Organizational Behaviour Lecture #5

Thursday, October 26, y Organizational Behaviour Lecture #5 Individual Decision Making Individual Decision Making: The process of developing a commitment to some course of action - Involves making a choice among several alternatives - A process involving more than a final choice among alternatives - Involves commitment of resources (e.g time, money, human resources, etc ( - Referred to as problem solving - Process: Context to Constraints to Resources to Tools - Problem - Initial state - Intermediate Stage (Shared amongst Initial and Goal) - Goal State - Solution Rational Decision-Making Process - Identify problem - Search for relevant information - Develop alternative solutions - Evaluate alternative solutions - Choose best solution - Implement solution - Monitor and evaluate chosen solution Perfect vs. Bounded Rationality - Perfect rationality (from economics ( - Decision strategy that is completely informed, perfectly logical, and oriented towards economic gain - Based on the Economic Person who is a perfect, cool, calculating decision maker - Prescriptive, works step by step - PROBLEM: Perfectly rational characteristics do not exist in real decision-makers - Limited processing abilities - Herbert Simon (Nobel Prize winner) suggested that managers use bounded rationality rather perfect rationality - Bounded rationality - Decision strategy that relies on limited information and that reflects time constraints and political considerations 1

Thursday, October 26, y - Time constraints and political considerations (the need to please others) act as bounds to our rationality - A need for a more realistic guide for decision makers - Occurs due to : 1 . Framing - Aspects of presentation of information about a problem that are assumed by decision makers - How we frame or word a problem can lead us to certain decisions - Facts might be the same but different decision frames might lead to different decisions - Perspectives - E.g. Placing an ugly frame around a nice painting 2 . Cognitive Biases - Tendencies to acquire and process information in an error-prone way (aka heuristics or rules of thumb ( - Leads to errors due to : 1 . Decision makers tend to be over-confident 2 . Confirmation Bias: Tend to seek out information that confirms their own definitions and solutions 3 . Availability Bias: Tend to remember and incorporate vivid or dramatic recent events into their decisions 4 . Representativeness Bias: Make decisions that are representative of their stereotypes / beliefs 3 . Problems with problem identification - Perceptual defence - Doe snot acknowledge what is evident but ignores it - Problem defined in terms of functional specialty - Selective perception, does not acknowledge others - Problem defined in terms of solution - Implies that the easiest solution is the correct solution - E.g. People are leaving a company, HR suggests to raise salaries without any interviews etc, the solution is NOT the correct one - Problem diagnosed in terms of symptoms - Solve the symptoms but not the root of the issue - Problem leads to being repeated - " Band-aid" solution 4 . Problems with information search - Confirmation Bias: Too little information - Information Overload: Too much information 2

Thursday, October 26, y 5 . Alternative development, Evaluation & Choice - Anchoring: Inadequate adjustment of subsequent estimates from an initial estimate that serves as an anchor - Satisficing: Establishing an adequate level of acceptability for a solution to a problem and then screening solutions until one that exceeds this level is found - Research has found satisfiers are more happy as they are accepting of what they have - Opposite of maximizers who always think there is more 6 . Problems when risk is involved - When people view a problem as a choice between losses, risky decisions are more likely - When people view a problem as a choice between gains, conservative decisions are more likely - Attitudes toward risk: risk averse (risk avoidance), risk taking, risk neutral 7 . Problems with Solution Implementation - Decision makers are often dependent on others to implement their decisions, and it might be difficult to anticipate their ability and motivation to do so - When others are making a decision, we are unable to fully predict the outcomes - E.g. engineers implementing the ideas of designers 8 . Problems with Solution Evaluation - Justification or rationalization of a faulty decision to avoid dissonance - Escalation of commitment is the tendency to invest additional resources in an apparently failing course of action to prove they were correct in making the decision in the first place 9 . Problems with Emotion and Mood - Emotion : - Enhance decisions making process in relation to correcting ethical errors or when dealing with creative problems by aiding in the development of creative solutions - But can also be distracting and unsettling to decision-making and lead to poor choices - Mood : - Important impact on the decision making process - For uncertain and ambiguous problems - Can affect information recall, evaluation, time reference, projected outcomes and creativity 3