Chapter 09: Decision Making
TRUE/FALSE
1. In the rational model of decision making, decision makers determine the appropriate decision criteria,
such as price and quality, and then assign weights or levels of importance to them.
2. The decision process is directed toward changing the root causes of difficulties so that the symptoms
are reduced or eliminated.
3. A programmed decision needs to explore alternative solutions because the optimal solution has not yet
been identified.
4. The rational decision model is now recognized as insufficient in describing people’s behavior under
many conditions.
5. According to Herbert Simon, people have the ability to process all of the information and analyze all
of the possible solutions to a problem.
6. The impact of bounded rationality is greatest when trying to make programmed decisions, and can be
viewed along a continuum of rationality.
7. Satisficing occurs because it is easy to identify all the possible alternatives, and because information
about available alternatives is clear.
8. The verdict-based approach to information gathering and decision making creates a
confirming-evidence bias.
9. Research shows that while verdict-based decision making, which employs a broader information
search, is much more likely to lead to better decisions, evidence-based decision making is still very
common.
10. Decision support systems are driven by human input that guide people through the decision-making
process.
11. The advantage of scenario thinking is that the importance of one or two key criteria such as the cost of
a raw material or the price of a substitute product can be clearly identified and properly dealt with.
12. Research in psychology, management, and political science shows that people regularly make decision
errors that are based on discernible emotional states.
13. Anchoring occurs when a person is unduly influenced by an initial impression or relies on one piece of
information as the key to decision making.
14. The availability heuristic operates on the notion that if you can think of something, it must be
important and will become part of your decision.
15. The representativeness heuristic occurs when seeming patterns are assumed to represent something
that the data warrant.
16. What helps to energize the escalation of commitment problem is the status quo trap, which is the
deep-seated bias to make present decisions in order to justify past choices.
17. One effective way to minimize escalation of commitment decision problems is to separate decision
choosers from decision evaluators.
18. A poorly framed problem can undermine even the best-considered decision.
19. Groupthink is a mode of thinking that people engage in when they are deeply involved in a cohesive
in–group, and when the members’ striving for agreement override their motivation to realistically
appraise alternative courses of action.
20. One way to overcome groupthink is for the team leader to remember that harmony is the ultimate goal.
21. It is commonly believed that when using a group to make a decision, a simple agreement or consensus
will be reached.
22. Group decisions are more effective than individually directed decisions when the decision involves a
short-range forecast.
23. Cognitive diversity is the ability of members of the group to think differently, and to express their
opinions and findings.
24. Situation-accepting managers are likely to believe that they themselves are the prime or only influence
on the same process.
25. In more hierarchical cultures, only very senior managers make decisions.
MULTIPLE CHOICE
1. Which of the following is arguably the most important step in rational decision making?
a.
List of solutions
b.
Problem identification
c.
Appropriate decision style
d.
Choosing the best alternative
2. A decision that follows standard operating procedures, and where there is no need to explore
alternative solutions because the optimal solution has already been identified and documented is a(n):
a.
programmed decision.
b.
heuristic decision.
c.
intuitive decision.
d.
creative decision.
3. New, complex, or abstract problems require _____ decisions, wherein decision makers must search for
alternatives and possibly craft a unique solution.
a.
heuristic
b.
satisficing
c.
nonprogrammed
d.
intuitive
4. In choosing the best alternative:
a.
if decision makers cannot find an acceptable ready-made solution, then they would
normally try to design a custom-made solution.
b.
decision makers must rally employees and prepare sufficient resources to make and
implement the decision.
c.
firms must consider the motivation, ability, and role perceptions of employees
implementing the solution.
d.
the selection criteria must be ranked by importance and given a weighted rating such as
from 1 to 10 or some other scale.
5. Which of the following statements about the normative model of decision making is true?
a.
It describes how people actually behave.
b.
It is decision making using a rational model.
c.
It is not the idealized decision-making model.
d.
It is the actual, day-to-day decision-making model.
6. According to the administrative theory of individual decision making, people do not have the ability to
process all of the information and solutions that face them, which leads them to limit their problems
and solutions. This is known as:
a.
satisficing.
b.
uncertainty.
c.
bounded rationality.
d.
devil’s advocacy.
