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Chapter 7

by: Stephanie De Angelis
Stephanie De Angelis

GPA 3.1

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Individual & Group Decision Making
Managerial and Organizational Concepts
Professor Bhandari
Class Notes
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This 8 page Class Notes was uploaded by Stephanie De Angelis on Friday February 26, 2016. The Class Notes belongs to MGT 250 at Pace University - New York taught by Professor Bhandari in Winter 2016. Since its upload, it has received 25 views. For similar materials see Managerial and Organizational Concepts in Business, management at Pace University - New York.

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Date Created: 02/26/16
Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen Vocabulary Analytics­ (business analytics) the term used for sophisticated forms of business data analysis Anchoring and Adjustment Bias­ the tendency to make decisions based on an initial figure Availability Bias­ managers use information readily available from memory to make judgments Big Data­ not only data in corporate databases but also web­browsing data trails, social network  communications, sensor data, and surveillance data Big Data Analytics­ the process of examining large amounts of data of a variety of types to  uncover hidden patterns, unknown correlations, and other useful information Bounded Rationality­ the concept suggests that the ability of decision makers to be rational is  limited by numerous constraints Brainstorming­ a technique used to help groups generate multiple ideas and alternatives for  solving problems Confirmation Bias­ when people seek information to support their point of view and discount  data that do not Consensus­ occurs when members are able to express their opinions and reach agreement to  support the final decision Deciding to Decide­ a manager agrees that he or she must decide what to do about a problem or  opportunity and take effective decision­making steps Decision­ a choice made from among available alternatives Decision Making­ the process of identifying and choosing alternative courses of action Decision­making Style­ the combination of how an individual perceives and responds to  information Decision Support System­ a computer­based information system that provides a flexible tool for  analysis and helps managers focus on the future Decision Tree­ a graph of decisions and their possible consequences; it is used to create a plan to  reach a goal Defensive Avoidance­ a manager can’t find a good solution and follows by procrastinating,  passing the buck, or denying the risk of any negative consequences Delphi Technique­ a group process that uses physically dispersed experts who fill put  questionnaires to anonymously generate ideas; the judgments are combined and in effect  averaged to achieve a consensus of expert opinion Diagnosis­ analyzing the underlying causes Electronic Brainstorming­ (brainwriting) members of a group come together over a computer  network to generate ideas and alternatives Escalation of Commitment Bias­ decision makers increase their commitment to a project despite  negative information about it Ethics Officer­ someone trained about matters of ethics in the workplace, particularly about  resolving ethical dilemmas Framing Bias­ the tendency of decision makers to be influenced by the way a situation or  problem is presented to them Goal Displacement­ when the primary goal is subsumed by a secondary goal Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen Groupthink­ when group members strive to agree for the sake of unanimity and thus avoid  accurately assessing the decision situation Heuristics­ strategies that simplify the process of making decisions Hindsight Bias­ the tendency of people to view events as being more predictable than they really  are Intuition­ making a choice without the use of conscious thought of logical inference Minority Dissent­ dissent that occurs when a minority in a group publicly opposes the beliefs,  attitudes, ideas, procedures, or policies assumed by the majority of the group Nonrational Models of Decision Making­ how managers make decisions; they assume that  decision making is nearly always uncertain and risky, making it difficult for managers to make  optimal decisions Opportunities­ situations that present possibilities for exceeding existing goals Overconfidence Bias­ the bias in which people’s subjective confidence in their decision making  is greater than their objective accuracy Panic­ a manager is so frantic to get rid of the problem that he or she can’t deal with the situation realistically Predictive Modeling­ a data­mining technique used to predict future behavior and anticipate the  consequences of change Problems­ difficulties that inhibit the achievement of goals Rational Model of Decision Making­ (classical model) explanation of how managers should  make decisions; it assumes managers will make logical decisions that will be the optimum in  furthering the organization’s best interests Relaxed Avoidance­ a manager decides to take no action in the belief that there will be no great  negative consequences Relaxed Change­ a manager realizes that complete inaction will have negative consequences by  opts for the first available alternative that involves low risk Representativeness Bias­ the tendency to generalize from a small sample or a single event Satisficing Model­ managers seek alternatives when they find one that is satisfactory, not optimal Sunk­cost Bias­ (sunk­cost fallacy) when managers add up all the money already spent on a  project and conclude it is too costly to simply abandon it Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen 7.1 Two Kinds of Decision Making: Rational & Nonrational Decision Making in the Real World o Two types of decision making o System 1­ intuitive and largely unconscious  Operates automatically and quickly o System 2­ analytical and conscious  Operates slow, deliberately, analytically, and consciously effortful  mode of reasoning o The “curse of knowledge” o “People who design products are experts cursed by their knowledge, and  they can’t imagine what it’s like to be as ignorant as the rest of us” Rational Decision Making: Managers Should Make Logical & Optimal Decisions o There are 4 steps to rational decision making (rational model) o Stage 1: Identify the Problem or Opportunity – Determining the Actual  versus the Desirable o Stage 2: Think Up Alternative Solutions – Both the Obvious & the  Creative o Stage 3: Evaluate Alternatives & Select a Solution – Ethics, Feasibility &  Effectiveness  Is it ethical?  