978-0132729833 Chapter 10 Solution Manual

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C H A P T E R T E N

Decision Making By

Individuals and Groups 10

Lecture Outline

A General, Analytical Model of Decision

Making

Decision Formulation

Decision Implementation

The Broad Spectrum of Organizational

Decisions

Programmed Vversus

Nonprogrammed Decisions

Certain Versus Uncertain Decisions

Top-Down versus Empowered

Decisions

Factors In*uencing Individual Decisions in

Organizations

Individual Di+erences in Decision

Making

Group In*uences: A Matter of

Tradeo+s

Organizational In*uences on

Individual Di+erences

How Are Individual Decisions Made?

The Rational-Economic Model

The Administrative Model

Image Theory

The Imperfect Nature of Human Decisions

Framing E+ects

Reliance on Heuristics

The Inherently Biased Nature of

Individual Decisions

Group Decisions: Do Too Many Cooks Spoil

The Broth?

When Are Groups Superior to

Individuals?

When Are Individuals Superior to

Groups?

Techniques for Improving the E+ectiveness

of Decisions

Training Individuals to Improve

Group Performance

Structuring Groups to Enhance

Group Decisions

Theories, research, and practical managerial

techniques concerned with organizational decision

making are examined in this chapter. The steps in the

decision making process are: (1) identifying the

problem; (2) de:ning solution objectives, (3)

predecision, (4) generating alternatives, (5)

evaluating alternatives, (6) choice, (7)

implementation, and (8) feedback. Di+erent types of

decisions are made in organizations. Programmed

decisions refer to routine decisions and

nonprogrammed decisions are those that require

novel and creative solutions and are done at higher

levels of the organization. Decisions also di+er

relative to the amount of risk that is involved ranging

from certain to highly uncertain. Decisions can be

either top-down or empowered. Employees who

would be a+ected by the decisions make empowered

decisions. Various factors contribute to imperfect

decision making in organizations. Individuals often

have a limited view of the problems that are faced.

They may consider solutions as they become

available – those that are good enough, but are not

optimal (satis:cing). Biases can also in*uence

decision making. Frame e+ects, heuristics, and

escalation of commitment are explored in this

context. Individual and group decision making is

discussed in detail. Finally, two techniques for

improving group decision making are introduced: (1)

the Delphi techniques uses the judgments of experts

and (2) the nominal group technique structures group

meetings that elicits and evaluates the opinions of all

members.

ANNOTATED OUTLINE

1. A GENERAL, ANALYTICAL MODEL OF DECISION MAKING

Decision making – the process of formulating problems, considering

various solutions, selecting alternatives, and then implementing them.

The process of decision making can be conceptualized as a general,

analytical model that incorporates three phases:

oDecision formulation

oDecision consideration

oDecision implementation

A. Decision formulation

1. The :rst three steps in decision making involve decision formulation

a. Identify the problem

b. De:ne objectives

c. Make a predecision ― a decision about how to make a

decision

i. Decision support system (DSS) – software-based

solutions

B. Decision consideration

1. The next phase of the decision making process involves creating,

considering, and selecting alternatives to solve the problem.

a. Generate alternatives

b. Evaluate alternative solutions

c. Make a choice

C. Decision implementation

1. This phase involves carrying out the decisions and assessing its

impact.