7. The impact of bounded rationality is greatest when trying to make _____ decisions, and can be viewed
along a continuum of rationality.
a.
nonprogrammed
b.
intuitive
c.
heuristic
d.
structured
8. ‘‘Sensors’’:
a.
are often very deductive.
b.
rely heavily on images, emotion and logic.
c.
draw heavily on certain basic principles from which they prefer not to deviate.
d.
rely on facts and empirical evidence.
9. When bounded rational decision makers focus on alternatives that are ‘‘good enough’’ rather than on
finding the best possible solution, they engage in:
a.
heuristics.
b.
satisficing.
c.
programmed decision making.
d.
nonprogrammed decision making.
10. A process of information search and decision-making that starts with the presumed answer to the
decision and proceeds to only seek out information that confirms the initial verdict or decision is:
a.
verdict-based information search.
b.
evidence-based information search.
c.
documentation-based information search.
d.
proof-based information search.
11. Someone who argues against the decision being contemplated, allowing the rationale for the decision
to be checked is a:
a.
collaborator.
b.
group facilitator.
c.
devil’s advocate.
d.
group-thinker.
12. This method which requires the firm to think about what would happen if a significant environmental
condition changed, and what the organization should do to anticipate and react to such an outcome is
called:
a.
computer simulation.
b.
sensitivity analysis.
c.
contingency planning.
d.
scenario planning.
13. _____ occurs when a person relies on one piece of information as the key to decision making.
a.
Escalation of commitment
b.
Anchoring
c.
Adjustment
d.
Loss framing
14. Which theory examines risk assessment, loss aversion, and dependence on a reference or starting
point, and explains why individuals consistently behave in ways different from what traditional
economic and decision theory would predict?
a.
Prospect theory
b.
Game theory
c.
Probability theory
d.
Administrative theory of individual decision making
15. In prospect theory, _____ refers to the fact that people will forgo a superior choice (a potential benefit)
to avoid a loss.
a.
risk seeking
b.
loss aversion
c.
source dependence
d.
escalation of commitment
16. The _____ heuristic leads to a bias whereby people base their decisions heavily on an example that can
be easily brought to mind.
a.
representativeness
b.
framing
c.
anchoring
d.
availability
17. The “representativeness” heuristic can result from all of the following EXCEPT:
a.
misunderstanding probabilities.
b.
neglecting relevant base rates.
c.
being unduly influenced by initial impressions.
d.
seeing patterns where none exist.
18. The tendency to allocate more resources to a failing course of action is:
a.
escalation of commitment.
b.
risk aversion.
c.
representativeness.
d.
anchoring.
19. The human tendency to judge options according to the size of previous investments rather than the size
of the expected return is called:
a.
economic loss.
b.
the sunk-cost fallacy.
c.
groupthink.
d.
a framing error.
20. Many individuals will refuse to sell a stock or a mutual fund at a loss even though it may be clear that
the investment will not turn around. This is an example of a:
a.
sunk-cost trap.
b.
anchoring trap.
c.
status-quo trap.
d.
confirming-evidence trap.
21. Many projects result in escalation of commitment when decision makers underestimate the risk and
overestimate their probability of success. This is called the:
a.
fallacy of distribution.
b.
regression fallacy.
c.
gambler’s fallacy.
d.
red herring fallacy.
22. What is the scarcity principle?
a.
Most people feel worse about a loss of a given amount than they would feel good about a
gain of a similar amount.
b.
People tend to focus on losses (or loss avoidance) in making decisions.
c.
Alternatives that are acceptable or ‘‘good enough,’’ rather than the best possible solutions.
d.
Items and opportunities are seen to be more valuable as they become less available.
23. A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, and
when the members’ striving for agreement override their motivation to realistically appraise alternative
courses of action is:
a.
confirmation bias.
b.
groupthink.
c.
herd mentality.
d.
group polarization.
24. Which of the following is NOT a symptom of groupthink?
a.
Stereotyping of in-groups
b.
Illusion of invulnerability
c.
Rationalization
d.
Direct pressure
25. The ability of members of the group to think differently, and to express their opinions and findings is:
a.
groupthink.
b.
identity diversity.
c.
identity orientation.
d.
cognitive diversity.
ESSAY
1. Compare and contrast programmed and nonprogrammed decisions.
2. What is a confirming-evidence bias?
3. Write an explanatory note on the sunk-cost trap.
4. How can managers overcome escalating commitment problems?
ANS:
5. What is groupthink? Why is it considered to be problematic?
6. Explain at least four ways by which firms can overcome groupthink.
ANS:
7. Write an explanatory note on how cultural factors can affect decision making.