question 39

Post-purchase rationalism

Answer 39

persuade oneself through a good rational argument that your purchase is a good value

Question 40

Blind spot bias

Answer 40

being blind towards your own bias

Question 41

Decision making styles

Answer 41

High tolerance for ambiguity
Analytical: long term, more alternatives, more flexible= external data or facts, tasks and technical concerns
Conceptual: broad perspective, many alternatives, intuition= feelings, intuition, people and social concerns

Low tolerance for ambiguity
Directive: autocratic, short term, closely analyse= external data or facts, task and technical concerns
Behavioral: love people, interaction, avoid conflict= feelings, intuition, people and social concerns

Question 42

Advantages of group decision making

Answer 42

generates more complete information and knowledge
increases diversity of views&raquo_space; creativity
increases acceptance of a solution

Question 43

Disadvatage of group decision making

Answer 43

time consuming
groupthink (dominant coalition)
conformism - group pressure, asch experiment
group shift - take positions of greater risk, may be due to diffused responsibility

Question 44

groupthink occurs

Answer 44

high group cohesiveness
lack of impartial leadership
lack of methodologial procedures
highly stressful threats
recent failures
moral dilemmas

Question 45

tips for minimizing groupthink

Answer 45

limit group size
seek input from all
leaders play impartial role
use outside experts
be aware of correlated errors

Question 46

Group decision-making techniques

Answer 46

Brainstorming
meant to overcome pressures of conformity
generates a list of creative alternatives
problem: production blocking, anchoring

Nominal Group Technique (NGT)
restricts discussion during the decision-making process to encourage independent thinking