Chapter 6' Decision Making

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Chapter 6. Decision Making

• Learning Objectives
• Identify the steps in the decision making process
• Understand the alternative decision making models
• Understand the decision making condition of
  certainty, risk, and uncertainty
• Understand the advantages and disadvantages of
  group decision making
• Understand the group decision making techniques

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The Decision Making Process

• Identify the problem
• How to distinguish between a problem and
  symptoms of a problem?
• Identify the decision criteria
• Develop and evaluate alternatives
• Select the best alternative
• Implement the alternative selected
• Feedback

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Managers as Decision Makers The Various
Decision Making Models (I)

• Optimizing (or Rational/Economic) Model
• Decision maker has a single, well-defined goal he
  or she is trying to maximize
• All options are known
• Preferences are clear
• Preferences are constant
• Final choice will maximize the outcome
• What are the limitations of this model?

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Managers as Decision Makers The Various
Decision Making Models (II)

• Bounded rationality
• people have limits, or boundaries on how
  rational they can be!
• Satisfying (or Administrative) Decision Making
• Decision maker choose the first solution
  alternative that satisfies minimal decision
  criteria rather than pursue all alternatives to
  identify the best solution
• Examples?
• The Intuitive Decision Making!

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The Conditions of Decision Making

• Certainty
• A decision maker knows which events will occur
  and simply selects the one with the largest
  payoff value
• Risk
• A decision maker does not know which event will
  occur but can determine probabilities of
  occurrence for various events
• Uncertainty
• the events and their probabilities of happening
  are not known

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The Behavioral Aspects of Decision Making and
Decision Making Biases

• Decision making is often influenced by
• Prior Decisions
• Attitudes and opinions
• Emotions
• Intuition
• Common Decision Making Biases
• Hindsight bias
• Being influenced by problem framing
• Over confidence
• Escalation of commitment

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Advantages and Disadvantages of Group Decision
Making

• Advantages?
• Disadvantages?

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Decision Making Styles
High Tolerance for
Ambiguity Low
Analytic Conceptual Directive Behavioral
Rational Intuitive Way of Thinking
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Use of IT in Decision Making

• Functions of Information Systems
• Management Information Systems
• Decision Support Systems
• Expert Systems

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