a. Implement the chosen alternative

b. Follow-up

2. THE BROAD SPECTRUM OF ORGANIZATIONAL DECISIONS

A. Programmed versus nonprogrammed decisions

1. Programmed decisions ― routine decisions, made by lower-level

personnel that rely on predetermined courses of action

2. Nonprogrammed decisions ― decisions for which there are no ready

made solutions

3. Strategic decisions ― type of nonprogrammed decisions that have

important long-term implications for the organization and are made by

coalitions of high-level executives

B. Certain versus uncertain decisions

1. Degrees of certainty are expressed as statements of risk

2. Objective probabilities

3. Subjective probabilities

4. Information reduces risk

C. Top-down versus empowered decisions

1. Top-down decision making ― puts the power to make decisions in

the hands of managers

2. Empowered decision making ― employees make decisions without

supervisory approval

3. FACTORS INFLUENCING INDIVIDUAL DECISIONS IN ORGANIZATIONS

A. Individual di+erences in decision making

1. People di+er in terms of decision style and indecisiveness

a. Decision style – the particular manner in which an individual

approaches the decision confronting him or her

b. Decision style model –classi:es four decision styles

i. Directive style

ii. Analytical style

iii. Conceptual style

iv. Behavioral style

c. Indecisiveness – the degree to which individuals approach

decisions eagerly as opposed to putting them o+

B. Group in*uences: a matter of tradeo+s

1. Potential bene:ts

a. Pooling of resources

b. Specialization of labor

c. Greater acceptance of decision

2. Potential problems

a. Wasted time

b. Group con*ict

c. Intimidation by group leaders

3. Groupthink – too much cohesiveness can be a dangerous thing

a. High level of cohesiveness

b. Concern about disrupting the like-mindedness of the group

c. Isolated from outside information

C. Organizational in*uences on individual decisions

1. Political pressure

2. Time pressure

4. HOW ARE INDIVIDUAL DECISIONS MADE?

A. The rational-economic model: in search of the ideal decision

1. Rational decisions ― maximize the attainment of goals

2. Rational economic model – assumes that decisions are optimal in

every way

a. Economically rational decision maker attempts to maximize

pro:ts by systematically searching for the optimum solution to

a problem

b. Normative or prescriptive model

B. The administrative model: acknowledging the limits of human rationality

1. Administrative model – decision makers have a limited view of the

problems confronting them

a. Consider solutions as they become available

i. Satis,cing decisions ― solutions that are just good

enough, although not optimal

2. Recognizes bounded rationality ― people lack cognitive skills

necessary for complete objectivity and rationality

a. Bounded discretion ― actions that fall within the bounds of

current moral and ethical standards

3. Proscriptive (descriptive) model

C. Image theory: an intuitive approach to decision making

1. Image theory – people make decisions on the basis of a simple, two

step process

a. Intuitive

b. Primarily used for decisions about adopting a certain course of

action

c. Compatibility test

d. Pro:tability test

e. Decision frame

5. THE IMPERFECT NATURE OF INDIVIDUAL DECISIONS

A. Framing e+ects

1. Framing – the tendency for people to make di+erent decisions based

on how a problem is presented to them

2. Three major forms of framing e+ects:

a. Risky choice framing e1ect – when problems are framed in a

way that emphasizes the potential losses that could occur,

people are more willing to take risks to avoid those loses

b. Attribute framing – people evaluate the same characteristic

more positively when it is described in positive terms then when

it is described in negative terms

c. Goal framing – people are more strongly persuaded by

negative framing than by positive framing

3. General conclusion – people are not completely rational decision

makers, but instead are systematically biased by the cognitive

distortions that occur as a result of framing

B. Reliance on heuristics

1. Heuristics – simple rules of thumb that guide people through a wide

array of complex decision alternatives – how the problem is presented

a. Positively framed problems lead to conservative, risk-averse

decisions

b. Negatively framed problems lead to risk-seeking decisions

1. Availability heuristic – the tendency for people to

base their judgments on information that is readily

available to them

2. Representativeness heuristic – the tendency to

perceive others in stereotypical ways if they appear to

be typical representatives of the category to which they

belong

C. The inherently biased nature of individual decisions

1. People pick implicit favorites – preferred alternatives – early in the

decision process.

2. People use other options to convince themselves that their choice was

the right one – con,rmation candidate.

3. Hindsight bias – the tendency for people to perceive outcomes as

more inevitable after they have occurred.

4. Person sensitivity bias – the tendency for people to blame others

too much when things are going poorly and to give them too much

credit when things are going well.

5. Escalation of commitment phenomenon – the tendency to

continue to support previously unsuccessful courses of action because

of sunk costs invested in them.

Self-Assessment Exercise Are You Risk-Seeking or Risk Averse?

Students should consider the following upon completion of the exercise.

1. What choice did you make in Situation 1? Most people would select Beta in such a

situation because it gives them a 50-50 chance of undoing the loss completely. Such

a risk-seeking decision is likely in a situation in which people are focusing on undoing

loss.

2. What choice did you make in Situation 2? Most people would select Alpha in such a

situation because it gives them a sure thing, a “bird-in-the-hand.” Such a risk

adverse decision is likely in a situation in which people are focusing on gains

received.

3. Given that both situations are mathematically identical, why should people prefer one

or the other?

6. GROUP DECISIONS: DO TOO MANY COOKS SPOIL THE BROTH?

A. When are groups superior to individuals?

1. It depends on the nature of the problem and the expertise of the

people involved

B. When are individuals superior to groups?

1. Brainstorming – group members present their ideas in an uncritical

way and discuss freely and openly all ideas presented by others

a. Avoid criticizing others’ ideas

7. TECHNIQUES FOR IMPROVING THE EFFECTIVENESS OF DECISIONS

A. Training individuals to improve group performance

1. People make four types of decision-making mistakes that can be

avoided:

a. Hypervigilance – involves a frantic search for quick solutions

1. Stick with one suggestion and work it our thoroughly

b. Uncon6icted adherence – sticking to the :rst idea that comes

1. Think about the potential diLculties associated with an

c. Uncon6icted change – quickly changing course to adopt the

1. Focus on the risks and problems of the solution, the good

d. Defensive avoidance – making an e+ort to actually avoid the

problem at hand

B. Structuring groups to enhance group decisions

1. The Delphi technique: decisions by expert consensus

a. Delphi technique – a systematic way of collecting and

organizing the opinions of several experts into a single decision

i. Enlists cooperation of experts

2. The nominal group technique

a. The nominal group technique

i. Small group

Winning

Practices

Group Decision Support Systems

Use Winning Practices Case for class discussion.

You Be the Consultant Suggested Answers

1. The president has been making decisions about how to deal with governmental

regulations all by himself. Should he consider delegating this task to a group instead?

Why or why not?

Student answers will vary. Key points are presented in bullet form.

2. What individual biases would be expected to interfere with the quality of the

decisions made by individuals in this company?

3. In what ways might the group interaction limit the quality of decisions made? What

steps can be taken to overcome these problems?

Group may not have the necessary skills