Understanding Decision Making
Dr Damini Saini
Professor of Organizational Behaviour
IIM Raipur
“Most discussions of decision making assume that
only senior executives make decisions or that only
senior executives’ decisions matter. This is a
dangerous mistake.”
Peter Drucker
These decisions may affect the lives of
others and change the course of an
organization. For example, the decisions
made by executives and consulting
firms for Enron ultimately resulted
in a $60 billion loss for investors, thousands
of employees without jobs,
and the loss of all employee retirement
funds.
Sherron Watkins,
a former Enron employee and
now-famous whistleblower,
uncovered the accounting problems
and tried to enact change.
A Decision
• Habitual decisions : such as what to wear, what to eat, and which
route to take as you go to and from home and school.
• do not spend much time on these mundane decisions.
• Programmed Decisions
• The automated response we use to make these decisions is called
the decision rule. (for example : more than 4 absents in a 1 credit
course will lead to marks deduction)
A crisis situation also
constitutes a
nonprogrammed decision.
In order to ensure consistency around
the globe such as at this St. Petersburg,
Russia, location, McDonald’s Corporation
trains all restaurant managers at
Hamburger University where they
take the equivalent to 2 years of college
courses and learn how to make decisions
on the job.
The curriculum is taught in 28 languages.
The leadership of Nutrorim was facing a tough decision.
They introduced a new product, ChargeUp with
Lipitrene, an improved version of their popular sports drink
powder, ChargeUp.
a phone call came from a state health department that
11 cases of gastrointestinal distress that might be
related to their product, which led to a decision to
recall ChargeUp.
The decision was made without an investigation of the information.
ALL THE WRONG MOVES Two weeks later it becameclear that the reported health problems
were unrelated to Nutrorim’s product.
In fact, all the cases were traced back
to a contaminated health club juice bar. However,
the damage to the brand and to the balance sheets
was already done. This unfortunate decision caused
Nutrorim to rethink the way decisions were made when
under pressure.
Rational
DM establish your decision criteria
before you search for alternatives
fourth step can be the most
challenging and often leads
to failure
large number of alternatives that cover
a wide range of possibilities, you are
unlikely to make a more effective decision
ANALYSIS PARALYSIS
• TOO MANY ALTERNATIVES
• IT CAN BE RELATED TO FEAR
• DEPRESSION ANXIETY.
https://personalexcellence.co/blog/analysis-paralysis/
Bounded Rationality Model
Satisficing is similar to rational decision making.
The main difference is that rather than choosing
the best option and maximizing the potential outcome,
the decision maker saves cognitive time and effort
by accepting the first alternative that
meets the minimum threshold.
It is described as a “gut feeling” or a sense that something is true without necessarily being able to explain why.
This model refers to arriving at decisions without conscious
reasoning. A total of 89% of managers surveyed admitted to
using intuition to make decisions at least sometimes and
59% said they used intuition often.
Intuitive decision-making can be described as the
process by which information acquired through
associated learning and stored in long-term memory
is accessed unconsciously to form the basis of a
judgment or decision
Intuitive decision making is based on accumulated
experiences, unconscious patterns, and heuristics,
which are mental shortcuts that help us make quick
judgments and evaluations. When we engage in
intuitive decision making, we rely on our instincts,
rather than conscious thought, to guide us in making decisions.
CREATIVE DM
Innovations such as 3M’s Clearview Window Tinting grow out of a creative decision-making
process about what may or may not work to solve real-world problems.
A key to success in creative During incubation, the individual
decision making is having sets the problem aside and does illumination, or the insight moment
or acquiring expertise in not think about it for a while. when the solution to the problem
the area being studied. At this time, the brain is actually becomes apparent to the person,
working on the problem sometimes when it is least expected.
unconsciously.
the number of ideas a person is able to generate
how different the
ideas are from
one another
how unique a person’s ideas are.
To enhance creativity
• Diversity
• Change group membership
• Leaderless team
• brainstorming
• NGT(NGT gathers information by asking individuals to respond to questions
posed by a moderator, and then asking participants to prioritize the ideas or
suggestions of all group members.
• Analogies (“Life is like a box of chocolates—you never know what you're
gonna get.”)
Potential Challenges to Decision Making
Overconfidence Bias
example, 82% of the drivers surveyed feel they are
in the top 30% of safe drivers,
86% of students at the Harvard Business School
say they are better looking than their peers,
and doctors consistently overestimate their ability
to detect problems.
Hindsight Bias
• Hindsight bias is the opposite of overconfidence bias,
• it occurs when looking backward in time where mistakes made seem obvious after
they have already occurred.
• many individuals are likely to think that they already knew this was going to happen.
• let’s say a company driver hears the engine making unusual sounds before starting her
morning routine.
• Being familiar with this car in particular, the driver may conclude that the probability
of a serious problem is small and continue to drive the car.
• During the day, the car malfunctions, stranding her away from the office. It would be
easy to criticize her decision to continue to drive the car because, in hindsight, the
noises heard in the morning would make us believe that she should have known
something was wrong and she should have taken the car in for service.
Anchoring
• individuals to rely too heavily on a single piece of information.
• Job seekers often fall into this trap by focusing on a desired salary while
ignoring other aspects of the job offer such as additional benefits, fit
with the job, and working environment.
Framing Bias
Escalation of Commitment
when individuals continue on a
failing course of action after
information reveals this may be a
poor path to follow. It is
sometimes called sunk costs
fallacy because the continuation is
often based on the idea that one
has already invested in this course
of action.
