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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.
©2013 Pearson Education, Inc. publishing as Prentice Hall 52
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
©2013 Pearson Education, Inc. publishing as Prentice Hall 53
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
©2013 Pearson Education, Inc. publishing as Prentice Hall 54
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.
©2013 Pearson Education, Inc. publishing as Prentice Hall 55
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
©2013 Pearson Education, Inc. publishing as Prentice Hall 56
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?
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Group may not have the necessary skills
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