Is it feasible?  Is it ultimately effective? o Stage 4: Implement & Evaluate the Solution Chosen  Successful implementation  Plan carefully  Be sensitive to those affected  Evaluation  Give it more time  Change it slightly  Try another alternative Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen  Start over What’s Wrong with the Rational Model? o The rational model is prescriptive o Doesn’t describe how managers actually make decisions Nonrational Decision Making: Managers Find It Difficult to Make Optimal Decisions o The nonrational models are descriptive rather than prescriptive; they describe how managers actually make decisions rather than how they should o Non rational models are satisficing and intuition o Bounded rationality & Satisficing Model: “Satisfactory is Good Enough” o The Intuition Model: “It Just Feels Right” o As a model for making decisions, intuition has at least two benefits o It can speed up decision making o It can be helpful to managers when resources are limited 7.2 Making Ethical Decisions The Dismal Record of Business Ethics o More and more companies are creating values statements to guide employees as  to what constitutes desirable business behavior Road Map to Ethical Decision Making: A decision Tree o What is needed is a decision tree to help with ethical decisions according to a  Harvard Business School Professor (Constance Bagley) as shown below Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen 7.3 Evidence­Based Decision Making & Analytics Evidence­Based Decision Making o Seven Implementation Principles o Treat your organization as an unfinished prototype o No brag, just facts o See yourself and your organization as outsiders do o Evidence­based management is  not just for senior executives o Like everything else, you still need to sell it o If all else fails, slow the spread of bad practice o The best diagnostic question: What happens when people fail? o What Makes it Hard to be Evidence Based? o There’s too much evidence o There’s not enough good evidence o The evidence doesn’t quite apply o People are trying to mislead you o You are trying to mislead you o The side effects outweigh the cure o Stores are more persuasive anyway In Praise of Analytics o One example of analytics is portfolio analysis o Also there is time­series forecast o Three key attributes among analytics competitors:  o Use of modeling: going beyond simple descriptive statistics o Having multiple applications, not just one o Support from the top The Uses of “Big Data” Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen o Big data attracts a lot of  attention in science, business, medicine, and technology,  making it “the next frontier for innovation, competition, and productivity.” o Businesses are interested in analyzing online behavior to  o Create ads o Products o Or experiences 7.4 Four General Decision­Making Styles Value Orientation & Tolerance for Ambiguity o Value orientation reflects the extent to which a person focuses on either task and  technical concerns or people and social concerns when making decisions Four styles of decision making: 1. The directive style: action­oriented decision makes who focus on facts 2. The analytical style: careful decision makers who like lots of information &  alternative choices 3. The conceptual style: decision makers who rely on intuition & have a long­term  perspective 4. The behavioral style: the most people­oriented decision makers What Style Do You Have? o Few people have only one dominant decision­making style o Most managers have characteristics that fall into two or three styles o You can use knowledge of decision­making styles in 3 ways: o Know thyself o Influence others o Deal with conflict 7.5 How to Overcome Barriers to Decision Making Decision Making & Expectations about Happiness o Not just expectations about how happy or unhappy you are but future outcomes  can also influence your decisions How Do Individuals Respond to a Decision Situation? Ineffective & Effective Responses o Four ineffective reactions 1. Relaxed avoidance – “There’s no point in doing anything; nothing bad’s  going to happen” 2. Relaxed change – “Why not just take the easiest way out?” Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen 3. Defensive avoidance – “There’s no reason for me to explore other solution alternatives” 4. Panic – “This is so stressful, I’ve got to do something – anything – to get  rid of the problem!” o Three effective reactions: deciding to decide 1. Importance – “How high is priority in this situation?” 2. Credibility – “How believable is the information about the situation?” 3. Urgency – “How quickly must I act on the information about the  situation?” Nine Common Decision­Making Biases: Rules of Thumb, or “Heuristics” 1. The availability bias: using only the information available 2. The representativeness bias: faulty generalizing from a small sample or a single  event 3. The confirmation bias: seeking information to support one’s point of view 4. The sunk­cost bias: money already spent seems to justify continuing  5. The anchoring & adjustment bias: being influenced by an initial figure 6. The overconfidence bias: blind to one’s own blindness 7. The hindsight bias: the i­knew­it­all­along effect 8. The framing bias: shaping how a problem is presented 9. The escalation of commitment bias: feeling overly invested in a decision 7.6 Group Decision Making: How to Work with Others Advantages & Disadvantages of Group Decision Making o Advantages o Greater pool of knowledge o Different perspectives o Intellectual stimulation o Better understanding of decision rationale o Deeper commitment o Disadvantages o A few people dominate or intimidate o Groupthink o Satisficing o Goal displacement What Managers Need to Know about Groups &Decision Making 1. They are less efficient 2. Their size affects decision quality 3. They may be too confident 4. Knowledge counts Group Problem­Solving Techniques: Reaching for Consensus o Dos: Use active listening skills. Involve as many members as possible. Seek out  the reasons behind arguments. Dig for the facts Chapter 7 : Individual & Group Decision Making How Managers Make Things Happen o Don’ts: avoid log rolling and horse trading. Avoid making an agreement simply to keep relations amicable and not rock the boat. Finally, don’t try to achieve  consensus by putting questions to a vote More Group problem­Solving Techniques 1. Brainstorming: For Increasing Creativity 2. The Delphi Technique: For Consensus of Experts 3. Computer­Aided Decision Making


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