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Managerial Decision Making

by: Clementina Hoeger

Managerial Decision Making MGMT 3890

Clementina Hoeger
GPA 3.58

Ralph Williams

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Ralph Williams
Class Notes
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This 13 page Class Notes was uploaded by Clementina Hoeger on Wednesday September 23, 2015. The Class Notes belongs to MGMT 3890 at Middle Tennessee State University taught by Ralph Williams in Fall. Since its upload, it has received 220 views. For similar materials see /class/212930/mgmt-3890-middle-tennessee-state-university in Business, management at Middle Tennessee State University.


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Date Created: 09/23/15
1 I A A 01 Michael Adam Riddick Management 3610011 Dr Morrell Tuesday 69pm Ethics Assignment The ethical issue at hand is whether or not the fired employee should retain the 2500 erroneous reimbursement check or keep and cash it for his own personal use This is an issue due to the fact that the check is made out to him but is money the bank had spent on a company sanctioned flight for business purposes It is money that rightfully belongs to Global Investment Banking Stakeholders in this situation would be the fired employee and Global Investment Banking While the fired employee is a stakeholder in his own right he seeks the additional 2500 over his severance package due to the idea that the bank mislead him in his career path and feels that he is owed this Global Investment Banking is a stakeholder as well because as a firm they are a forprofit business As the 2500 is rightfully theirs losing it equates to substantial lost pro ts Under the deontological approach individual rights are determined based on which stakeholder we are referring to If we are referring to Global Investment Banking s rights then the decision right ethical for the fired employee to return the erroneous check If we are referring to the red employee s rights and justice the correct decision would again be to return the money although it was wrong albeit not illegal for Global Investment to falsely indicate that he would be relocated to another position thus leading him on to improbable career advancements These decisions show the deontological approach to ethical decision making by evaluating not only the individual rights of each stakeholder but also the treatment of those affected in the decision making process Underthe utilitarian approach the decision in this situation would be to determine whether or not the fired employee in question is worth the extra 2500 if he comes fonNard and admits the bank s mistake and offers to return the money In doing so the employee is proving himself honest and trustworthy even within the condition of being let go Is the employee s integrity enough to regain employment possible retention ofthe missing reimbursement check orjust a sense of having done the right thing for both concerned parties This evaluation is showing utilitarianism by attempting to explore what is the greatest good for all involved There are really only three possible solutions to this ethical dilemma The rst of which is pretty obvious the fired employee returns the check to Global Investment Banking maintains his integrity and does the right thing by not keeping money that he knows clearly is not his The second solution is the complete opposite and possibly most attractive to the employee in question the red employee retains the check cashes it and keeps it for himself getting his dues forthe misinformation regarding his job security and career advancement The last possible scenario would be for the fired employee in question to either do nothing and wait for the Term judgment six steps of rational decison making process rationality rational model boundedrationality satisfice vs suf ce heuristics Defin ition refers to the cognitive aspects ofthe decision making process 1 setting managerial objectives the unlimate goal is to eliminate temporay symptoms 2 Seach for alternatives in this step you want to list as many reasonable alternatives as possible 3 Comparing and evaluating alternatives 4 Act of choice The process requires identi cation of possible course of action 5 Implementing the decision The choice is transformed from abstract into an operational reality 6 Followup and control refers to the decision making process that is logically expected to lead the optimal result given an accurate assessment of the decision makers39s values and risk preferences the rational model is based on a set of assumptions that prescribe how a decision should be made rather than describing how a decision made boundedrationality framework views individuals as attempting to make rational decisions it acknowledges that they often lack important informationthat would help define the problem the relevant criteria and so on decision makers will forgo the best solution in favor of one that is acceptable or reasonable That is we satis ce rather than examining all possible alternatives we simply search until we find a satisfactory solution that will suffice because it achieves an acceptable level of performanace researchers have found that people rely on a number of simplifying strategies or rules of thumb when making decisions Heuristics serve Availability heuristic Representativenes Heuristic Bias Rep Heuristic lnsensitivity to sample size Biases Rep Heuristic Misconception of chance as a mechanism for coping with the complex environment surrounding our decisions 1 Ease of recall individuals judge events that are more easily recalled from memory based on vividness or recency to be more numerous than events of equal frequency whose instances are less easily recalled 2 Retrievability individuals are biased in their assessments of the frequency ofevents based on how their memory structures affect the search process For example a product manager will base her assessment ofthe probability of a new product39s success on her recollection of the successes and failures of similar products in the recent past when making a judgment about an individual or object or event people tend to look fortraitsand individuals may have that correspond with previously formed stereotypes For example we believe that a blue collar employee can39t perform a white collarjob When assessing the reliability of sample information individuals frequently fail to appreciate the role of sample size For example In a survey four out of ve managers prefer to hire males for managers than females However this survey doesn39t mentioned how many managers did they asked which results are meaningless Individuals expect that a sequence of data generated by a random process will look quotrandomquot even when the sequence is too