Chapter 6
What is decision-making and the two forms?
- decision-making is the selection of a choice between alternatives to achieve a goal
- programmed: routine based with known alternatives
- non-programmed: don't occur on a daily basis
Rational decision making and model
- maximizes attainment of goals
1. identify problem
2. choose the best decision style
3. develop alternatives
4. choose alternative
5. implement
6. evaluate results
Assumptions of rational decision making
- all alternatives are known
- satisficing
- individual is capable of fully processing info
- bounded-rationality: limited cognitive ability to gather and process all info
prospect theory
- Placing more weight on perceived gains than losses
- risk-seeking when framed as losses and risk-averse when framed as gains
Decision-making fiasco (escalation of commitment)
- when poor decisions are not reverted, but rather gain more investment
social determents
- credibility
- higher-up decisions
psychological
- loyalty to decision
- framed between losses
How to avoid bad decisions
- don't obsess over credibility
- don't be afraid of withholding investment
- Hire external auditor
- don't ignore negative feedback
single - double - paradigm - cognitive script
single: making adjustments to fix mistakes
double: finding root cause then make decisions
paradigm shift: shift from original way of thinking
cog script: The need to follow rules and procedures and organizing knowledge systematically