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Decision Making
Chapter 2, Management by Stephen P. Robbins
Atiyeh Bayat & AmirHossein Ahmadi Shamsabadi
Table of Content
Decision Making Process
Approaches to Decision Making
Types of Decisions and Decision-Making Conditions
Decision Making Biases and Errors
Common Decision-Making Biases
Overview of Managerial Decision Making
Skill Outcome
How to Describe 8 Steps of Decision Making
Explain the 4 ways Managers Make Decision
Classify Decisions
Describe How Bias Affects Decisions
Identify Effective Decisions
What we are going to learn
Know, understand, and use the decision-making process
Know when and how to use rational or intuitive decision making or both
Know your decision-making style.
Know, recognize, and understand the biases and errors that may influence your decision making.
Decision Making Process
Decision Making
Step 1: Identify a Problem
Step 2: Identify Decision Criteria
Step 3: Allocate Weights to the Criteria
Step 4: Develop Alternatives
Step 5: Analyze Alternatives
Step 6: Select an Alternative
Step 7: Implement the Alternative
Step 8: Evaluate Decision Effectiveness
Decision Making
Approaches to Decision Making
Approaches to
decision making
Bounded Rationality
Evidence-Based Management
Rational decision making; that is, they’ll
make logical and consistent choices to
maximize value.
They understand that “good” decision makers are supposed to
do certain things and exhibit good decision-making behaviors
as they identify problems, consider alternatives, gather
information, and act decisively but prudently.
keep in mind that their decision making is also likely in›
uenced by the organization’s culture, internal politics, power
considerations, and by a phenomenon called escalation of
commitment, an increased commitment to a previous decision
despite evidence that it may have been wrong.1
What is intuitive decision making? It’s making
decisions on the basis of experience, feelings,
and accumulated judgment. Researchers
studying managers’ use of intuitive decision
making have identi›ed ›ve di›erent aspects
of intuition, which are described in Exhibit
One survey found that almost half of the
executives surveyed “used intuition more often
than formal analysis to run their companies.
Intuitive decision making can complement both
rational and bounded rational decision making.
First of all, a manager who has had experience
with a similar type of problem or situation
often can act quickly with what appears to be
limited information because of that past
Evidence-Based Management
evidence-based management (EBMgt) The
systematic use of the best available evidence to
improve management practice.
EBMgt is quite relevant to managerial decision
making. The four essential elements of EBMgt are
(1) the decision maker’s expertise and judgment;
(2) external evidence that’s been evaluated by the
decision maker;
(3) opinions, preferences, and values of those who
have a stake in the decision; and
(4) relevant organizational (internal) factors such as
context, circumstances, and organizational members.
The strength or in›uence of each of these elements
on a decision will vary with each decision.
4 Managerial
Types of Decisions and
Decision-making Conditions
Types of Decisions
Types of Decisions
Structured Problems and Programmed Decisions
Structured problems Straightforward, familiar,
and easily defined problems.
Programmed decision A repetitive decision that
can be handled by a routine approach.
This is what we call a programmed decision, a
repetitive decision that can be handled by a
routine approach
Structured Problems and Programmed Decisions
● A Procedure
● A Rule
● A Policy
Unstructured Problems and Nonprogrammed
Unstructured problems Problems that are new or
unusual and for which information is ambiguous
or incomplete
Nonprogrammed decisions are unique and
nonrecurring and involve custommade solutions
Programmed Vs Non Programmed
Decision-Making Conditions
A situation in which a manager can make
accurate decisions because all outcomes
are known
A situation in which the decision maker is
able to estimate the likelihood of certain
A situation in which a decision maker has
neither certainty nor reasonable
probability estimates available
Section 2
Biases And Errors
Rules of thumb
can be useful because they help make
sense of complex, uncertain, and
ambiguous information
A heuristic is a rule-of-thumb, or a guide toward what behavior is
appropriate for a certain situation. Heuristics are also known as “mental
shortcuts” (Kahneman, 2011). Such shortcuts can aid us when we face
time pressure to decide, or when conditions are complex and our
attention is divideed.
Tversky and Kahneman’s 1974 work, Judgment under Uncertainty:
Heuristics and Biases, introduced three key characteristics:
representativeness, anchoring and adjustment, and availability.
