Decision Making: MGT 111 - Idtb
Decision Making: MGT 111 - Idtb
Consistent monitoring and The situation to be monitored Go ahead. Implement! Selects the alternative that
periodic feedback. to check if decision meets its best meets the decision
objective. objective. If the problem
diagnosis is correct and
sufficient alternatives have
been identified, this becomes
easy-peasy-lemon-squeezy.
Importance of Decision-maker
• Why is the responsibility of decision-making given to most level-headed person?
• Why companies spend a fortune in hiring CXOs (decision-makers)?
• Are all decision-makers of same quality?
• Are individual differences making a difference in decision-making?
• Which aspect of individuals would impact decision-making?
Perception and Decision-making
• Is there a problem at hand?
• Do we need to take a decision?
• Where should we focus?
• Which data is relevant to the decision?
• What are the alternatives that can be considered?
• How do we evaluate the alternatives to make a choice?
Models of Decision-Making
1. Rational Model
2. Bounded Rationality Model
3. Z-Model
Rational Model
• Rational?
• Characterized by making consistent, value maximizing choices within specified constraints
• Rational Decision-making Model
• A decision-making model that describes how individuals should behave to maximize an outcome
• Rationality:
• A logical, step-by-step approach to decision making, with a thorough analysis of alternatives and
their consequences
Source: Robbins & Judge (2021)
Assumptions in RDM
• Is it realistic?
• Time constraints, limits to human knowledge and info-processing capability
• M’s need and preference may change
Types of Decision-making
• Programmed Decisions – A simple, routine matter for which there is an established
decision rule
• Example?
• Non-programmed Decisions – A new, complex decision that requires creative solution
• Example?
Programmed Decisions
• Def:
• Repeated over time and for which an existing set of rules can be developed to guide the
process.
• Can be simple or complex
• The criteria in making the decision are known or can at least be estimated with
a reasonable degree of accuracy
• Can also be taught easily to another person
• Example:
• Dabbawala: https://www.youtube.com/watch?v=KDD32skx-zM
Non-Programmed Decisions
• Def:
• Novel and unstructured decisions, generally based on criteria that are not well-defined
• Information likely to be ambiguous or incomplete
• Use of judgment and creative thinking
• Non-routine and high-involvement decisions
• https://threadreaderapp.com/thread/1316828204204584960.html
Types of Decision-making
• Herbert Simon on difficulty of decision making:
https://www.youtube.com/watch?v=eTXkZURBq7k
• “Decisions are programmed to the extent they are repetitive and routine, to the extent
that a definite procedure has been worked out for handling them so that they don't have
to be treated from scratch each time they occur” (Simon, 1977; p. 46)
• “Decisions on the other hand are non-programmed to the extent they are novel,
unstructured and unusually consequential” (Simon, 1977; p. 46)
Decision Type : Example 1
• Deciding the quantity of raw materials to order, based on anticipated
production, existing stock, and anticipated length of time for the delivery of the
final product
• Type?
Decision Type : Example 2
• Manager trying to decide whether or not to adopt a new technology.
• There will always be unknowns in situations of this nature.
• Will the new technology really be better than the existing technology?
• Will it become widely accepted over time, or will some other technology
become the standard?
• Type?
Decision Type : Example 3
• A retail store manager developing the weekly work schedule for part-time
employees
• Consider how busy the store is likely to be, seasonal fluctuations, the availability
of the workers
• Type?
Bounded Rationality Model (BRM)
• Sully: https://www.youtube.com/watch?v=mjKEXxO2KNE&t=24s
• Simon Herbert on difficulty of decision making:
https://www.youtube.com/watch?v=eTXkZURBq7k
• Simon Herbert on BRM:
https://www.youtube.com/watch?v=ErnWbP_Wztk
RDM Vs. BRM
“Once we have identified a problem, we begin to search for criteria and alternatives.”
“We identify a limited list of the most conspicuous choices, both easy to find and highly visible,
that usually represent familiar criteria and tried-and-true solutions.” (A2)
“Next, we begin reviewing them, but our review will not be comprehensive.(A3) Instead, we
Source: Nelson & Quick (2019)
focus on alternatives that differ only in relatively small degree from the choice currently in
effect.
Following familiar and well-worn paths (A4), we review alternatives only until we identify one
that’s good enough – that meets an acceptable level of performance.”
“That ends our search. The solution represents a satisficing choice – the first acceptable one
we encounter – rather than an optimal one.” (A1)
Source: Robbins & Judge (2021)
Bounded-Rationality Model - Assumptions
1. We select the first alternative that is satisfactory
Satisficing - Select the first alternative that is “good enough,” because the costs of
optimizing in terms of time and effort are high
2. We recognize that one’s conception of the world is simple
3. We are comfortable making decisions without determining all the alternatives
4. We make decisions by rules of thumb, or heuristics
Based on what has worked in past experiences
Kahnemann & Tversky on Heuristics: https://www.youtube.com/watch?v=3IjIVD-KYF4
Bounded-Rationality Model
• More Realistic than RDM?
• Decisions are made under constraints like time, risk, uncertainty
• Role of Emotion should be included
Bounded-Rationality Model