Ch 2 Decision
Making
Copyright
Copyright©© 2012
2014 Pearson Education,
Pearson Education 6-1
Inc. Publishing as Prentice Hall
• The largest cosmetic company A in Japan
has been receiving customers’ complain
for the empty inside soap product. What
would you (as a manager) do to prevent
such defective products?
Solution 1: Ask engineers to develop an X-
ray machine to monitor every soap box.
Solution 2: Same problem occurs in a small
company. They use a powerful industrial fan
to blow the soap box.
Solution 3, 4, 5…….
The Decision-Making Process
• Decision - making
a choice from two
or more
alternatives
Every decision starts with a problem
– Problem - an obstacle that makes it difficult to
achieve a desired goal or purpose.
– Example – you now have two candidates to become a
girlfriend/boyfriend, how would you choose (decide)?
– You need to buy a notebook PC because you want
to….(achieve goal or resolve the problem)
Decision-Making Process
To buy a notebook PC:
Important Decision Criteria
Possible Alternatives
Evaluation of Alternatives
The Decision-Making Process (cont.)
• Final stage: Evaluate Decision Effectiveness
– The soundness of the decision is judged by its
outcomes.
– How effectively was the problem resolved by
outcomes resulting from the chosen
alternatives?
– If the problem was not resolved, what went
wrong?
Decisions Managers May Make
Decisions Managers May Make (cont.)
Making Decisions: Rationality
• Rational Decision-Making - describes choices
that are logical and consistent while maximizing
value.
• Assumptions of Rationality
– The decision maker would be fully objective and
logical
– The problem faced would be clear and unambiguous
– The decision maker would have a clear and specific
goal and know all possible alternatives and
consequences and consistently select the alternative
that maximizes achieving that goal
Making Decisions: Bounded Rationality
• Bounded Rationality - decision making that’s
rational, but limited (bounded) by an individual’s
ability to process information.
• Satisfice - accepting solutions that are “good
enough.”
• Escalation of commitment - an increased
commitment to a previous decision despite
evidence it may have been wrong (such as
Vietnamese war in 1970s)
➢ 明知過去之決策並無法解決問題,但仍執意執行且投入更多資源;其原因
是由於決策者害怕為過去決策負責,反而投入更多資源,企圖掩蓋真相及
期待奇蹟之不得已做法。如甘迺迪時代之越戰處理方式。
Making Decisions: The Role of Intuition
• Intuitive decision-
making (直覺決策)
– Making decisions on
the basis of experience,
feelings, and
accumulated
judgment.
https://www.youtube.com/watch
?v=vELcehpe0NU
What Is Intuition?
Making Decisions: The Role of Evidence-
Based Management
• Evidence-based management (EBMgt) - the
systematic use of the best available evidence to
improve management practice
Do you tend to use rational or
intuitive decision-making approach?
• Rational decision-making used to perform
better results. But intuitive approach works
better in the scenario for high uncertainty, no
precedent/rule, and under high time
pressure.
• In the practical business, most of decision-
making is based on manager’s intuition
(subconscious). But postpone your decision
in the emotional moment is important!
Decision-Making Biases and Errors
• Heuristics - using “rules of thumb” to simplify
decision making__ showing managers are not
confident!
• Overconfidence Bias - holding unrealistically
positive views of oneself and one’s performance.
• Immediate Gratification Bias - choosing
alternatives that offer immediate rewards and
avoid immediate costs (short-sighted).
Decision-Making Biases and Errors (cont.)
• Anchoring Effect - fixating on initial information
and ignoring subsequent information.
• Selective Perception Bias - selecting,
organizing and interpreting events based on the
decision maker’s biased perceptions.
• Confirmation Bias - seeking out information
that reaffirms past choices while discounting
contradictory information (the nature of human
to avoid mental disorder).
Decision-Making Biases and Errors (cont.)
• Framing Bias - selecting and highlighting
certain aspects of a situation while ignoring
other aspects….when persuading someone!
• Availability Bias - losing decision-making
objectivity by focusing on the most recent
events.
• Representation Bias - drawing analogies and
seeing identical situations when none exist.
• Randomness Bias - creating unfounded
meaning out of random events.
Decision-Making Biases and Errors (cont.)
• Sunk Costs Errors - forgetting that current actions
cannot influence past events and relate only to future
consequences (difficult to admit previously wrong
decision).
• Self-Serving Bias - taking quick credit for successes
and blaming outside factors for failures.
• Hindsight Bias - mistakenly believing that an event
could have been predicted once the actual outcome is
known (after-the-fact, I knew it!!).
Exhibit 6-11
Common Decision-Making Biases
Exhibit 6-12
Overview of Managerial Decision Making
Guidelines for Making Effective Decisions:
• Understand cultural differences
• Create standards for good decision making
• Know when it’s time to call it quits
• Use an effective decision making process
• Build an organization that can spot the
unexpected and quickly adapt to the changed
environment
Design Thinking and Decision Making
• Design thinking -
approaching
management
problems as
designers approach
design
problems….think out
of the box!
H.W. (to be shared in the class,
random calls)
• For one week, pay close attention to the
decisions you make and how you make them.
When you feel you haven’t made a good
decision, assess why and how you could have
made a better decision?
