[Business] Organizational Behavior - Decision making

Decision making

1.    Decision making

-      Decision making

Ø  The process through which managers identify organizational problems and attempt to resolve them

Ø  Process, rather than the simple act of choosing among alternatives

Ø  Type of problems

ü  Well-structured problem: straightforward, familiar, easily defined problem

ü  Ill-structured problem: New problems in which information is ambiguous or incomplete

Ø  세계화되어 다양한 상황을 접하게 되면서 Ill-structured problem 비중이 늘어남.

-      Decision

Ø  Types of decisions

ü  Programmed decision: decisions made in routine, repetitive, well-structured situations through the use of predetermined decision rules

ü  Non-programmed decision: decisions for which predetermined decision rules are impractical because the situations are novel and ill-structured

Ø  Organizations prefer programmed decision because of efficiency and predictability à but programmed decision can make organization bureaucratic.

-      Decision making models

Ø  Normative models (Rational decision-making model): provide guidelines

Ø  Descriptive models (Bounded rationality): describe the way people make decisions

-      Rational decision-making model (Under assumption that believe people are rational)

Ø  A decision-making model that describes how individuals should behave in order to maximize value and some outcome

Ø  Normative models

Ø  6 steps <Identification of a problem à Identification of decision criteria à Allocation of weights to criteria à Development of alternatives à Analysis of alternatives à Selection of an alternative>

Ø  Assumptions: <problem is clear / Complete information / clear preference / no time or cost constraints>

Ø  In reality: <Uncertainty / Limited cognitive capacity / Time and cost constraints>

-      Bounded rationality

Ø  Individuals make decision by constructing simplified models that extract the essential features from problems without capturing all their complexity

Ø  Descriptive decision making model

Ø  Managers act rationally within certain constraints.

Ø  People often seek decision solutions that are sufficient, satisfactory or good enough.

Ø  Managers seek alternatives only until they find one that looks satisfactory.

-      Common Bias

Ø  Availability heuristic à Tendency for people to base their judgments on information that is readily available to them.

Ø  Representative heuristic à Tendency for people to base judgments of probability on things which are salient or noticeable

Ø  Escalation of commitment à Increased commitment to a previous decision despite negative information. People try to appear consistent and defend their initial decision. <They consider sunken cost>