Decision making
is the process of developing a commitment to some course of action
Three things are noteworthy about decision making:
- It involves making a choice among several action alternatives.
- It is a process.
- It involves a commitment of resources.
Q: What is perfect rationality?
A: A fully informed, logical, and economically optimal decision-making strategy.
Q: What is bounded rationality?
A: A decision strategy that uses limited information due to time, memory, and political constraints.
Q: What are the main limitations of the rational model?
- Limited information and time
- Flawed memory
- Political considerations
- Self-interest and bias in evaluation
Q: What is satisficing?
A: Choosing a solution that’s “good enough” rather than the best possible one.
Q: How does intuition play a role in decision making?
A: It’s a subconscious process based on accumulated experience that guides quick decisions.
Q: What is framing?
manner in which objectively equivalent alternatives are presented.
Q: What happens in a gain frame?
If information is framed positively (gain frame), it encourages conservative decisions. We take the sure thing over a chance at gaining more.
Q: What happens in a loss frame?
If information is framed negatively (loss frame), it encourages risk. We take a chance at losing less rather than accept a sure loss.
Q: What does Prospect Theory explain?
A: People value losses and gains differently—losses hurt more than equivalent gains feel good.
Q: Who developed Prospect Theory?
A: Daniel Kahneman and Amos Tversky (2002).
Q: What is groupthink?
A: When group pressure damages realistic thinking and moral judgment; members prioritize agreement over accuracy.
Q: What causes groupthink?
- High cohesiveness
- Isolation from outside input
- Pressure for unanimity
- Approval-seeking behavior
- Leader bias promoting one option
Q: What are the main symptoms of groupthink?
- Illusion of invulnerability
- Rationalization
- Illusion of morality
- Stereotyping outsiders
- Pressure to conform
- Self-censorship
- Illusion of unanimity
- Mindguards (protecting group from contrary info)
Q: What is a devil’s advocate role?
A: A person deliberately challenges ideas to expose weaknesses and prevent groupthink.
Q: Why use a devil’s advocate?
A: It introduces healthy conflict and ensures all sides of a decision are considered.
Q: What is a risky shift?
A: Groups make riskier decisions than individuals would alone.
Q: What is a conservative shift?
A: Groups make safer, less risky decisions than individuals would alone.
Q: What determines whether a group becomes riskier or more conservative?
A: Group composition, discussion dynamics, and cultural context.
Q: What is escalation of commitment?
A: The tendency to continue investing in a failing course of action.
Q: What are common causes of escalation?
- Desire to reduce dissonance
- Social norms of consistency
- Sunk cost fallacy
- Ego and self-image concerns
- Positive early feedback
- Emotional attachment
Q: How can escalation occur even when the current decision maker isn’t responsible for the initial decision?
A: People want to avoid appearing wasteful or inconsistent with prior decisions.
Q: How can escalation be prevented?
- Watch for early overconfidence and hype.
- Reframe the issue as saving rather than spending.
- Set clear goals and evaluation points.
- Evaluate managers on how decisions are made, not just outcomes.
- Separate initial and follow-up decision makers.
- Change leadership to reset direction.