Common Decision-Making Biases
Common Decision-Making Biases
Sunk costs errors
Overconfident bias : holding unrealistically positive views of one’s self and one’s performance.
Immediate gratification bias : choosing alternatives that offer immediate rewards and that to avoid immediate costs.
Anchoring effect : fixating on initial information and ignoring subsequence information.
Selective perception bias : selecting organizing and interpreting events based on the decision maker’s biased perceptions.
Confirmation bias : seeking out information that reaffirms past choices and discounting contradictory information.
Farming bias : selecting and highlighting certain aspects of a situation while ignoring other aspects.
Availability bias : losing decision making objectivity by focusing on the most recent events.
Representation bias : drawing analogies and seeing identical situations when none exist.
Randomness bias : creating unfounded meaning out of random events.
Sunk cost errors : forgetting that current actions cannot influence past events and relate to future consequences.
Self-serving bias : taking quick credit for successes and blaming outside factors for failures .
Hindsight bias : mistakenly believing that an event could have been predicted once the actual outcome is known.(after the fact)
research shows that training can successfully engage
employees to recognize particular decision-making
biases and reduce subsequent biased decision making
with a long-lasting effect.
managers might want to ask trusted individuals to help
them identify weaknesses in their decision-making style
and try to improve on those weaknesses.
When managers reduced the effects of bias in
their decision making, their organizations’
performance returns were 7 percent higher.
Overview of Managerial
Decision Making
Decision making approach
Overview of
Decision Making
Bounded rationality
Types of problems and decisions
Well structured - programmed
Unstructured - nonprogrammed
Decision making conditions
Decision maker’s style
Linear thinking style
Nonlinear thinking style
Nondecision Decisions!!!!
you can’t avoid tough decisions by ignoring them
The decision to do nothing is still a decision. It’s a decision to maintain the
status quo
You can maintain the status quo by following either of two paths—one active
and the other passive
How do you counter
the nondecision
The first step is awareness. You can’t opt
out of decisions by ignoring them
You also need to occasionally justify why
you shouldn’t pursue another path that’s
different from the one you’re currently
consider the costs of inaction
Effective Decision Making in
Today’s World
Effective Decision Making in Today’s World
Making good business decisions in today’s rapid-paced and messy world isn’t easy.
Things happen too fast. Customers come and go in the click of a mouse or the swipe
of a screen. Market landscapes can shift dramatically overnight along several
dimensions. Competitors can enter a market and exit it just as quickly as they
Most managers make one decision after another; and as if that weren’t challenging
enough, more is at stake than ever before. Bad decisions can cost millions.
Guidelines for
Effective Decision
Understand cultural differences.
Create standards for good decision making.
Know when it’s time to call it quits.
Develop your ability to think clearly
Use an effective decision-making process.
Use an effective decision-making process.
it focuses on what’s important
it’s logical and consistent
it acknowledges both subjective and objective thinking and blends analytical with intuitive
it requires only as much information and analysis as is necessary to resolve a particular
it encourages and guides the gathering of relevant information and informed opinion
it’s straightforward, reliable, easy to use, and flexible
Design Thinking and Decision
Design thinking says that managers
should look not only at the rational
aspects, but also at the emotional
A traditional manager (educated in a business school, of course) would take the options that
have been presented and analyze them based on deductive reasoning and then select the one
with the highest net present value. However, using design thinking, a manager would say, ‘What
is something completely new that would be lovely if it existed but doesn’t now?
Design thinking means opening up your perspective and
gaining insights by using observation and inquiry skills
and not relying simply on rational analysis.
Big Data and Decision Making
●, Earth’s biggest online retailer, earns billions of dollars of
revenue each year from its “personalization technologies” such as
product recommendations and computer-generated e-mails.50
At AutoZone, decision makers are using new software that gleans
information from a variety of databases and allows its 5,000-plus local
stores to target deals and, they hope, reduce the chance that customers
will walk away without making a purchase.
Pittsburgh Health Data Alliance is working toward developing
comprehensive patient profiles using social media, wearable sensors,
and genetic information with the goal of offering tailored health care
what is big data?
It’s the vast amount of quantifiable
information that can be analyzed by
highly sophisticated data processing.
One IT expert described big data with
“3V’s: high volume, high velocity,
and/or high variety information