Decision Making

Question 1

Slide 3
What is decision making

Question 2

What are three factors that affect decision-making?

Answer 2

Perception
Heuristics
Biases

Question 3

What is ration decision-making? And what are the assumptions of the rational decision-making model (4)?

Answer 3

Consistent behaviour to maximize some outcome

Assumptions:
Possess complete information
Ability to identify all relevant options
Absence of bias
Maximizes utility

Question 4

*Slides 5-10
Rational decision-making model explained

Question 5

What are the 6 stages of the rational decision-making model?

Answer 5

Define problem
Identify Decision Criteria
Allocate criteria weights
Develop alternatives
Evaluate altervatives
Select Best alternative

Question 6

What is bounded rationality and what is the effect?

Answer 6

• Limited processing capability influencing decision choice
• Construct simplified models with essential information to reduce complexity
• Seek a decision that is satisfactory and sufficient
• Produces a decision cheaply versus unduly expensive, more elaborate, approaches

Question 7

What is bounded reliabilty and what is causes it (3)?

Answer 7

The imperfect effort to fulfill commitments influencing decision choice

Causes include:
Opportunism
Past practices
Preferences between options
(desire to show consistency, decisiveness, or control; consider sunk costs; perception of their leader’s preferences; exclude regret-inducing choices)

Question 8

Slide 13
Effect of boundedness on rational decision-making model

Question 9

What is the effect of boundedness on decision-making

Answer 9

Can lead to a reliance on
Decision Heuristics: Estimation procedures to simplify or hasten the decision (Mental short cuts)

Can result in the encroachment of
Biases: Substantial and systematic reasoning errors

Question 10

Slides 14-20
Decisions under pressure

Question 11

What are the 4 ways to reduce Bias & Errors

Answer 11

1. Focus on goals
   o Clear goals drive to focus on relevant information
   o Helpful in eliminating inconsistent options
2. Look for information that disconfirms your beliefs
   oConsider information that contradicts your beliefs and assumptions
3. Don’t try to create meaning out of random events
   o Can patterns be meaningfully explained or merely coincidence
4. Increase your options
   o Creatively develop a wide range of diverse choices
   o Increases likelihood of finding an outstanding option

Question 12

**Slides 22-23
Common Bias

Question 13

*Slide 25
Organizational constraints of decision-making

Question 14

What are the 10 most common biases?

Answer 14

Anchoring
Availability
Breakeven
Confirmation
Certainty Effect
Escalation of commitment
Gamblers fallacy
House money
Loss aversion
Overconfidence
Status Quo
Regret