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MANAGEMENT
1st E D I T I O N
Gulati | Mayo | Nohria
Chapter 15
DECISION MAKING
INDIVIDUAL
PERSPECTIVE
©South-Western, a part of Cengage Learning
PowerPoint Presentation by Charlie Cook
Learning Objectives
• Explain the step-by-step process of rational decision making
• Describe how time constraints, lack of information, and complexity
influence the rational decision-making process
• Describe the various biases that can influence an individual’s
perspective and how these biases impact decision making
• Articulate how emotions, intuition, and social situations impact
decision making
• Compare and contrast the different ways in which decisions are
made in an organization
• Describe the ways in which managers can improve their decisionmaking abilities
© South-Western, a part of Cengage Learning
15–2
Decision Making
The process of identifying issues and making
choices from alternative courses of action
© South-Western, a part of Cengage Learning
15–3
Rational Decision Making
Theory of
rational
choice
The theory that individuals make decisions
based on a rational thought process that
optimizes self-interest
Expected
utility
When confronted with a choice, people try to
make the best possible decision; one that
maximizes their expected utility
Individuals assign a numerical value to each alternative
and select the one that offers the highest payoff or
profit
© South-Western, a part of Cengage Learning
15–4
Factors that Impact Decision Making
• Incomplete, imperfect, or misleading information
• Limited ability or background to process
information i.e. lack of experience
• Limited time to make a decision
• Conflicting preferences, incentives, or goals of
various organizational players
© South-Western, a part of Cengage Learning
15–5
How Managers Make Decisions
Bounded
rationality
A set of boundaries or constraints that
tend to complicate the rational decisionmaking process
Satisficing The act of choosing a solution that is
good enough
© South-Western, a part of Cengage Learning
15–6
Decision-Making Conditions
Conditions of
certainty
Ambiguity
Conditions in which individuals have all of the information
they need to make the best possible decision
Situations that are characterized by uncertainty and risk
and where the optimal decision is not clear or obvious
Conditions of
risk
Conditions in which individuals have information about an
organization’s goals, objectives, priorities, and potential
courses of action, but they do not have complete information
about the possible outcomes for each course of action
Conditions of
uncertainty
Conditions in which individuals have information related to
an organization’s objectives and priorities, but they do not
have complete information about alternative course of action
or about the possible outcomes for each one
© South-Western, a part of Cengage Learning
15–7
How Biases Impact Decision Making
Cognitive
heuristics
Availability
heuristic
Representativeness heuristic
© South-Western, a part of Cengage Learning
Rules of thumb or short-cuts that individuals use
to save time when making complex decisions
Contends that individuals assess the frequency,
probability, or likely cause of an event by the degree to
which instances or occurrences of that event are readily
available in memory
Contends that individuals tend to look for traits in
another person or situation that corresponds with
previously formed stereotypes
15–8
How Biases Impact Decision Making
Adjustment
heuristic
Framing
© South-Western, a part of Cengage Learning
Contends that individuals make estimates or
choices based on a certain starting point
Alternative wordings for same information that
significantly alters a decision
15–9
Emotional Commitment
Status quo
bias
The tendency to favor the “here and now” and to reject
potential change
Escalation of
commitment
A type of bias in which decision makers commit themselves
to a particular course of action beyond the level suggested by
rationality as a means of justifying previous commitments
Confirmation
bias
A bias in which people tend to seek information that confirms
a decision before seeking information that disconfirms a
decision, even if the disconfirming information is more
powerful and important
© South-Western, a part of Cengage Learning
15–10
Intuitive Decision Making
• Insights that are tapped through intuition and are
not always fully understood by the decision
maker
– Referred to as gut feel or hunches
• Can emerge as a form of automated expertise if
it is drawn from connections to past experiences
© South-Western, a part of Cengage Learning
15–11
Social Influence on Decisions
• Solomon Asch’s experiment indicated that:
– Individuals tend to conform to majority when they rely
less on their experience and insight
– Dominance of conformity can cause people to make
decisions that go against their values
• Social decisions involving norms are shaped by:
– Appropriateness framework: The process of making
decisions based on societal norms or expectations
© South-Western, a part of Cengage Learning
15–12
Decision Making in Organizations
Programmed
decisions
Nonprogrammed
decisions
Decisions that are
made in response to
recurring organizational
problems that require
individuals to follow
established rules and
procedures
Decisions that are
made in response to
novel, poorly defined,
or unstructured
situations that require
managers to use their
best judgments
© South-Western, a part of Cengage Learning
15–13
Models of Organizational Decision Making
Classical
model
Seeks to maximize economic or other outcomes using
a rational choice process
Administrative
model
Acknowledges that managers may be unable to make
economically rational decisions because they lack
sufficient information on which to base their decisions
© South-Western, a part of Cengage Learning
15–14
Models of Organizational Decision Making
Political
model
Garbage can
model
Acknowledges that most organizational decisions involve
many managers who have different goals and who have to
share information to reach an agreement
A model of decision making whereby, problems, solutions,
participants, and choices flow throughout an organization.
A decision process is not viewed as a sequence of steps
that begins with a problem and ends with a solution
Playfulness: The deliberate , temporary relaxation of
rules to explore many possible alternatives
© South-Western, a part of Cengage Learning
15–15
Improving Decision-Making Skills:
Managing Your Biases
Take an outsider’s
view
Acquire experience
and expertise
Reduce bias in
your judgment
Engage in analogical
reasoning
© South-Western, a part of Cengage Learning
Actions can help
to “de-bias” your
judgments
Implement statistical
models
Understand biases
in others
15–16
SCRIPTS Process
• Helps managers prepare for high-stake decisions
• Involves following steps
– Search for signals of threats and opportunities
– Find the causes
– Evaluate the risks
– Apply intuition and emotion
– Take different perspectives
– Consider the time frame
– Solve the problem
© South-Western, a part of Cengage Learning
15–17
KEY TERMS
Adjustment heuristic
Administrative model
Ambiguity
Anchoring
Appropriateness framework
Availability heuristic
Bounded rationality
Classical model
Conditions of certainty
Conditions of risk
Conditions of uncertainty
Confirmation bias
Decision making
© South-Western, a part of Cengage Learning
Escalation of commitment
Framing
Garbage can model
Heuristics
Intuitive decision making
Nonprogrammed decisions
Playfulness
Political model
Programmed decisions
Representativeness heuristic
Satisficing
Status quo bias
Theory of rational choice
15–18