Download Chapter 4 Decision Making – Vocabulary and Questions

Chapter 4 Decision Making – Vocabulary and Questions
Rational decision making- Making decisions that are consistent and value maximizing
within specified constraints
bounded rationality- Limitations on a person’s ability to interpret, process , and act on
information
satisfice- to accept solutions that are “good enough”
Intuitive decision making- making decisions on the basis of experience, feelings, and
accumulated judgement
structured problems- problems that are straightforward, familiar and easily defined
programmed decision- a repetitive decision that can be handled by a routine approach
Procedure- a series of interrelated sequential steps that a decision maker can use to
respond to a structured program
Rule- an explicit statement that tells a decision maker what she or he can or cannot do
Policy- a guideline for making a decision
Unstructured problems- problems that are new or unusual and for which information is
ambiguous or incomplete
non programmed decisions- decisions that are unique and nonrecurring and require
custom-made solutions
certainty- a condition in which a decision maker can make accurate decisions because
the outcome of every alternative is known
Risk- a condition in which a decision maker is able to estimate the likelihood of certain
outcomes
Uncertainty- a condition in which a decision maker is not certain about the outcomes
and cannot even make reasonable probability estimates
Groupthink- the withholding by group members of different views in order to appear to
be in agreement
Questions:
1) Why is decision making often described as the essence of a manager’s job?
Decision making is described as the essence of a manager’s job because it is a
part of all four managerial functions and used when managers plan, organize,
lead and control.
2) How is implementation important to the decision making process?
Implementation is important to the management process because it is concerned
with putting the decision into action.
3) How does a satisficing decision differ from a maximizing decision? A satisficing
decision is one where managers choose an alternative because it is “good
enough” meaning one that meets an acceptable level of performance where a
maximizing decision is selecting the alternative that maximizes the likelihood
of achieving that goal.
4) How do certainty, risk and uncertainty affect decision making?
Depending on whether the situation is one of certainty (know all the possible
alternatives), risk (estimate the outcomes), uncertainty (not certain about the
outcomes) will effect the alternative chosen and the outcomes or results from
choosing that alternative.
5) How does groupthink affect decision making?
Groupthink can undermine critical thinking in the group and can ultimately
harm the quality of the final decision due to pressures to conform and not
express ideas which may be seen as unpopular.
6) Describe the decision-making biases and errors managers may exhibit.
Overconfidence bias- decision makers tend to think they know more than they
actually do
Selective Perception Bias- decision makers selectively organize and interpret
events and information based on their biased perceptions
Confirmation bias- Decision makers seek out info that reaffirms their past
choices and perhaps bias and ignore information that contradicts past decisions
Sunk-costs error- Decision makers forget that current choices cannot correct
decisions made in the past.
Self-serving bias- Decision makers take credit for their success and blame failure
on outside factors
Hindsight bias- Decision makers falsely believe that they would have been able
to predict the outcome of an event once the outcome of the event is known.
7) How does escalation of commitment affect decision making? Why would
managers make this type of error?
Escalation of commitment can affect decision making because managers are
increasing their commitment to a previous decision even though there is
evidence that it might have been wrong. Managers may make this type of error
because they don’t want to admit that their initial decision was flawed.
8) Explain how a manager might deal with making decisions under conditions of
uncertainty.
A manager might deal with making decisions under uncertainty by making two
choices:
If the manager is optimistic they may choose the Maximax choice meaning
maximizing the maximum possible payoff in order to get the largest possible
gain.
If the manager is pessimistic they may choose the Maximin choice meaning
maximizing the minimum possible payoff in order to make the best of a situation
should the worst possible outcome occur.