short for those expectations to be statically valid For example a sales person is having high sales Biase Rep Heuristic regression to the mean Bias Rep Heuristic conjuction fallacy Confirmation Heuristic bias quotcon rmation trapquot forthe last two months His boss belief that this sales person is going to continue this trend This is no just erroneous but also can be costly ifthe business allow to be influence by this short trend Individuals tend to ignore the fact that extreme events tend to regress to the mean on subsequent trials For example When a real estate agent sold five houses in a month abnormally high performance in this business his fellow agent didn39t expect equally high sales from him the following month Under unusual circumstances we expect performance to regress but we generally don39t recognize the regression effect in less extreme cases lndidvidualsfalsely 39udge that con39unctions two events cooccurring are more probable than a more global set of occurrences of which the conjunction is a subset For example If a customer ask a sales person when is this item that is outofstock coming in If the sales persons replies it might be in two weeks or it may be in this week or it may be in tomorrow Then it seems more likely it will be in sooner rather than later means seeking confirmination information for what to believed true and failing to seek for disconfirming evidence For example A stock day trader only focus on positive results So he keeps investing this could lead to a big trap of not considering the other affects and the end result could be losing all his money Confirmation heuristic anchoring Confirmation Heuristic conjunctive and disjunctive events bias Confirmation Heuristic hindsight and the curse of knowledge Individuals make estimates for values based upon an initial value derived from past event random assignment or whatever information is available and typically make insuf cient adjustments from that anchor when establishing a nal value For example A store has been opened for 2 months and the plant manager decides to issue everyone a raise due to exceeding sales forecast forthe last two months Yet he didn39t realize that the sales would go down after the newest decline Individuals exhibit a bias toward overestimating the probability of conjunctive events and underestimating the probability of disjunctive events For example A bakery has an order of 100 cupcakes to be picked up by 1pm Instead of starting to work on it by 6am he waits until 10am to start working on it This believe is since he recently upgraded the baking equipment that it would go faster yet it was never tested prior to this event After nding out whether or not an event occurred individuals tend to overestimate the degree to which they would have predicted the correct outcome Furthermore individuals fail to ignore information they possess that others do not when predicting others39 behavior For example The manager team has to decide from where they are going to be purchasing a new press They can either purchase one from England who they purchase one before orthey can purchase a press from China that is selling it for 20 less The PD goes with the purchase of China and the press turns out to be a lemon The other manager said quotI knew we should of purchase the one from Englandquot refers to the welldocumented observation that people routinely overlook important information prevents them from noticing or focusing on useful observable and relevant data during the decisionmaking process bounded awareness One cause is our tendency to become overly focused Focus limits awareness and important information outside the range of focus can be missed Thus an airplane pilot attending to status monitors and controls can overlook the presence of another airplane on the runway Cell phones can distract drivers and contribute to car accidents filtering mechanism choose which data to consider and which to not consider Results from information overload Prevents people from noticing or focusing onuseable observable and relevant information Bounded Awareness cont Vision is what we see The failure to notice a fullyvisible but unexpected object because lnattentional Blindness attention was engaged on another task event or object An automobile driveroaks left down a sidewalk and pulls forward into a Constitutes a limit of the visual system driveway She hears a thud looks illustrates a critical aspect of visual processing down and sees a bicyclist on the Reveals the role of selective attention in visual ground near her left front fender The perception bicyclist is seriously injured For example A pharmacist enters a prescription focalism focusing illusion Bounded awareness Change BHndness for methotrexate daily into the pharmacy computer A dose warning appears on the screen The pharmacist reads the warning bypasses it and dispenses the medication as entered The patient receives an overdose of the medication and dies to describe the common tendency to focus too much on a particular event and too little on othe events that likely to occur concurrently as the tendency of people to make judgments based on their attention to only a subset of available information to ovenNeight that information and to undenNeight unattended information The Challenger was launched at the lowest temperature leading to a failure of the Orings and an explosion that killed all of them Before the launch the decision makers to examined 7 prior launches in which some sort of Oring failure occurred No clear pattern between Orings and temperature emerged from this data and the launch continued as scheduled Critically the decision makers failed to consider 17 previous launches in which no Oring failure occurred A logistic regression of all 24 launches would have led to an unambiguous conclusion the Challenger had more than a 99 per cent chance of malfunction Failure to see changes in the physical environment This is noted in the movie industry For example retake part ofa scene something changed in the background goes un noticed Especially gradual changes This is not only visual but ethics For example in a study participants were asked to choose the more attractive oftwo faces displayed on a computer screen As participants moved the cursor to indicate their choice a ash on the screen distracted them and the two pictures were reversed Nonetheless most subjects continued to move their cursor in the same direction selecting the picture they originally viewed as the more attractive lmportantly they failed to notice the switch and Bounded awareness focusing illusion Bounded awareness in Groups Bounded Awareness in strategic settings Multiparty Ultimatum Games Bounded Awareness solutions provided reasons to support their unintended decision Common tendency to focus too much on event or one subset of data Tend to over estimate the effect of position andor negative events For example favorite team wins they39re the best in the league Forcusing on one subset of data or informationand not seeing other important information Groups consider information that was avaialbe to all members before the meetingand tend to not consider new info shared during the meeting Multiparty ultimatum games negatiators quotovergeneralizeform one situation to another Even when the overgeneralization is inappropriate Winner39s curse If possible buyers should avoid making first offer Seller has more information which buyer is not considering See Information train yourself and obtain outsiders perspective Seek Information challenge the absence of disconfirming information and undersearch most contexts oversearch most important Ask quotWhat are we missingquot Use Information unpack the situation see full context and assume the information you need is Risk Averse Risk seeking aka risk loving Framing Framing Expected Utility in your organization Share information ask for it explicity before meetings and asigninformaiton gathering to one person Risk aversion is the reluctance of a person to accept a bargain with an uncertain payoff rather than another bargain with a more certain but possibly lower expected payoff For example a riskaverse investor might choose to put his or her money into a bank account with a low but guaranteed interest rate ratherthan into a stock that may have high expected returns but also involves a chance of losing value The opposite of risk aversion is risk seeking sometimes called risk loving A risk seeking investor prefers more risk to less all else being equal There are risks that he will pay to be allowed to take It is an inevitable process of selective influence over the individual39s perception of the meanings attributed to words or phrases In other words people build a series of mental filters through biological and cultural influences They use these filters to make sense ofthe world The way people behave depends on the way they frame their decisions How issues are worded Each level of outcomeis associated with an expected degree of pleasure or benefit utility For example 1 M has twice the value of 500k Which would you choose 500k Certainty effect Pseudocertainty Effect Acquisition utility what is it worth to you Transaction utility 50 chance at 1 M Answer Declining marginal utility of gains risk aversion loss is more like risk seeking People prefer to reduce the chances of something bad happening From something to nothing Over the option or the same about of risk reduction but not to zero Two oprions from OSHA a Reduce your chances of fine from 20 to 10 b Reduce your chances of fine from 10 to zero It refers to people39s tendency to perceive an outcome as certain while in fact it is uncertain Pople tendency to make risk averse choice if the expected outcome is positive But make risk seeking choices to avoid negative outcomes value of the commodity The new concept transaction utility is modeled as depending the difference between the selling price and a reference price This new concept is used to explain why individuals will sometimes be unwilling to either buy or sell a given product at a given price why sellers can nd it pro t maximizing to charge a less than market clearing price and ways sellers can charge higher prices while minimizing the loss of long run sales EX Concert Ticket The perceived value of getting a good deal the difference between the amount paid and a notional reference price EX Titans Game You are willing ot pay 6 for Endowment Effect Status Quo Framing Emotion cognition scrap Temporal Differences From Economists From Decision Theorists beer at the game but not at the stopngo We place more value on what we own than is justified int he market lntrinsic worth the actual value Attachment Uninspring leader who doesn39t take risk no innovation misses opportunity that would have employed 100 unemployed fromthe community leaves company vulnerable Risk Taker loses 100 jobs when after trying to enter a new market We prefer quotomissionquot over quotCommissionquot do no harm in multiple selves we use the terms quotwantquot and quotshouldquot to categorize these two types of preferences One ofour selves is in favorfodecison that priveds immediate grati cation rether than an altervative that would provide greater future rewards related to time Discounting For example happiness today is worth more than happiness tomorrow Align the cost CEO wamts what39s best fro him in the short term BOD should align incentives so what39s best for the CEO in the short term is good forthe rm in the long term Allow and encourage debate among the From Negotiatin Researches Self serving reasoning Emotional influences fear disgust sadness and anger Escalation of commitment Sunk Costs quotwantquot and quotshouldquot factions of the mind Require agreement between your quotwant and shouldquot Eat ice cream but run an exta mile Individuals rst determin their preference for a certain outcome on the basis of self interest Then justify their preference for a this outcome on the basis fairness Changing the importance of attirbutes affecting what is fair Fear increases sensitivity to risks and prepates bodies to ee Disgust forces a purging of decontaminating agents Sadness focuses attention on self and motivates the seeking of change Anger incrased con dence increased feeling of power and decreased sensitivity to risk Suppose your investment is failing You are being irrationalfor not letting it go Instead you might even escalate your investment Throwing good money after bad Invested too much to guit Can be almost trance like History tells us that managers believe in what they39re doing continue to do so Virtually up to the point that success turns to failure ofdecisionsinertia Cost is sunk and will not be coming back Monies spent are gone and are irrelevant to the future costs and or benefits to be considered Decisions are made based on future Psychological sunk costs investments Perceptional Biases Judgmental biases Impression management Competitive Irrationality costsbene ts Many managers miss this Not as easily recognizable as nancial investment Need to break the nexus between intangible costs and irrational decisin making It means you are biased against or for something based on your sensory inputs sight most likely but could also be touch smell taste or hearing filtering out information not supporting our desire diligently look for discon rming information Framing Positive frame gt Risk Adverse Negative frame gt Risk seeking changes gt admitting previous decisin was wrong In our society good leaders are consistent Exceeding potential benefit in an auction


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